100 years of commitment to Latin America

“This region will merit special attention going forward,” said Swiss Re director Plinio Pessina after a trip to Latin America in the late 1930s. More than 70 years later, those words still ring true today.

In the early 20th century, as reinsurers sought to spread their risk internationally across different geographical regions and risk categories, attention turned towards Latin America, which was viewed by many as ‘the continent of the future’.

Modern insurance in Latin America started with the newly reached independence of many countries in the second half of the 19th century, when European business people settled at the key hubs of Latin American-European trade. To start, traders and shipowners involved in Latin American foreign trade sought insurance cover directly from companies in Europe, but from 1850 on, European and some North American insurers began opening their own agencies.

The rapidly growing trade in the age of the steamboat and increasing political stability promised good business. Peru, at the time the richest country in Latin America, benefitted from this and also Brazil as the world’s largest exporter of coffee. Mexico followed, where, by the turn of the 20th century, the US had started investing.

A fast-developing hub for commercial interests, Latin America presented unique opportunities and challenges. Each country had not only diverse political and economic situations, but also varied geographies and climates, which meant very different risk-coverage requirements.

The mix of immigrants was felt in the variety of insurance companies catering to their needs. In Argentina for example, companies such as La Anglo-Argentina, La Franco-Argentina, La Germano-Argentina and the Instituto Italo-Argentina were founded by immigrants.

However, local companies often struggled against the powerful overseas competition and were usually in need of substantial reinsurance backing, which, for European companies, was much easier to obtain in their home countries. This was where specialised reinsurers such as Swiss Re played an important role in backing the development of a local insurance industry.

In over a century of work in Latin America, Swiss Re has played a vital role in helping to maintain efficient, fair and stable insurance markets. These, in turn, have aided the economic development of the region. On numerous occasions, the company has provided funds that have contributed to recovery and reconstruction efforts following natural catastrophes, and we are proud to continue to play our part in protecting Latin America’s unique cultures.

Between 1900 and 1910, driven by the exports of metals and textiles all over the world, insurance premiums in the country quadrupled. And in 1911—100 years ago—Swiss Re signed its first Latin American contract. The Mundial Compania de Seguros y Reaseguros, founded the previous year, and an affiliate of Swiss Re, Prudentia, entered into a fire reinsurance contract. This was an important step for the local insurance sector and also marked the beginning of Swiss Re’s long history in the region.

A changing world

The outbreak of World War I saw a number of companies scale back their Latin American operations, but Switzerland’s position as a neutral country during the conflict, coupled with Swiss Re’s conservative reserving policy, made it possible for the company to emerge from the troubles without suffering overly adverse consequences and to continue its expansion.

But by the 1930s a global depression presented a fresh set of challenges for those wishing to do business in Latin America. As countries sought to protect their interests and safeguard fragile economies, an internal development phase took over. In the insurance sector, this meant the promotion of national companies and various forms of restrictions for foreign-domiciled competitors.

Many countries underwent profound change with the creation of local insurance and reinsurance monopolies. In Argentina, Brazil and Chile, the nationalisation trend peaked in the following years: INDER in Argentina (1925), Caja in Chile (1927) and the IRB in Brazil (1939). While the motivation for promoting these national companies was based on good intentions, the fact that domestic reinsurance companies could not survive without themselves using reinsurance abroad was overlooked.

In many cases, state-owned reinsurers were formed. But these companies also struggled to exist without international risk compensation.

Just as World War I had, World War II also had a major impact on both Latin America and the insurance industry there. During and after World War II, Latin American trade steered away from Europe towards the US. Many contracts were renegotiated or ended for political reasons, but Switzerland’s neutral status during the conflict meant that Swiss Re lost almost no contracts and picked up several.

By 1946, most insurers and reinsurers were increasingly convinced that industrial and commercial development in Latin America would not be possible without an effective insurance system. That year, at the first Hemispheric Insurance Conference, held in New York, the first step was taken to create the Inter-American Federation of Insurance Companies (FIDES). The organisation would become a driving force in the development of the region.

While still broadly protectionist in its overall structure, Latin America achieved growth of more than 6 percent between 1950 and 1980 in the industrial sector.

The risks grew and became clearer. The increasing physical health of some markets necessitated additional backing in the life insurance business. Major engineering projects emerged to build refineries, bridges and other large-scale industrial facilities.

“The Latin American economy has weathered the recent financial crisis well, especially thanks to the consolidation of its insurance industry and the general improvement in government accounts.”

Infrastructure for air and other forms of transport was developed, leading to a large increase in liability insurance for vehicles. Individual insurance companies were unable to meet these challenges themselves; hence demand for advice on liability and for support for Latin American clients in evaluating risks increased.

In the 1950s, therefore, Swiss Re developed its network of advisory services, focusing especially on Latin American markets. As an international reinsurer with broad experience, Swiss Re was in a position to better evaluate risk and to offer appropriate technical insurance and reinsurance solutions.

The strategy bore fruit. As far back as 1953, Swiss Re succeeded in conducting large-scale operations in Central America. The company entered into contracts in Guatemala, Nicaragua (1953) and in the Dominican Republic (1955), and it began operations in El Salvador in 1959 and in Honduras in 1964. The number of Swiss Re’s cedants and contracts thus increased.

In the 1970s and 1980s, the growing differentiation in the Latin American market led Swiss Re and some of its competitors to provide more services. The company was already operating in nearly all sovereign countries in the region, with only a few exceptions, such as Cuba. International insurance groups were dominating the Latin American market.

Unlike the multinational groups, smaller local companies lacked the financial capacity to cope with risks on their own; nor did they have the wherewithal to professionally analyse and manage all the new risks. Spotting an opportunity, Swiss Re provided its life insurance clients in Latin America with all the necessary reservations calculations from Zurich, where the company’s offices had by then been computerised.

In addition, the company began to play a direct role in different Latin American companies by acquiring stakes in them. For Swiss Re, the moment to establish a presence in the Latin American market with permanent representation offices had arrived.

Swiss Re contributed to the development and internationalisation of the insurance and reinsurance lines in situ. It backed the local insurance sector in a highly competitive international setting and developed new products oriented to these promising markets. Swiss Re, as a driving force and partner, continues today to support co-operation and the exchange of expertise with local companies.

The future is bright

With the open outbreak of the international debt crisis in 1982, some Latin American countries started rethinking their politics of isolation. In the 1990s, a hitherto unseen level of foreign investment boosted the Latin American economy, which had its effect on the insurance sector and eventually also led countries to loosen and later to abandon the state monopolies in reinsurance.

In the 1990s, many Latin American economies surged. Following many years of high inflation and declining standards of living, which also affected the insurance sector, the situation began to improve and markets began to deregulate. Supervisory legislations and monopolies were abolished and state-owned insurance companies were privatised.

The pioneer in this regard was Chile, which in the late 1970s spearheaded the reforms. In addition, social security systems were reformed, and some countries established new international standards in their pension systems, with private insurance solutions. Although the main investors were US and Spanish investors, new opportunities for expansion for local insurance companies emerged, especially as a result of the 1991 MERCOSUR trade agreement, and networks of Latin American insurance companies arose and continued to develop with the help of international reinsurance.

The deregulation and opening of insurance markets in Latin America meant that the number of foreign insurance companies nearly doubled. This created fierce competition in insurance. Foreign companies introduced new products and distribution channels. Through their ties with the banking world, they started offering bancassurance, a sector that in life insurance was to dominate in markets like Brazil. The international competition again increased the need for local companies to seek financial backing with foreign reinsurers.

Acquisitions played an important role in the expansion of Swiss Re’s activities in the region. These acquisitions included Reaseguradora Alianza in Mexico and Reacol in Colombia. In different markets, Swiss Re succeeded in consolidating the ties it had established. With the 1996 opening of Swiss Re Brasil Serviços e Participações Ltda in São Paulo, it became one of the first international reinsurers to resume operations in Brazil. Since 2008, Swiss Re has had official authorisation to operate as a reinsurer in the country.

A region in focus

In the 21st century, Latin America is, more than ever, a focal point of the global economy. The Latin American economy has weathered the recent financial crisis well, especially thanks to the consolidation of its insurance industry and the general improvement in government accounts. Economists therefore expect above-average growth in these markets.

Latin American companies have an ever-increasing international prominence and a growing demand for infrastructure and energy projects; in addition, the outlook for raw material and agricultural product exports has intensified the need for insurance and reinsurance coverage. There is also a growing demand for life insurance, as a consequence of higher living standards in the region.

Swiss Re has continually expanded its range of products in all of these sectors and is offering a broad range of solutions tailored for Latin American markets, for example, in the insurance-linked securities insurance line, which helps mitigate major environmental risks.

In Mexico, in 2006, Cat-Mex became the first government securitised earthquake risk, and it was expanded in 2009 thanks to the co-operation of the government and the World Bank within the framework of MultiCat Mexico, in order to offer a more effective solution for earthquake and hurricane risks.

After the devastating February 27, 2010 earthquake in Chile, Swiss Re was one of the first reinsurers to act, and it disbursed some $600 million for reconstruction. But Swiss Re also promotes the development of microinsurance products and supports, for example, ParaLife, which is active in Mexico and Colombia, through its reinsurance capacity and assistance in developing products and providing market orientation.

A great deal has changed in the 100 years that Swiss Re has been involved in Latin America, but what has not shifted is our commitment to our clients and our desire to help maintain efficient, fair and stable insurance markets that aid the economic development of this very unique region.