<\/p>\n
On June 5, Mapfre announced that it had completed its acquisition of Commerce Group, a U.S.-based insurer. The deal was first announced last October. Mapfre, Spain\u2019s largest insurance company, will pay $2.21 billion for Commerce. It is the largest investment in the company\u2019s 75-year history, and it is a key step in the company\u2019s international expansion.<\/p>\n
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Shareholders of Commerce will receive $36.70 per share. Mapfre has assured everyone that it will maintain the U.S. company\u2019s current managerial team, and that it foresees no personnel changes. The company\u2019s 2,400 employees will continue to have all of their rights within the Spanish company. The headquarters of Commerce will remain in Webster, Mass., and the company will continue its operations in the geographical areas where it currently has a presence. The company will also consider gradually expanding into other U.S. states.<\/p>\n
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A Smart Acquisition<\/p>\n
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Mauro F. Guill\u00e9n, director of the Lauder Institute at Wharton, is convinced that the deal is \u201ca good opportunity\u201d for Mapfre to acquire a spot in the U.S. insurance market \u201cat a time when the U.S. is open to investment because of its trade deficit\u2026. It is a fragmented market in which a good insurance firm, such as this Spanish one, can be a winner. Acquiring the Commerce Group is the right thing to do. The euro makes it a good deal.\u201d<\/p>\n
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For Manuel Romera, director of the IE Business School\u2019s finance department, this is \u201ca very good time\u201d to enter the U.S. market and complete an acquisition. He points out \u201cthe benefits of making acquisitions in the U.S. market now that the euro is strong versus the dollar\u201d and emphasizes that \u201cbecause of the delicate financial condition of the U.S. these days, companies can enter this sector at prices that are real bargains.\u201d In addition, Mapfre could use \u201cits considerable cash\u201d for making acquisitions. Romera believes that the arrival of Mapfre in the U.S. serves to \u201cdemonstrate its strong financial and commercial capacity.\u201d<\/p>\n
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One proof of its sound financial condition is that Standard & Poor\u2019s (S&P) and A.M. Best have maintained their ratings on Mapfre even after its acquisition of Commerce Group\u2019s shares.<\/p>\n
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Commerce Group is the twentieth-largest U.S. auto insurance group, with about $1.9 billion in premiums in 2007. In Massachusetts, Commerce is the largest insurance company outside the life insurance sector. The company also has subsidiaries in California, Ohio and New York. In an effort to carry out its plan to expand outside its state of origin, Commerce has licenses to operate in all 50 U.S. states.<\/p>\n
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\u201cThe acquisition of Commerce is not only the largest deal in the history of [Mapfre]; it also fits perfectly into its growth strategy and its desire to become a global insurer,\u201d says Jos\u00e9 Manuel Mart\u00ednez, president of Mapfre, in an announcement to Spain\u2019s CNMV, the national stock market commission, which regulates the Spanish exchange. In addition, he notes, this acquisition \u201crepresents a key step in its international expansion and its commitment to the U.S. market\u2026. The commitment, strength and independence of Commerce\u2019s network of agents have been decisive factors in making this acquisition.\u201d<\/p>\n
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The Strategy to Follow<\/p>\n
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When it comes to Commerce, Romera stresses its \u201cexperience in the non-life sector of the business;\u201d its \u201cgreat financial and commercial skills and its \u201cgood positioning\u201d for reaching the entire U.S. market. Guill\u00e9n believes that Commerce can help \u201cteach the Spanish insurer [Mapfre] about this market\u201d so that further down the road, \u201cif everything goes well, it [Mapfre] can plan for an additional acquisition in a couple of years\u2026.The U.S. is a very big market and you have to move ahead little by little.\u201d<\/p>\n
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What strategy must Mapfre pursue in the U.S. market? One of the factors that can help the insurer is the strong growth of the Latino community in that country. \u201cCommerce operates in 17 states, and not only among its Latino population. It would be a mistake to concentrate on that segment of the population. Mapfre has a lot of other markets where it can grow without needing to present itself as a Spanish-speaking company,\u201d states Guill\u00e9n. For his part, Romera believes that Mapfre \u201cwants to profit from the Latino population but it also wants to get into the Anglo-Saxon [English-speaking] world of insurance, and demonstrate its efficiency.\u201d<\/p>\n
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Beyond the challenge of strategic planning, analysts believe that Mapfre will face some problems in the U.S. market. \u201cIt is a big market, with a different regulator in each of the 50 states, and it is passing through a delicate period because of the subprime crisis. But it is also a great opportunity for the future. There is no such thing as a profitable business that does not involve risks,\u201d says Guill\u00e9n. \u00a0 In the high-risk insurance sector, he notes the problems the American International Group (AIG) is now experiencing. For the first quarter of this year, AIG announced losses of $7.8 billion compared with profits of $4.3 billion during the first quarter of 2007.<\/p>\n
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Romera believes that Mapfre \u201cwill find that the U.S. market is extremely professional\u201d because the \u201cinsurance culture is highly developed\u201d there. He notes that other companies in the U.S. market are more focused on long-term insurance products, so Mapfre \u201cmust move toward short-term products, such as auto insurance.\u201d Romera, who specializes in finance, also believes that moving into southern U.S. states in the future \u201ccould provide an opportunity [for Mapfre] to expand its presence in other markets such as Mexico, where it could enjoy some very attractive synergies, as well as [new opportunities to] build up its businesses in other countries such as Chile.\u201d<\/p>\n
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Strength in Latin America<\/p>\n
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Mapfre already expects to undertake a significant expansion in Latin America. According to the Mapfre Foundation, which is sponsored by the Spanish insurer, Mapfre occupies the third spot in this region, with a market share of 4.5%. AIG ranks second. Mapfre gained two tenths of a point of market share last year thanks to the strong growth of its life insurance business in Brazil and the strength of its non-life products in Argentina and Mexico. Bradesco, the Brazilian insurer, once again took top spot [in Latin America] with a market share of 7.9%, five tenths of a percent higher than a year earlier.<\/p>\n
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Looking at sectors, Mapfre is the largest non-life insurer in Latin America, with a market share of 6.2%. Its life insurance products rank eleventh, with a 2.3% share of the market. At the end of 2007, Mapfre had more than 12,400 employees in the region. It also had a network of 32,000 agents and about 2,000 offices in the region. It has one of the most extensive networks of any financial service company in Latin America.<\/p>\n
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Mapfre\u2019s expansion in South America is not slowing down. On June 11, the company announced that its subsidiary, Mapfre Am\u00e9rica, purchased 60% of Atlas, an Ecuadorian insurance company. The company will integrate its operations with those in Ecuador and the new Latin American company will be known as Mapfre Atlas. With this deal, Mapfre strengthens its position in Ecuador, where it began operations in 2007 by establishing a branch in Quito.<\/p>\n
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Last June, Manuel Mart\u00ednez announced that Mapfre\u2019s profits for 2008 could grow at a double-digit rate that would be significantly higher than last year. In 2007, Mapfre\u2019s profits grew by 20% to \u20ac731 million ($1,135,000). Its forecasts now call for total revenues of about \u20ac17.2 billion, up almost 18% from last year.<\/p>\n
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As for further acquisitions, Mart\u00ednez notes that if an opportunity presented itself, Mapfre could study it because it has enough liquidity to do that. \u201cMapfre has the opportunity to buy,\u201d he says. However, it would have to be a deal that is \u201cstrategically extremely clear.\u201d He suggests that it would be \u201cnormal\u201d if the company made no further purchases over the next two years so it could focus on integrating its latest acquisitions, including Commerce. Mart\u00ednez stresses that the company is interested in developing its direct insurance business in China, and that it is analyzing various alternatives with different institutions.<\/p>\n
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\u201cLittle by little, Mapfre is becoming a large insurance multinational,\u201d says Guill\u00e9n. \u201cIt has a presence in 43 countries, and is a very solid company.\u201d Along the same lines, Romera maintains that Mapfre is \u201ca magnificent insurance company with a business that is perfectly defined, a very broad and professional sales network and great skill at building loyalty among its customers.\u201d In addition, Mapfre \u201chas a very good [financial] rating, which it can use during this delicate period that the sector is going through.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" On June 5, Mapfre announced that it had completed its acquisition of Commerce Group, a U.S.-based insurer.…\n","protected":false},"author":2,"featured_media":17159,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[126],"tags":[167],"class_list":{"0":"post-17158","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-mapfre","8":"tag-mapfre"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/posts\/17158","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/comments?post=17158"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/posts\/17158\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/media\/17159"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/media?parent=17158"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/categories?post=17158"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/spain\/wp-json\/wp\/v2\/tags?post=17158"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}