Zurich Financial Services Group has signed a Memorandum of Understanding (MOU) with Banco Santander to enter into a 25-year strategic distribution arrangement in Latin America.
As part of the transaction, Zurich will acquire a 51% participation in the life insurance, pension and general insurance operations of Santander in Brazil, Mexico, Chile, Argentina and Uruguay.
Zurich will pay $1.67bn for its 51% participation in the insurance operations including the respective distribution agreements.
The alliance with Santander provides Zurich with access to over 5,600 bank branches and an additional 36 million customers in the region.
Zurich Santander Insurance America, will be established in Madrid to serve as the new holding company for the jointly owned companies. Zurich will have management control over the joint venture, which Zurich intends to fully consolidate. Santander will continue to be a 49% shareholder.
As part of the transaction, each local insurance company will enter into exclusive bank distribution agreements with Santander’s respective local banking unit, subject to local regulatory requirements.
Products to be sold through Santander’s distribution network include life protection, savings, pension and general insurance products. The distribution agreements will have an initial term of 25 years.
Zurich intends to finance a majority of the up-front payment from existing cash resources, with the balance financed through the issuance of hybrid debt. The acquisition is expected to be immediately accretive to Zurich’s earnings per share.
Zurich and Santander intend to complete definitive agreements in the first half of 2011. The closings will be subject to applicable antitrust and insurance regulatory approvals, and other customary closing conditions. The transaction is expected to close by the first quarter of 2012.
Zurich CEO Martin Senn said that this alliance with Banco Santander is another milestone in the implementation of Zurich’s emerging-market strategy in both global life and general insurance. It significantly expands the presence in Latin America with a well-established insurance business.
"It will contribute to achieving a business operating profit after tax return on equity of 16% over the medium term, and growing cash flow to support our policy of paying an attractive and sustainable dividend," Senn said.