When Spanish composite insurer Mapfre launched a major corporate
restructuring in May 2006, it spelled out that this was a precursor
to aggressive international expansion. Moves in this direction came
in quick succession and have this year included Mapfre’s
acquisition of an 80 percent stake in Turkey’s tenth-largest
general insurer, Genel Sigorta, for €285 million ($414 million) and
an investment of €197 million to establish a joint venture life and
pensions business with Spanish bank Bankinter.
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Mapfre has now put its expansion drive into a higher gear with the
announcement that it is to acquire a US general insurer, Commerce
Group (CG), for €1.538 billion. Mapfre said the cash deal is
expected to be funded from an equity capital raising of €500
million, the issuance of hybrid debt of up to €800 million and
internal resources.
According to Mapfre, CG focuses on personal auto (vehicle)
insurance in 17 states and since 1990 has been the largest and most
profitable personal auto insurer in the state of
Massachusetts.
CG also ranks as the US’s 20th-largest personal auto insurer. In
2006, personal auto insurance represented one-half of CG’s total
premium income of $1.96 billion.
CG will join Mapfre’s existing US general insurance units: Mapfre
Insurance Company of Florida, Mapfre Insurance Company (New Jersey)
and Road America Motor Club.
Pro forma data indicates that the acquisition of CG will increase
Mapfre’s non-Spanish business from 42 percent to 47 percent and
reduce life insurance in its product mix from 20 percent to 19
percent. In the first nine months of 2007, Mapfre reported net
earned premiums of €7.8 billion, up 14.6 percent compared with the
comparable period in 2006.
The CG deal would, among other benefits, provide a platform to
“develop a business in the US”, said Mapfre.
Deteriorating results
However, whether the deal’s timing is ideal remains to be seen.
Notably, in an analysis of the US insurance market in late
September, Robert Hartwig, president of US industry body the
Insurance Information Institute, observed: “Auto insurers have
shown significant improvement in private passenger auto
underwriting performance since mid-2002, but results are
deteriorating.”
