Mapfre Cites Hispanic Insurance Market Potential Behind Commerce Acquisition

November 1, 2007

The potential of the Hispanic insurance market is one of the factors attracting Spanish insurer Mapfre to its acquisition of the Massachusetts-based personal lines writer Commerce Group.

Mapfre officials calculate that about 14 percent, or some 22 million, of Commerce’s customer base in its 17 states of operation is Hispanic. Drawing from their experience in Europe, Latin America and Puerto Rico, Mapfre officials said they want to grow Commerce’s business in other states beyond Massachusetts by in part targeting the Hispanic community with specific products. Mapfre already has a small Spanish-speaking team in Florida, they noted.

In a conference call with analysts the day after Mapfre announced plans for the $2.2 billion acquisition, Mapfre Vice President Domingo Sugranyes and other executives said they are primarily attracted to Commerce as a solid platform for building a U.S. presence due to the U.S. insurer’s “consistently recorded growing profits and above industry average returns” based on positive underwriting results and low operating costs.

Mapfre officials said they expect the $2.2 billion cash acquisition to become immediately profitable to shareholders after it closes, which they estimated should occur in second quarter next year.

They said they would retain the Commerce management team and the firm’s headquarters in Webster, Mass.

About 80 percent of Commerce’s business is in Massachusetts, New Hampshire and Rhode Island where it has operated for years, while another 15 percent is in California, Arizona, Oregon and other Western states. More recently, it has been expanding into New York, New Jersey, Connecticut, Pennsylvania and several Midwest states.

Mapfre said the portion of Commerce’s business outside of Massachusetts is important to it as it seeks to achieve organic growth in the U.S. Mapfre said it is unlikely it will pursue any additional major acquisitions in the near future but will instead concentrate on executing its plans.

In Massachusetts and other states, Commerce has relationships with affiliates of the American Automobile Association (AAA) under which it sells auto coverage to members. Mapfre executives indicated they see great potential in this distribution strategy.

Mapfre officials acknowledged that regulatory changes occurring in Massachusetts, which is moving from a system of state-set auto insurance prices to one allowing insurers more flexibility starting next April, could attract new competitors in this key market. But they expressed confidence that Commerce will continue to succeed in Massachusetts, where its market share (31.5%) is more than double that of its nearest rival, Safety Insurance (11.2%).

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