In an effort to expand its surety business, ACE Limited (ACE) agreed to buy Fianzas Monterrey, from New York Life Insurance Company for a cash consideration of $285 million. The acquisition is expected to close in the first quarter of 2013 pending regulatory approvals and other customary closing conditions.
Based in Mexico and founded in 1943, Fianzas Monterrey primarily caters to clients in the construction and industrial sectors offering administrative performance bonds. With three regional offices, 25 branch offices and an extensive 600 independent agents and brokers, Fianzas Monterrey, is the second-largest surety lines company in Mexico and the third largest in Latin America.
Surety business forms a part of ACE Limited’s specialty property & casualty business. The company believes that this acquisition will help it expand its surety business in Mexico. Additionally, owing to the promising economic scenario in the Mexican markets, it hopes to capitalize on the opportunities as and when they are available.
ACE Limited has always considered acquisition as an efficient strategy to boost inorganic growth and expand its global footprint. In June this year, the company made a move to acquire Indonesia-based PT Asuransi Jaya Proteksi, a dominant player in personal lines of business, for $130 million in cash. This acquisition in turn, will aid the company to diversify its business there. Both the acquisitions are funded from the company’s cash balance, which stands as a testament of its strong inherent liquid position. In the past two years as well, it had considered several acquisitions.
Acquisitions have created a turnaround in premium writings and in turn, have helped the company deliver better numbers, which we expect to continue going forward. With considerable balance sheet strength, we believe ACE can grow both organically and inorganically. The company expects premium growth to gain momentum in each quarter, averaging in the mid-to-upper single digits in 2012.
We retain our Neutral recommendation on ACE Limited. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term. The Travelers Companies Inc. (TRV), which closely competes with ACE Limited, also shares a Zacks #3 Rank.
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