ACE Limited (ACE) closed the acquisition of the fourth largest property and casualty (P&C) insurer in Mexico, ABA Seguros from Ally Financial Inc. The deal had been previously announced in Oct 2012 and was pending regulatory approval.
The total purchase consideration equates to $865 million out of which $690 million was paid in cash and $175 million was taken by the seller as pre-closing dividend.
Monterrey-based ABA Seguros provides auto, homeowners and small business insurance coverage. The company was set up in 1958 and has more than 30 sales offices across Mexico. Additionally, it has almost 2,000 independent agents for product distribution. The company also distributes its products through auto dealerships, banks and direct channels.
ABA Seguros is a reputable company in Mexico with a history of profitability. Additionally, it has a strong brand name in the P&C business. Thus, the acquisition should strengthen ACE Limited’s P&C business, particularly its personal lines and agency businesses. The deal will also strengthen the company’s foothold in Mexico.
As previously announced, the acquisition is expected to bolster ACE Limited’s earnings from the first year of purchase. Moreover, the deal is likely to enable ACE to achieve or even surpass the company’s targeted long-term return on equity projection by the third year.
ACE Limited is positioning itself to capitalize on the expected growth opportunities in Mexico. Towards this end it acquired Fianzas Monterrey from New York Life Insurance Company for a cash consideration of $293 million last month, to expand its surety business.
The addition of ABA Seguros to ACE Fianzas Monterrey and the company’s existing facility that specializes in industrial commercial and personal accident insurance – ACE Seguros, is expected to help the company write more business in Mexico over the next decade.
Net premiums written by the property and casualty business of ACE in the first quarter of 2013 were $1.3 billion, up 9.3% year over year. The acquisition of ABA Seguros is expected to augment the numbers further.
ACE currently carries a Zacks Rank #2 (Buy). Among others from the industry, Axis Capital Holdings Limited (AXS), Global Indemnity Plc (GBLI) and HCC Insurance Holdings Inc. (HCC) carry a favorable Zacks Rank #1 (Strong Buy) and are worth noting.
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