NU Online News Service, May 29, 6:15 p.m. – MetLife Inc., New York, could achieve an 11% return on its proposed $965 million acquisition of Aseguradora Hidalgo S.A., Mexico City, as early as 2003, according to Andrew Kligerman of Bear Stearns & Company Inc., New York.

But if MetLife wants to get good long-term results, it will have to work hard to keep Hidalgo’s government business, Kligerman warns in a commentary on the deal.

“The acquisition is not without risk, particularly policy retention,” Kligerman writes. “Hidalgo’s exclusive group life contract with the executive branch of the Mexican federal government (roughly 800,000 covered lives) comes up for renewal at the end of 2004.”

Although government business accounts for only 10% of Hidalgo’s earnings, it accounts for 31% of the company’s group life policyholders, Kligerman says.

MetLife said when it announced the deal that it anticipated a “substantial” number of policy lapses.

But Kligerman agrees with MetLife executives that the size of the Mexican financial services market makes the Hidalgo deal a good move.

Mexico generates 25% of total Latin American insurance premium revenue, according to Standard & Poor’s, New York, and Mexico’s life market has been growing more than 10% per year.

The Hidalgo deal also offers the potential for cost savings: if MetLife combines the Hidalgo operations with those of its Mexican subsidiary, MetLife Genesis, it should be able to cut 20% of the combined companies’ expenditures, Kligerman estimates.

SNL Financial L.C., Charlottesville, Va., a research firm, points out that MetLife has made two other major acquisitions in Latin American in the past year.

In May 2001, MetLife agreed to acquire Seguradora America Do Sul S.A. in Sao Paulo for an undisclosed amount, effectively doubling its life and pension business in Brazil.

In November 2001, the company agreed to buy Seguros de Vida Santander/Soince Reinsurance Companies in Santiago, Chile, for $258 million from Banco Santander Central.