Zurich Buys 50% Stake in Banco Sabadell Insurance Operations

Zurich Financial Services Group has bought a 50% stake in the life insurance, pension and general insurance operations of Spanish bank Banco Sabadell.

Zurich said that it will acquire a 50% participation in BanSabadell Vida S.A. de Seguros y Reaseguros, BanSabadell Pensiones E.G.F.P., S.A., and BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros.

The company added while it will have management control of the jointly owned companies and fully consolidate them, Banco Sabadell will continue to be a 50% stakeholder.

The deal will cost Zurich around 650 million euros (516.9 million pounds), plus an earn-out component of up to 120 million euros. The purchase price for 50% of Banco Sabadell’s general insurance company amounts to 100 million euros, plus an earn-out component of up to 30 million euros. Zurich will finance this transaction with internal resources. The transaction is subject to the approval of the relevant regulatory authorities and is expected to close by the fourth quarter of 2008.

“We have always said we wanted to increase our market position in this important market,” said James J. Schiro, chief executive officer of Zurich, in a statement. “It is also consistent with our multidistribution strategy, and reflects our disciplined approach to acquisitions.”

The deal represents a major expansion of Zurich’s insurance operations in Spain, following the two previous acquisitions it has announced in the country over the past four months. In March this year, the company announced that it was buying a 50% stake in Can Soluciones Integrales, and in April it bought up another 50% stake in Caixa Sabadell’s life and general insurance companies. Zurich claims that it is now set to become the second-largest insurance group in Spain.

According to Zurich, Spain is one of the most attractive insurance markets in Europe, showing strong and consistent growth over the past years and expected to continue to grow at strong levels in the future. Further, bancassurance represents an important distribution channel for life insurance in the market, and is of increasing importance for general insurance in Spain.

“The Spanish market has grown,” a spokesperson for Zurich told BestWire. “Overall, welfare and gross domestic product have grown in Spain over the past few years. However, the insurance penetration rate in Spain is still lower than it is in other countries. The United Kingdom has a high rate of insurance penetration. That’s not the case for Spain, where it’s a lot lower. Spain is therefore a lot more interesting for us.”

As part of the transaction, the purchased insurance companies will enter into bancassurance agreements with Banco Sabadell and two of its affiliates to sell life insurance, pension and general insurance products through Banco Sabadell's extensive branch network on an exclusive basis. According to Zurich, the exclusive distribution agreement runs for 25 years and can thereafter be extended.

Banco Sabadell has a large amount of representation in Madrid and Catalonia, with these two regions totaling 54% of its client base. Zurich has said that it will work to expand Banco Sabadell into other regions, such as Valencia, the Asturias and Andalucia.

(By: Marc Jones, London news editor: [email protected])