ACE Limited (ACE - Analyst Report) announced the inking of a definitive agreement for the acquisition of Mexico’s sixth-largest property and casualty (P&C) insurer ABA Seguros from Ally Financial Inc. The $865 million cash purchase deal is expected to culminate in the first half of 2013.
The acquisition is anticipated to be accretive to ACE Limited’s earnings from the first year of purchase. Moreover, it is likely to achieve or even surpass the company’s targeted long-term return on equity projection by the third year. However, the deal is subject to regulatory approval.
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.
ACE Limited is positioning itself to capitalize on the expected growth opportunities in Mexico. The company already has a presence in Mexico through ACE Seguros – a company that specializes in industrial commercial and personal accident insurance. Moreover, last month it agreed to buy Mexico’s second-largest surety writer – Fianzas Monterrey – from New York Life Insurance Company to expand its footprint in the region.
ACE Limited regularly acquires companies for inorganic growth. Last month, the company purchased an 80% stake in PT Asuransi Jaya Proteksi – one of the top 10 general insurers in Indonesia and a leading provider in personal lines.
ACE Limited competes with The Travelers Companies, Inc. (TRV - Analyst Report) and The Allstate Corporation (ALL - Analyst Report). We maintain a long-term Neutral recommendation on the stock.