CORRECT: Mexico's Long-Term Potential Reflected In AXA Deal With HSBC

Mexico is a diamond in the rough for French insurer AXA SA (CS.FR, AXAHY).

AXA opted to increase its presence here this month via an acquisition of HSBC Holdings PLC's (HBC, HSBA.LN) general insurance business. The European credit crisis calls for great care and prudence in spending for a firm like AXA, which is why the insurer cherry-picked HSBC's businesses in Mexico, Hong Kong and Singapore--for which it will pay $494 million--while leaving the Argentine assets to Australia's QBE Insurance Group Ltd. (QBE.AU).

"From the beginning of the discussions [with HSBC], Mexico was a top target," Xavier de Bellefon, chief executive for AXA Mexico, told Dow Jones Newswires in an interview. "Mexico is a success story for AXA; that's why the company is willing to invest more."

AXA entered Mexico in 2008 with the purchase of ING Groep NV's (ING, INGA.AE) Mexican insurance business. Since then AXA has invested around $150 million in Mexico, apart from the money it is laying out for the HSBC insurance businesses.

The French company is the market leader for non-life insurance policies, with 16% of the Mexican market. The HSBC purchase will add another percentage point of market share, but more importantly, it is likely to boost distribution of AXA insurance products. Previously AXA products accounted for 40% of HSBC's insurance sales in Mexico; post-deal HSBC will exclusively market AXA property and auto insurance products over 10 years to its more than 8 million Mexican clients.

AXA doubled its net profit in Mexico in 2011 while growing its number of premiums by 15%, De Bellefon said. Financial results filed with the Mexican insurance regulator show a net profit for AXA last year of 413 million pesos ($32.5 million) with MXN28.19 billion in premiums issued.

Mexicans are under-insured compared with many of their peers in countries that also belong to the Organization for Economic Cooperation and Development. Annual insurance premiums in Mexico represent 1.9% of the country's gross domestic product compared with 10.5% in France and 4.1% in Chile, according to data from Mexican insurance association AMIS.

Since vehicle insurance is voluntary in Mexico, only 8 million vehicles, or about 26% of the country's vehicle fleet, are insured. Home insurance is also uncommon, with policies typically covering only mortgage debt. Apart from obligatory coverage for mortgaged homes, 4.5% of homes are insured by their owners. Just under 6% of the population is covered by insurance for extraordinary health expenses, while close to 8 million Mexicans, or 13% of the working population, have life-insurance policies.

AXA sees this low penetration of insurance products changing as Mexicans accumulate more wealth, giving them more assets to protect.

Mexico, with a population of 112 million and annual gross domestic product slightly above $1 billion, is the world's 13th-biggest economy.

"Over the next 30 to 40 years, with our market share and potential for growth, Mexico will be one of company's most important units," De Bellefon predicts.

-By Amy Guthrie, Dow Jones Newswires; (5255) 5980-5177, amy.guthrie@dowjones.com

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