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SBCE turns 10 years old

SBCE provides insurance and guarantees for Brazilian exporters on behalf of the state and on its own account. Luis Waldmann speaks to its acting president, Marcelo Franco, about business and prospects.

Seguradora Brasileira Crédito Exportao (SBCE), acting for itself or on behalf of the Brazilian federal government, provides coverage for external Brazilian sales against commercial, political and extraordinary risks. Operationally, exports are divided into two groups, short term and medium and long-term.

Founded in 1997, SBCE offers what it terms as “a modern instrument capable of providing greater competitiveness to Brazilian exports”. That is export credit insurance, purchased by Brazilian exporters against the risk of default arising from foreign buyers, as well as guarantees for export financing.

SBCE has the following shareholders: Banco do Brasil, BNDES, Bradesco Seguros, Sul América Seguros, Minas Brasil Seguros, Unibanco Seguros and Coface (Compagnie Franaise d’Assurance pour le Commerce Extérieur).

GTR speaks here to Marcelo Franco, SBCE’s acting president, about business and prospects.

 

GTR: You have been handling medium and long-term transactions for almost 10 years. What is it like now for you to head the short-term department as well

 

MF: In fact I’m heading also the short-term department as a request by the company’s board of directors. For me it has been a very interesting challenge and the results we have obtained in the last four months are quite satisfactory as far as revenues, or issued premiums, are concerned.

Just for you to have an idea, we closed the first quarter of 2007 with a 63% growth in comparison with the previous year and we kept the market leadership with a 44% share.

We had a 43% market share at year’s end and that is a very good sign for us.

Meanwhile, the export credit insurance market used to be made up by three companies, while there are five now. The market expanded 83% in the first quarter of 2007 versus the first quarter of 2006, and we rose 63% in reais [Brazilian currency] and 70% in dollars as the Brazilian currency appreciated against the greenback in the period. So this is a very interesting challenge.

GTR: Does SBCE intend to launch new products

 

MF: On behalf of the Brazilian government, ie, public operations, today we are carrying out a study focused on small and medium-sized enterprises (SMEs) coverage. But this is a project still under analysis.

Other types of coverage are being scrutinised under a similar government-sponsored standpoint. There is investment insurance, which amounts to political risk coverage in cases of expropriation. It could insure those who have an investment outside Brazil, in countries where the local government decides to expropriate foreign-owned assets.

Investment insurance covers political risk in events that have an impact on Brazilian companies’s investments abroad. This is still under SBCE analysis. There are also more traditional types of cover like unfair calling, which equals the undue use of a bid bond, performance bond, retention bond or advanced payment bond.

Unfair calling is characterised when an exporter submits a performance bond to a buyer, ie, the buyer’s guarantee that the exporter will perform. However, the buyer may unduly trigger that guarantee. This product is in the pipeline too.

Investment insurance and the SME-oriented product are strongly being evaluated.

GTR: Regarding short-term operations, what is SBCE doing to differentiate itself from competitors

 

MF: Since we were the first player in this market, I think we are a very well-known company. And we have a solid and well diversified portfolio of clients, obviously giving us a competitive advantage.

In addition, we have an online system allowing exporters to access it whenever they desire. And we have a very strong partnership with banks, particularly with Banco do Brasil, which is a large partner of ours and one of the official foreign trade-supporting banks in Brazil.

We also act with export credit insurance-oriented brokers, whose support has been very important.

Our own pioneering allows us to have a more diversified portfolio and therefore we have been growing considerably. Brazilian exports are increasing at a slower pace, even slower than imports due to the exchange rate, although we have been very successful nevertheless.

The appreciating currency is leading companies to revise their export-related costs. Those who used to sell internationally with the backing of letters of credit, a traditional instrument in the industry, have started to look for cheaper options.

Export credit insurance is a cheaper alternative to the letter of credit. If the exporter faces a squeeze in margins due to the exchange rate, he may soothe this by adopting export credit insurance policies instead of letters of credit.

GTR: How much cheaper is an insurance policy

 

MF: An export credit insurance policy is on average 50% cheaper.

GTR: What role do SBCE’s shareholders play in the management of the company

 

MF: They participate as shareholders and are represented on the board of directors. The three main strategic partners are Coface, which since the creation of SBCE has brought technical knowledge, a data base made up by almost 50mn buyers registered worldwide and an international collection web.

Another partner is Banco do Brasil, one of the main trade lenders in the country, mainly in the middle market segment including a large amount of smaller transactions, but also important in the corporate segment, and BNDES, which accounts for longer dated and more robust transactions.

So we have the two main agents that fuel Brazil’s foreign trade, one of them more directed at the short-term business, and the other more focused on medium and long-term transactions, and the technical expertise of Coface helping develop products, information sourcing and recover credit worldwide. This tripod provides sustainability to the company, accounting for a central factor in this partnership.

GTR: Is there increased demand for insurance toward the riskiest countries in our region, such as Bolivia, Ecuador and Venezuela

 

MF: There always is. Without a doubt there is demand, but obviously we are selective on which risks to cover, more specifically in regard to private buyer risks. But there is bigger demand toward South American countries that offer greater risk and we have been operating with most of those countries.

GTR: Which of these three countries are you more comfortable with

 

MF: First, we must separate private risk from government risk. Concerning the latter, it is important to register that SBCE technically evaluates such risk on behalf of the Brazilian government, which ultimately covers it. I would say that we have maintained business with the three countries but with smaller volumes because as a matter of fact the market – on the private side – has less capacity available to offer to these countries given the risks involved.

As for medium and long term, we see Ecuador and Venezuela always very actively, mainly Ecuador..

GTR: Do you see demand falling for countries with better risk profiles such as Chile, Peru and Colombia

 

MF: There is demand for those countries too. For short term, ie, SBCE’s private operations, demand exists for the three countries you mentioned. There is naturally a movement of slower demand as the countries’s risk profiles improve. But I would say that demand is quite normal because these are clients that we have had already in our portfolio who normally have their own international clients to export to and each time the exporter renews his insurance policy he does so with greater levels for these international buyers, increasing export levels to these countries.

And since we already have these operations in our portfolio, we end up benefiting from it. But when we talk about new buyers, it is natural that the market ends up being a little selective.

The exporter will seek protection for those countries where he understands there is risk, or for those buyers he understands there is greater risk. Even in economically well positioned and stable countries, there are buyers who are unknown to the exporter and with whom he is just beginning to work.

Or it might be a sector that could be facing a crisis globally. As a result, exporters do seek protection against these buyers who might be based in so-called stable, balanced countries. One may have buyers who are in hard-hit industries worldwide or who are simply unknown, but are based in good countries with stable economies.

GTR: Elaborate on SBCE’s portfolio.

MF: On issued premiums we had a 63% growth in reais, or 70% when converted into dollars for short-term operations. The market expanded 83% in the same period totalling about R3.3mn in the first quarter of 2007.

As for countries, our exposure is scattered worldwide. We support transactions in all continents. Our main market currently is the US for short-term transactions.