Allianz Boosts Spanish Presence With Banco Popular Joint-Venture

Allianz SE's (ALV.XE) newly formed joint venture with Banco Popular Espanol SA (POP.MC), Spain's third-largest bank by total assets, puts the German insurer's Iberian operations on a stronger footing, with a more efficient structure and better growth potential, analysts said Thursday.

"Both companies stepped up their commitment by agreeing on a long-term sales cooperation, and they are adding asset management to the cooperation, which makes the sales platform bigger and makes a better sales momentum more likely," said Commerzbank analyst Roland Pfaender.

Allianz, Europe's largest primary insurer by gross premium income and total assets, said Thursday it will form a new joint venture with Banco Popular, managing around EUR11 billion in assets on a newly-created platform known as Allianz Popular, gaining access to 6.3 million customers and Banco Popular's network of 2,224 retail branches.

The venture, which bundles three existing joint ventures under one roof, offers long-term exclusive distribution of Allianz's life insurance, pension plans and asset management as well as property and casualty insurance in Spain for an initial term of 15 years. It also includes Banco Popular's banking products.

Allianz will hold 60% of the new venture. Both companies will combine interests in various units, and the total value of the businesses involved is EUR1.06 billion.

Allianz paid EUR185 million in the deal, in which it increased stakes in some existing joint ventures and added the asset management joint venture. The price is equivalent to around nine times the business's 2010 price-to-earnings ratio, which analyst Pfaender was "reasonable."

He said that "positive consolidation effects could trigger a one-time consolidation profit of EUR100 million for Allianz," and that the deal would improve the capital allocation for both partners--an important factor considering that regulatory capital requirements are becoming tougher for both industries.

JP Morgan analyst Michael Huttner said both companies are benefiting from the deal, which will be slightly lift Allianz's earnings, and should boost Banco Popular's Tier 1 capital substantially.

In 2010, Allianz's Spanish operations contributed EUR2.94 billion, or 2.8%, to the group's overall revenue of EUR106.5 billion. They also contributed EUR395.3 million, or 4.8%, of the group's 2010 total operating profit of EUR8.2 billion.

Of the revenue figure, EUR405 million came through Banco Popular. The rest was through 11,000 insurance agents, brokers and on-line.

Analyst Pfaender said the Spanish business was "relatively profitable, although Spain is a difficult market." Allianz said in a recent analyst presentation that contract renewal rates in its Spanish property and casualty insurance business are expected to remain flat this year. Still, the business reported a combined ratio of 90.3% for 2010, the best in a sample of 11 countries.

JP Morgan's Huttner said Allianz's Spanish life business is substantially more profitable than the rest of the group's life operations, and that life and pension products are mainly sold through banks in Spain.

Allianz in Barcelona and Munich said the joint venture is only for the Spanish market. Although it could at some point be expanded to other countries where both partners operate, such as Portugal and Brazil, that's "currently not in the pipeline," a spokeswoman said.

In Spain, growing through the joint venture and organically are Allianz's priorities, said a spokeswoman.

A Spanish newspaper reported earlier this week that Banco Santander SA (STD) wants to sell a 51% stake in its Spanish insurance and pensions unit worth EUR3 billion to a large foreign insurer, citing unnamed sources.

An acquisition of that size would be feasible for Allianz, but the company would probably rather buy a property and casualty insurer, which quickly generates cost and revenue synergies, than make an acquisition in life and pensions insurance, Pfaender said. He said that Allianz recently issued EUR2 billion in hybrid debt, which could help finance an acquisition.

-By Ulrike Dauer, Dow Jones Newswires; [phone]; [e-mail]