Despite socio-economic ups and downs, the Colombian (re)insurance sector remains resilient, writes Sonia Galvis.

The nation of Colombia has been high on the agenda of international leaders and lenders as Colombian President Andres Pastrana seeks to secure future stability for the country. Following President Pastrana's visit to the White House in January 2000, US President Bill Clinton constructed a US$1.3 billion aid package with support from both Republican and Democratic lawmakers, illustrating the perceived need to move quickly and giving international support to President Pastrana's campaign for peace and progress.

Interestingly, the Colombian (re)insurance market is one of the country's strongest industry sectors in spite of external factors. Regardless of the aid package's fate, socioeconomic turmoil, or last year's earthquake losses, the Colombian (re)insurance industry will likely continue to thrive with steady growth in premium revenue and with advanced, non-traditional products matching those that are increasingly implemented around the world.

Twenty years of GDP growth strongly supports the business community's optimism regarding Colombia's potential in a peaceful environment. GDP increased 2.1% in 1996, 3.1% in 1997 and 0.6% in 1998. Looking back even further, GDP grew 18% for 1980-85, 26% for 1985-90 and 28% for 1990-95 - an outstanding performance for a relatively under-developed country. While the last five years have not been as favourable, projections for 2005 indicate a return to 18% growth. To achieve this growth through increased foreign investment, the country requires peace and economic security coupled with a carefully struck balance between relatively low interest rates and a stabilized rate of exchange.

Today, 26 property/casualty companies and 21 life insurers are aggressively developing a deregulated market - creating adequate conditions to compete and offering new products and services. The industry's growing importance for the country's economic condition is increasingly apparent.

In 1980, insurance represented 1.2% of GDP - growing to 1.4% in 1985, 1.8% in 1990 and 2.3% in 1995. Insurance is expected to reach 2.6% of GDP by 2000, and double to 5.2% by 2010. These figures illustrate one of the key reasons that ownership of local companies by foreign investors is twice 1989 numbers with these investors representing 36% of the capital of the nation's insurance companies at present.

The optimism of longstanding Colombian business leaders has been the backbone of the nation's determined fight for progress and stability. By many standards, the insurance sector has shown more resilience than the overall Colombian economy. According to the International Insurance Council: “Insurance premiums experienced a growth rate of 3% in 1998 despite that year's currency devaluation. Efforts to reduce high administrative costs and greater competition have decreased policy rates for consumers while major foreign players have continued to enter the market.”

As a result of these market conditions, clients throughout Colombia are requiring reinsurers to deliver a high level of marketplace commitment, regional expertise, sophisticated products and technical knowledge to meet the needs of a challenging environment. Practical solutions and suggestions implemented with ease and timeliness are needed to keep up with the fast paced environment.

For ceding companies facing shifts in risk scenarios in Colombia, a key area of valued service is rapid response. Regardless of the answer, delivering risk valuations and cost estimates - while at the same time offering alternative structures for risk mitigation - offers ceding companies an advantage. When reinsurers with underlying insight provide ceding companies expedient decisions concerning their specific scenarios and timely answers, they enable them to avoid the opportunity cost inherent in unnecessary delay.

Globalisation driving progress
As Colombia faces some of the most complex macroeconomic conditions of the past 25 years, international and local reinsurers are seizing the opportunity to prove their abilities and establish a foothold in the market. The reality is that Colombia has historically faced socioeconomic ups and downs for some time. However, in an era of globalisation and high technology, the nation is no longer isolated from the advantages offered by world markets and international lenders. As an industry, (re)insurers have an opportunity to lead by providing advanced techniques for risk management for the long run. In the near term, established (re)insurers will win the loyalty of their clients by offering long-term commitment supported by unquestionable marketplace permanence.

Sonia Galvis is regional managing director of Latin American Re Bogotá, Colombia.