Spanish Insurer Mapfre Goes Global to Thrive

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The nonlife insurer finds a buffer against Spain's woes by building positions in Latin America, Turkey, and the U.S.

By Mark Scott

The worst of the Great Recession may be over, but much of the world isn't out of the woods just yet. That's particularly true for Spain, where unemployment borders on 20% and the country's gross domestic product is expected to contract 3.2% in 2009 after years of record growth.

Yet despite that dire domestic outlook, some of Spain's largest companies continue to grow. Take Mapfre (MAP.F), the country's biggest insurance company, with annual sales of $26 billion and operations in 45 countries, including the U.S. Over the first half of 2009 the Madrid outfit boosted revenues to $14.6 billion, up 12.9% from the same period last year. No wonder, then, that Mapfre is the highest-ranking finance firm in A.T. Kearney's 2009 league table of global champions.

Expanded U.S. Presence
So how has Mapfre succeeded when others in the financial services industry have floundered? There are a couple of reasons. In recent years, the insurer, which specializes in nonlife products such as home and auto insurance, has aggressively expanded into new international markets, like Turkey and the U.S., while investing millions to shore up its 25-year presence across Latin America. The global push has been coupled with cost-cutting moves at home to offset lackluster growth in the Spanish market, which still represents 66% of the insurer's profits. "The recession has hit Mapfre like everyone else, but its international size and shrewd business approach have offset many of the problems," says João Pena, A.T. Kearney's managing partner for Spain and Portugal. "Right now, the company's strategy is looking very attractive."

Mapfre first entered Latin America in the mid-1980s, but its emphasis has shifted to the non-Spanish speaking world. In March 2007, the company bought an 80% stake in Turkish insurer Genel Sigorta for $375 million. Months later, Mapfre forked out $2.2 billion for Webster (Mass.)-based Commerce Group, which helped ramp up the company's previously negligible U.S. presence. Analysts expect Mapfre to use its growing footprint in the Northeast U.S. to expand into other states. "The international markets where we're present have much more growth potential than our Spanish business," says Alberto Manzano, Mapfre's vice-president.

The global push has come at just the right time. While Mapfre's first-half profits from its sluggish Spanish operations fell 10.3% annually, to $538 million, the international business's profits jumped 32.6%, to $273 million. The insurer's share price has more than doubled since global stock markets hit their lows in early spring, and has jumped 18.5% since the beginning of the year.

Cross-Marketing Advantage
While global expansion has provided most of Mapfre's recent growth, squeezing out efficiencies from the domestic business also has played a role. Like fellow financial services giant Banco Santander (STD), the Spanish insurer has world-class software that allows Mapfre to cross-sell products to its Spanish clients. Customers with car insurance, for instance, can be offered household coverage and other services through Mapfre's 3,200 branches across the country. That, according to Standard & Poor's analyst Angelo Sacca, gives Mapfre a distinct advantage over smaller rivals, which don't have the same product range.

Analysts stress Mapfre must continue its overseas expansion, since the Spanish market will remain in dire straits for some time to come. Historically, the domestic nonlife insurance business represented around 60% of the company's annual net income. That meant bumper profits when the Spanish economy was booming. But with Spain's home and car sales near 10-year lows, those easy profits are gone. It's up to Mapfre's customers in Turkey, the U.S., and elsewhere to pick up the slack.

Scott is a reporter in BusinessWeek's London bureau