An attractive market for international underwriters, Colombia has demonstrated consistent economic growth and macroeconomic stability in the past decade, which in turn has resulted in a growing middle class and increasing employment formality. It also maintains upside potential for the development of the sector since insurance penetration is still low (2.4%) compared to other Latin American countries like Chile (5%). Colombia has the third-largest population in Latin America, behind Brazil and Mexico.
Development
An important infrastructure programme to be developed before 2020 will also create business opportunities for various products in the general insurance segment. The government estimates $47bn to be invested, from which $26bn will be concentrated in transport infrastructure known as fourth-generation concessions. Various insurance contracts will be required to cover risks derived from these projects. Since Colombian regulation restricts the concentration of more than 10% of a company’s portfolio in a single risk, there will be opportunities for both domestic and international insurers. Some estimates put total premiums for such projects at up to $2.5bn.
Incentives
Authorities have also incentivised the entrance of foreign insurance brokers with a series of regulatory changes. In December 1990 the promulgation of Law 45 marked the start of liberalisation in the insurance sector. “After the reform to Law 45 of 1990, international companies arrived to the Colombian insurance market,” explained Freddy Castro, former member of the Colombian Insurers Association (Fasecolda). This liberalisation brought international companies like Mapfre and Liberty Mutual, which set up operations in the country in 1995 and 1997, respectively. Beginning in 2012, new regulations authorised Colombians to acquire insurance abroad, except for those related to social security, creating more competition.
Aware of these opportunities, several leading international insurers have entered the market in recent years. Foreign insurance companies typically enter Latin American countries through the acquisition of midsized players in the market where they compete with well-established market leaders.
Mergers & Acquisitions
Although some global insurers have been established in Colombia for more than a decade, in recent years, a rise in mergers and acquisitions (M&A) has brought new competitors.
In 2013 French insurer AXA announced the acquisition of a 51% stake in Colpatria Seguros, an insurance company belonging to Colombian financial group Grupo Colpatria. Grupo Colpatria had already made a similar move in its banking and pensions divisions by selling a 51% stake to Scotiabank with the objective of becoming a more solid financial group through these joint ventures. The operation closed at $347m with multiples of 15 times 2012 net income and 2.7 times price to historic book value. Colpatria Seguros saw revenues of COP1.91bn ($955,000) in 2012. AXA thus became the fourth-largest insurer in the general segment with 8.41% share of premiums, as well as a 7.14% share in social security and 2.34% in life policies.
Early in 2013 reinsurance and insurance company Swiss Re announced its re-entry into Colombia after its exit in 2009. In February 2014 Swiss Re purchased a 51% stake in Bogotá-based insurer Compañía Aseguradora de Fianzas SA (Confianza). Through this arrangement, Confianza’s clients will benefit from access to Swiss Re’s insurance services.
Swiss Re entered the Colombian market anticipating the opportunities that may arise with the government’s infrastructure plan. Confianza specialises in surety, where it is the market leader with 18.65% of premiums. Confianza also offers all-risk policies during construction and liabilities insurance. By the end of 2013, Confianza reported COP626bn ($13m) in assets, COP170bn ($85m) in insurance premiums, as well as COP54.3bn ($27.15m) in reinsurance premiums. The value of the transaction was undisclosed.
Also in February 2014, English firm Howden Insurance Brokers announced the acquisition of two local insurance brokers, Wacolda and Proseguros, for $15m. With this operation, Howden obtained 100% of Proseguros and a 70% stake in Wacolda. The new entity will be among the 10 largest brokers in the country.
Wacolda is a corporate insurance broker with operations in Colombia and Peru specialising in construction and property insurance, both lines expected to grow as fourth-generation concessions come on-line. Proseguros concentrates on general liability and infrastructure projects, also growth areas. Complementing this purchase, Howden also acquired reinsurer NMB Colombia Corredores de Reaseguros.
Globan Consolidation
The sector has experienced changes brought by the consolidation of global firms with local subsidiaries involved in global M&A. US-based MetLife established its presence in Colombia through the acquisition of American International Group’s (AIG) subsidiary American Life Insurance Company (Alico) in 2010. The value of this acquisition was estimated at $15.5bn, including $6.8bn in cash. The transaction increased MetLife’s presence in Latin America, where it already operated in the Mexican and Chilean markets. Meanwhile, Alico had operations with local partners in Peru and Venezuela, and held a majority stake in its subsidiaries in Chile, Colombia and Mexico.
Today, MetLife operates in the Colombian life segment with a participation of 2.47% of premiums. In 2013 MetLife’s premiums grew 11.3% from COP137bn ($68.5m) in 2012 to COP153bn ($76.5m). Its main activity lies in individual life policies, where it is the second-largest company with 13.1% of the premiums.
Banks & Financial Groups
The local insurance sector has also been transformed by the recent M&A between international and local banking groups. Chilean financial group CorpBanca has participated in a series of M&A operations in the Colombian market since 2011. Its first move was to seize the opportunity opened by the withdrawal of Spanish group Banco Santander, acquiring a 97.85% interest in Banco Santander Colombia for $1.2bn. The deal included the bank’s insurance operations along with its trading and trust units.
In 2013 CorpBanca continued its expansion in Colombia by acquiring Helm Bank in an operation valued at $1.28bn. With this operation, CorpBanca acquired 100% of Helm Bank and 80% of the insurance company Helm Corredor de Seguros for an additional $17.2m.
Pension Funds
In contrast to the events occurring in insurance and brokerage, foreign players have been selling their pension management operations. In 2012 Colombian provider Grupo de Inversiones Suramericana (Sura) agreed to purchase ING Group’s pension and insurance operations in Latin America, including Chile, Peru, Mexico, Uruguay and Colombia. The acquisition was valued at $3.76bn. As a consequence, Sura’s pension fund manager in Colombia (Protección) absorbed ING’s local operations, becoming at the time the largest pension fund administrator (PFA) in the segment with a 38% share of the private pension market.
In 2013 Spanish financial group BBVA sold its PFA Horizonte Pensiones y Cesantías SA (Horizonte) to Grupo Aval, owner of PFA Porvenir, for $529m. At the time, Porvenir had a 27.9% market share while Horizonte had another 15.9% share of the market. The acquisition thus created the sector’s largest PFA.
After the mergers between Protección-ING and Porvenir-Horizonte, Swedish pension fund manager Skandia became the only foreign company in the market.
Looking Ahead
The sector regulator has said that other European insurers are interested in obtaining the required licence and permits to enter the country. Since the Colombian insurance market is fragmented, with 26 insurers in the general insurance segment and 19 in the life segment, there is room for further consolidation. Even though acquiring leading companies in the market is unlikely, large international insurers can establish their presence in Colombia by acquiring medium-sized companies with growth potential.
Low penetration levels, economic growth, a large population and a growing middle class are elements that make the Colombian market very attractive. The addition of the government’s large-scale infrastructure programme presents significant opportunities.
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