A fresh-out-of-college sportswriter once said to Branch Rickey, the long-time general manager of the Brooklyn Dodgers and widely considered the renaissance man of baseball, that he was lucky to have so many good players on his club in the late 1940s.
He looked back at the young scribe and said, “Son, luck is the residue of design.”
There have been some who have said that as an industry, we would be lucky to maintain – never mind increase – profitability, especially in Latin America. And, admittedly, as we move forward, it's going to be increasingly challenging for all of us.
My background in banking gives me perhaps a slightly different perspective on the machinations of the insurance world. What is most glaring is that what the insurance business in Latin America is going through right now isn't altogether different from the late 1980s banking industry changes in the region.
Approximately 10 to 15 years ago, there were far too many banks in Latin America for the size of the economies. Thus, foreign buyers began gobbling up most of the banks in the region. As inflation decreased, virtually all of the banks had to re-learn traditional banking – realising that they could not profit from trading and high interest rates alone.
Similarly, that's been a trend in insurance, which until recently has been very profitable. A company would underwrite in less than perfect ways, but no matter, it could always cover for it on the investment part of the business. No more. In today's volatile, fluid climate, underwriting skills are paramount. The balance undoubtedly has shifted.
As that balance has shifted, one of the most serious challenges facing reinsurers in Latin America is a combination of consolidation among primary insurers along with the entry of non-Latin American insurers. This phenomenon continues to have an enormous impact on reinsurers, to the extent that many insurers may change reinsurers as they go from being locally-owned to being owned by a foreign entity.
In addition, the market is opening. What had been a fairly protected local market is now becoming part of the global industry. Over the past two decades, many Latin American countries have opened their reinsurance markets. In addition, Brazil is in the midst of privatising its reinsurance monopoly, which would create the largest reinsurance market in Latin America – the size of all the other countries in the region combined.
From a Swiss Re perspective, we support the privatisation and the opening of the market. Still, we would wish to see the opening of a market independent of privatisation. Brazil has conditioned the opening of the market to the sale of IRB. Given the fact that the sale has been delayed for so long, I'd like to see the opening of the market take place sooner rather than later.
To put it in perspective, Brazil represents close to $750m in current reinsurance premiums. In Brazil there also exists a lot of co-insurance, somewhere between $600m and $700m. That said, we see the total reinsurance market approaching about $1.4bn. Latin America accounts for between 10% and 12% of our division. Nearly 5% of the business for all of Swiss Re is gained from Latin American-based clients. Should the situation in Brazil liberalise, I really believe we can increase that percentage substantially.
I'm often asked if we've been a major supplier of alternative risk transfer solutions in the region. To be honest, we haven't yet offered a large number of them, but it is something we're definitely considering moving forward, provided they meet clients' needs.
And that's where the industry – and Swiss Re – needs to move forward in a meaningful way. We need to stand back and take a complete look at the client's total strategy. And the client manager, ultimately, is the one who must seek ways to help clients meet these objectives.
For instance, several companies in Latin America have decided recently to list their stocks on the New York Stock Exchange. Clearly, they will need a product we have traditionally sold successfully – insurance against earnings volatility. How it works is Swiss Re receives a premium and if the earnings or share prices go above a certain number, the insured pays. Should the earnings or share prices drop below a pre-determined level, Swiss Re pays the client.
This type of business arrangement allows us to become closer partners with both our insurance company and our corporate clients. In the past, we have been extremely focused on the traditional side of the reinsurance business.
Secret of success
But is there one, single recipe for success in Latin America?
I don't think so. I think it's a combination of many things – primarily people, client base and reputation.
I think a company's personnel have the opportunity to position it in a very strong way. I know in our case we have some extremely committed, motivated, skilled people working within the Latin American market. Since they are the front line for us, if you will, they make a tremendous difference.
It's also crucial to be a leading player in the market there. Obviously the stronger you are, the more successful you can be.
Finally, and not least of all, a company must have a strong reputation. That means being knowledge leaders in the areas of risk and capital. A ‘come and go' attitude is a sure way to fail.
Clearly, there is great opportunity in Latin America and those who are poised to offer clients a wide range of capabilities there, can and will succeed. And we feel that Swiss Re is certainly one of those companies.
It requires a new, different mind-set on the part of insurance clients, and hopefully, Swiss Re can play an important role in providing new products and alternatives.
Fernando B. Gentil is Head of Latin America and Deputy of the Americas Division of Swiss Re Group, and possesses more than 20 years of executive and managerial experience. He joined Bankers Trust in New York in November 1978, where he remained until January 1990 and held progressive positions from Assistant Treasurer to Senior Vice President.
In 1984, Mr Gentil was appointed Vice President of Bankers Trust Company and a Board Member of Banco Iochpe de Investimento S.A., the Bankers Trust/Banco Iochpe Brazilian joint venture. In 1987, he became Head of Trade Finance for Latin America. In February of 1990, Mr Gentil joined ING Barings (formerly ING Bank), in Sao Paulo, Brazil, as General Manager and Chief Executive Officer of the Brazil branch office.
In 1994, he was given additional responsibility as Regional Manager for ING branch offices in Argentina, Chile, Paraguay and Uruguay. From 1997 until 2000, Mr Gentil held the positions of Chief Executive Officer of ING Barings Securities and Regional Manager for the Americas in the ING Barings New York office.