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Mergers & Acquisitions Dominated Local Insurance Industry In 2002…

Year Of Changes For Accounting Industry; Companies Grew Despite Hardened Market


December 26, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Many insiders in Puerto Rico’s insurance industry would call 2002 the year of mergers and acquisitions. Some of the companies that participated in such moves did so to grow in a challenging market.

"This is the first time in my 18 years’ experience in this industry that I have seen a hardened market coincide with a weak investment market," said Carrion & Laffitte principal Rafael Laffitte. "This was a very difficult year for insurance, as the combination of a weak economy and dramatic increases in insurance rates made many consumers reduce their coverage."

Some insurance lines saw rates increase up to 200% after 9/11, which continues to hurt the market, according to industry insiders. This situation made local insurance companies look for alternative ways to grow. Many chose the path of mergers and acquisitions, among them Del Nido & Associates, Saldaña & Associates, and Atlantic Southern Insurance Co.

Saldaña & Associates became part of Marsh Inc., the world’s leading risk & insurance services firm, in December. Marsh had signed a letter of intent to purchase Saldaña in mid-October. Saldaña was established in 1972 and has 170 employees. It has offices in San Juan and Ponce and serves a diversified roster of local and multinational clients in the region.

Saldaña had bought some companies before being bought itself. In six months during late 2001 and early 2002, it acquired the portfolios of three local insurance brokers: Mirabal & Gigante, Mandry & Fingerhut, and Manuel "Tito" Lebron. These acquisitions allowed Saldaña to expand its service offerings and to bring in top-notch insurance professionals.

"When we acquired Mirabal & Gigante, Arturo Gigante joined us as a partner and Carlos Mirabal came on board as a consultant on estate planning services, which is a new area we are developing," said Saldaña President Ralph Christiansen.

The acquisition of Mandry & Fingerhut, added Christiansen, enabled Saldaña & Associates to serve the southern part of the island better because Mandry & Fingerhut was a well-known company in Ponce. One of that company’s top executives, Mariano McConnie, also joined Saldaña as a partner, said Christiansen, who noted that Mandry & Fingerhut was a general agency working mostly with commercial lines.

Saldaña’s latest acquisition, of the portfolio of independent broker Manuel "Tito" Lebron, is significant for the company because Lebron has the entire Episcopal Church of Puerto Rico as a client. "It is also important because it will help the company develop expertise in medical and hospital insurance lines," said Christiansen.

Angela Weyne, president of Popular Insurance, told CARIBBEAN BUSINESS that the company had acquired general insurance agency Del Nido & Associates in July. "This is a fusion agreement," she said. "Del Nido & Associates is now a division of Popular Insurance, retaining its company name." Popular Insurance became interested in Del Nido for several reasons, according to Weyne, among them that "it is the best independent general insurance agency, it has an extensive list of prestigious commercial clients, and it is known for its professionalism and dependability."

Del Nido & Associates was founded in 1975 and had about 45 employees at the time of its purchase. Popular Insurance was established in July 2000 through the acquisition of R&B Insurance. It serves more than 100 independent agents and brokers on the island and has assets of $8.9 million.

Puerto Rican-American Insurance Co. (Praico) invested over $6 million to acquire Florida-based Consolidated Property & Casualty Insurance Co. The transaction will allow Praico and its holding company to offer insurance services in Florida and other states.

North America Life Insurance Co. of Texas acquired the assets of local company Atlantic Southern Insurance Co. for about $12 million. The move will allow Atlantic Southern to increase its marketing efforts and expand its business in life insurance and related areas. North America Life will pursue other acquisition opportunities in the Caribbean, said President & CEO Clif Mitchell.

Other insurance executives have said they plan to acquire other companies in 2003, though no formal announcements have been made as of mid-December.

They Said It This Year

"This is the first time in my 18 years’ experience in this industry that I have seen a hardened market coincide with a weak investment market."--Carrion & Laffitte principal Rafael Laffitte

Year Of Changes For Accounting Industry

Accounting scandals and subsequent Congressional action also hit Puerto Rico


December 26, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

The demise of Andersen, the passage of the Sarbanes-Oxley Act, and the creation of a new accounting oversight board reshaped the accounting industry in 2002.

When energy giant Enron collapsed in 2001, it not only took with it Big Five accounting firm Andersen in June 2002 but also drew attention to the accounting profession, its role in the financial markets, and its public responsibility regarding financial reporting.

Anticipating Congressional action, the remaining stateside and local Big Four firms--Deloitte & Touche, PricewaterhouseCoopers, Ernst & Young, and KPMG--moved quickly to shed the remaining consulting services from their accounting and audit business, out of concerns about auditor independence and objectivity.

Other corporate scandals, such as those at WorldCom, Merck, Adelphia Communications, Kmart, Tyco, and Xerox, made many investors lose confidence in Wall Street and in corporate America. This forced Congress to take action, passing the Sarbanes-Oxley Act in August 2002.

The sweeping reform bill, among other things, established a new accounting oversight board for the accounting industry; restricted the consulting services that accounting firms could offer to their audit clients; created a new felony of securities fraud, and required corporate officers to certify that their financial statements were accurate.

Several professional organizations, including the American Institute of Certified Public Accountants (CPAs) and the Puerto Rico Society of CPAs, have expressed concerns that the Sarbanes-Oxley Act, which applies only to accounting firms auditing public companies, could eventually extend to small CPA firms that audit privately held companies.

"In Puerto Rico’s case, the state regulators are accounting boards and lawmakers," Raul Rodriguez, past president of the local Society of CPAs, told CARIBBEAN BUSINESS. "The Society of CPAs is going to fight tooth and nail to prevent a cascade effect to small firms. This could definitely affect those that audit nonpublic companies, which on the island is the majority of them."

There are 11 publicly traded companies (mostly financial institutions) and a handful of accounting firms authorized to audit these in Puerto Rico.

The resignation of Securities & Exchange Commission (SEC) Chairman Harvey Pitt in November forced former FBI Director William Webster to step down as head of the newly created Public Company Accounting Oversight Board. Pitt, who had voted to appoint Webster, failed to inform his fellow SEC commissioners that the former FBI and CIA director had headed the audit committee of U.S. Technologies, a firm under investigation for fraud.

The events cast doubt on the future of the oversight board, which the Sarbanes-Oxley Act requires to be up and running before April 23, 2003.

In a move to restore confidence in both Wall Street and corporate America, in December President Bush tapped investment bank founder William Donaldson to succeed Pitt as SEC chairman. One of Donaldson’s first orders of business will be to name a replacement for Webster and to have the new oversight board running before the April deadline.

On the local front, the Puerto Rico Society of CPAs has been taking an active role in keeping its more than 3,800 members up-to-date by improving operations and the services it provides to members, such as its continuing education program and the electronic library. The society offers courses over the Internet and continues to increase their number.

CPAs in Puerto Rico must renew their license every three years and take 120 credit hours of continuing education. These requirements are intended to ensure that these professionals keep up with new laws, regulations, and trends in the industry.

They Said It This Year

"The recent scandals that have shaken corporate America were the product of executives who lost touch with reality and with the fundamental missions of their own organizations. They were due to a loss of values and to corporate executive compensation practices that went crazy."--Popular Inc. Chairman, President & CEO Richard Carrion

This Caribbean Business article appears courtesy of Casiano Communications.
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