One key indicator of any country’s economic health is the confidence of investors in its commercial enterprises. By that standard Mexico is on a roll. Since the end of the currency crisis in 1994, and the introduction of NAFTA in the same year, the country’s commercial fortunes have been rising. The banking and insurance sector has been growing steadily, bolstered not only by investments from north of the border, but also from Europe.
The Mexican peso now trades consistently against the dollar at a little over 9 to 1, and foreign investments are increasingly seen as a stabilizing influence on the economy. The election of President Vicente Fox weakened the long time dominance of the Institutional Revolutionary Party (IRP) and opened Mexico to greater participation in the world economy. In addition, Mexico accepted NAFTA’s provisions to gradually remove enterprises from state control, and to allow more foreign participation in its financial sector.
The changes opened the market to foreign banks and insurers across the board. The growing Mexican middle class seems eager to participate, but in terms of growth Mexico still has a ways to go. Infrastructure improvements, financial market reforms and privatization are an ongoing work in progress, and no country is immune to the current world economic slowdown. However, Mexico seems to be weathering the storm pretty well. Investors continue to show confidence in the country in a most important way—with their checkbooks.
On January 18 GMAC Insurance Holdings Inc., the insurance division of General Motors Acceptance Corp., acquired ABA Seguros, S.A., one of Mexico’s largest property/casualty and auto insurers, from Abaco Grupo Financiero, S.A. de C.V. ABA Seguros is primarily an auto insurer, headquartered in Monterrey, with over 700 employees in 35 offices throughout Mexico. It underwrote more than $200 million in premiums in 2001. “ABA Seguros has grown steadily and profitably since 1995, and has established a reputation in Mexico for innovative and high-quality service. The company has an Internet capability that is among the most advanced in the Mexican market,” stated Ronald Judd, GMAC Insurance VP of international operations.
The move highlights GMAC’s expansion strategy in building a global presence in automobile related insurance services. “The acquisition positions GMAC Insurance in the Mexican marketplace and represents a significant step in the company’s international expansion strategy,” said William B. Noll, president, GMAC Insurance Holdings.
An even bigger cross-border investment occurred last year when Citigroup bought Mexico’s Grupo Financiero Banamex Accival (Banacci) for $12.5 billion in the largest financial services transaction in Mexican history. Citigroup’s chief focus was on expanding its presence in the banking sector. By combining its operations in Mexico with Banacci, it became Mexico’s largest bank in terms of assets, and, through technology transfers and a lowered cost of capital, it expects to achieve savings of around $200 million annually for the joined operations.
The Banacci acquisition put Citigroup into two insurance partnerships with the Netherlands’s AEGON, Seguros Banamex AEGON, a life insurance company, and Afore Banamex AEGON, a pension fund management firm. The Netherlands-based AEGON plans to sell its interests in the two companies to Citigroup for $1.24 billion.
In October 2001 another Dutch company, the ING Group, acquired Seguros Comercial America (SCA), Mexico’s largest insurer with an 18 percent share of the country’s life insurance market and a 39 percent share of the p/c market. Coupled with ING’s interest in a bancassurance venture with Banco Bital and its ownership of Afore Bital, one of Mexico’s fastest growing pension funds, ING is a major player in the Mexican market it.
Ewald Kist, chairman of ING’s Executive Board, voiced his positive vision of Mexico’s future, stating: “We are committed to this very attractive market with more than 90 million citizens, therefore, we are optimistic about the growth opportunities. There are strong synergies between SCA and ING’s existing operations in Mexico, which will contribute to build a great Mexican business.”
Most analysts continue to have upbeat projections for Mexico in general and the insurance market in particular. The combination of deregulation, coupled with economic growth, an expanding middle class and increasing political stability all point to continued opportunities for the world’s bankers and insurers.
A report by A.M. Best last October concluded that although “the short term economic outlook is weak” due principally to Mexico’s close links with the U.S., “the long-term outlook for the Mexican economy remains strong. Though Mexico is part of the largely volatile Latin American environment, it has developed into a safe haven for investors.” ING, Citigroup and GMAC obviously agree.