Analysts: Insurance merger positive for GFNorte

The merger of Grupo Financiero Banorte (GFNorte) and Italian insurance giant Grupo Generali's operations in Mexico is a positive move for the Mexican financial group, analysts told BNamericas. "I think Banorte is looking to diversify its revenue stream which is positive for the bank," said DeutscheIxe banking analyst Mario Pierry. GFNorte controls Mexico's fourth largest bank Banorte, as well as operating brokerage, pension fund, and insurance subsidiaries. "The bank has until now relied on recovery banking for [much of] its revenues," Pierry said, adding: "Investors are concerned how sustainable earnings are from that business. There are still a lot of loan portfolios to buy, but it gets more and more difficult to collect on those nonperforming loans as time goes on." Under the terms of the agreement announced November 20, the two companies will merge their existing joint venture Seguros Banorte Generali and Generali Mexico. GFNorte will hold a 51% stake in the new company. "It will probably be [positive] in cost savings and by having a greater share in a single company it will also give them a stronger muscle in that market," said Fitch Ratings banking analyst Gustavo Lopez. Financial groups have plenty of room to capture market share in a business that is still dominated by insurers. Of the 85.9bn pesos (US$7.5bn) in direct premiums captured by insurers during the first nine months of the year, 18.7% corresponded to bancassurance. According to Lopez, bancassurance has been a growing industry in the last four years. "We have seen in the case of many banks that it has been reflected in significantly higher commission income as a result of the cross selling of insurance and services through the bank branches," he said, adding that Banorte's nationwide branch network is ideal for selling insurance products. While bancassurance is becoming more important for Mexican banks, market observers doubt it will surpass traditional insurers who offer more sophisticated products. "We hope that it grows more, but we don't see it replacing traditional insurance because bancassurance in general offers very simple, standardized products that can be sold through their distribution channels. We see it as complementing the niches that traditional insurers aren't covering," according to S&P insurance analyst Jaime Carreno.