Panama may be small, but this plucky country has big plans. And being sandwiched between Central and South America, politically stable and with similar rules to Lloyd’s, there are plenty of reasons to believe it can go all the way
When outside investors and companies think of Latin America, the first countries that typically spring to mind are the regional powerhouses of Brazil, Mexico or Argentina. But gutsy Panama, while economically much smaller than many of its neighbours, is aiming to reach the top of the list when it comes to reinsurance. It is planning to establish itself as a base of operations for international reinsurers’ Latin American forays.
According to Panama’s superintendent of insurance and reinsurance, Luis Della Togna, the country is already well on the way to becoming a regional reinsurance centre. Barents Re and QBE del Istmo Compañía de Reaseguros, which Della Togna says are the two largest firms in the region, both run their Latin American operations from Panama.
“These companies have contributed a large amount of written premium – around $360m combined,” he says.
But the country is not going to be satisfied with that.
At its peak in the mid-to-late 1980s, Panama’s reinsurance market comprised 22 companies, recalls Della Togna. However, the military dictatorship of General Manuel Noriega, which ran from 1983 to 1989 and was brought to an end by US military intervention, prompted a number of departures, and the country is now only home to six firms.
Since then, military dictatorship has given way to democracy and the political situation in Panama is now stable. The country elected a new president, Ricardo Martinelli, last year, replacing previous president Martin Torrijos, who had run the country since 2004.
Against this background, Della Togna is determined to restore the Panamanian reinsurance market to its former glory. “The idea is to make Panama a Latin American hub for international reinsurance companies,” he says.
Bigger and better
Panama is certainly not going to win any contests for size. It is the 12th-largest economy just in the Latin America and Caribbean region, measured by 2009 GDP. Only three countries – Trinidad and Tobago, Jamaica and the Bahamas – are below it on the list.
But it is growing. Brazil’s and Mexico’s GDPs both fell in 2009, according to Swiss Re’s Sigma study ‘World Insurance in 2009’, while Argentina posted modest growth of 0.9%. Panama’s GDP, on the other hand, increased by 1.5% in real terms. Della Togna says he is expecting Panama’s GDP to have grown by 6.5% in 2010.
The country also has many attractive features for reinsurers. The country’s insurance market is well established. One of Panama’s 29 insurers, Compañía Internacional de Seguros, celebrated its 100th year in business in 2010.
And the insurance industry is growing too. Della Togna says that the country’s premium volume has doubled over the past five years to around £1bn, and that 2010 premium volume is 11.5% up on the previous year’s. He adds that six new insurance companies have set up in Panama over the past three years.
“We believe they have been taking advantage of the growth in the economy and the industrial sector,” Della Togna says. “They have brought innovation and new ways of doing insurance business, contributing to the dynamic growth of insurance in Panama.”
There is also plenty of potential for future growth. Insurance penetration (premiums as a percentage of GDP) in Panama is 3.5%, compared with 8% in the USA and 7.6% in Europe, according to the Swiss Re study. Equally, insurance density (insurance premiums per person) in Panama is $245, compared with $3,710 in the USA and $1,861 in Europe.
Move over, Brazil
In addition to political stability, a number of development projects are providing a boost for the economy and more insurable risks, both of which should prove attractive to reinsurers. One notable project is the $6bn enlargement of the Panama Canal, which will allow it to accommodate larger vessels. Work on the Panama Metro subway system is expected to begin in January 2011.
According to Della Togna, there is a slew of other developments under way, ranging from government-funded projects, such as new ports and roads, to new private developments such as hotels, offices and apartment blocks.
But it is unlikely that reinsurance companies would set up in Panama solely to write local business. The real pull for the big global groups is likely to be access to the other Latin American markets. Brazil has grabbed most of the headlines on this front. In April 2008, after 11 years of waiting, the country finally ended the monopoly of state-run reinsurer IRB-Brasil Re and opened the market to foreign competition.
While this, coupled with the country’s size and standing in Latin America, could make Brazil a popular choice to set up a springboard into the region, Della Togna believes Panama has a number of features that could prove equally attractive to reinsurers.
For one, Panama’s official currency, the Balboa, is pegged to the US dollar, and the dollar itself is legal tender in the country. Not only does this put global reinsurers on familiar territory and remove the spectre of foreign exchange risk, but it also adds a degree of stability that some rival countries arguably lack.
Also, the stability of the political and regulatory regime is a feature that not all other Latin American countries can offer.
In addition, Panama’s geographic location – it is situated on the thin strip of land joining Central and South America – puts the other countries in the region within easy reach. “We have a central transport hub with flight connections to every major city in Latin America,” says Gerardo Garcia, general director and chief underwriting officer of Barents Re, Panama’s largest reinsurer. “In less than two-and-a-half hours, you can access more than half of Latin America.”
A further attraction is that, unlike many countries in the world, where reinsurance rules are an adjunct to insurance legislation, Panama has separate and specific reinsurance regulation. Some global firms at least should find the rules similar – they draw on those established by Lloyd’s of London in 1994, following the decision to allow companies to become members of the insurance market in addition to the wealthy individuals that had previously made up its membership.
What global firms want
The country is planning to revise its reinsurance law to make it more attractive to international reinsurers. “We expect to be ready with a new insurance law at the beginning of 2011, and as soon as we are finished with that, we will start on the new reinsurance law,” Della Togna says. “We expect we will have a new reinsurance law by the end of 2011.”
Garcia adds: “The focus on the reinsurance law will be to facilitate the conducting of reinsurance business and the opening of MGAs in Panama, and to promote Panama as a regional reinsurance hub.”
Panama is canvassing global reinsurers to find out what they most want and need from a Latin American hub. Della Togna and Garcia were speaking to Global Reinsurance during a visit to London to build relationships with underwriters. Panama is hoping to boost interest from London market firms given the current dominance of US and European firms in Latin America as a whole.
“The reason for the visit is to develop a stronger working relationship with the London market, which the government feels will increase competition in the region,” Garcia says.
The more, the merrier
It could be assumed that the prospect of fresh competition would be daunting to those already present in Panama. But Garcia is convinced that more competition will be positive for Barents Re.
He draws the comparison with shops selling similar items that frequently congregate on the same street or in the same area, drawing in more customers who are looking for those items and therefore boosting business for all. “When a market becomes competitive, the market grows,” he says.
Meanwhile, Della Togna’s term as insurance and reinsurance superintendent comes to an end in 2014. Before then, he hopes to have attracted at least an additional 10 reinsurance companies to the country, bringing in an extra $500m of premium.
Panama’s national motto is ‘Pro Mundi Beneficio’ – for the benefit of the world. If Della Togna is successful in his aims, the country’s reinsurance market would be well on the way to living up to it. GR