Booming in Brazil
Spanish companies Mapfre and Crédito y Caucin (CyC) have started to sell export credit insurance in Brazil. Executives from the insurance companies talk about market potential to Luis Waldmann and clarify the recently-announced CyC tie-up with Atradius.
As GTR anticipated in the Sept/Oct 2006 issue (p71), Spanish companies Mapfre and Crédito y Cauciín (CyC) have started to sell export credit insurance in Brazil, causing a market shake-up in the already crowded short-term insurance market. GTR caught up with executives from the two companies to talk about their Brazil strategies.
Jess íÂngel Victorio Cano, Brazil director for Crédito y Caucin
GTR: What brought Crédito y Cauciín to Brazil
JAVC: Crédito y Cauciín is a company which is a leader in the Spanish and Portuguese markets. In Spain it has a 60% market share, in Portugal, 34%. Crédito y Cauciín is also part of an association with the world’s second-largest credit insurer – Crédito y Cauciín and Atradius reached an agreement to combine their businesses.
Given the importance Latin America has in the trade relations of Spain and Portugal, Crédito y Cauciín chose Brazil given the business potential Brazil has regarding this product and also because of all countries that make up South America, this is the country with the greatest economic projection, greater stability, greater potential.
GTR: How will Crédito y Cauciín’s combination with Atradius affect Crédito y Cauciín in Brazil
JAVC: The accord between Crédito y Cauciín and Atradius will [allow] the company to become much stronger, with a bigger business potential. But now nothing will change. Crédito y Cauciín is in Spain, Brazil and Portugal, and with its partner, Crédito y Cauciín is now in over 45 countries. This will bring more benefits, more business potential.
GTR: Is the Brazilian office Crédito y Cauciín’s first in Latin America
JAVC:Yes, Brazil is the first country in Latin America where Crédito y Cauciín is opening two insurance companies, one for internal credit and another insurer for export credit.
GTR: Do you intend to open more offices in the region
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JAVC: Yes, Crédito y Cauciín do Brasil follows an organic growth model, pertaining to the business’s own development. We are now in So Paulo, but we have been authorised by Susep, the Brazilian insurance regulating body, to operate in the whole country.
The development of our business will determine where Crédito y Cauciín will continue expanding.
GTR: What’s the difference between operating here and in EuropeJAVC: Crédito y Cauciín as Crédito y Cauciín do Brasil is a company that is adapting to the differences concerning forms of payment, legislation; the differences between Brazil and Portugal and Spain.
The product itself is not different from that offered in Spain and Portugal. Credit insurance is a global insurance product; it’s insurance that works in all parts of the world.
It’s a tool with which one company protects itself from default that might stem from sales of goods and services not made at sight. This product is based on three guarantees: prevention, recovery and indemnification.
So, for example each time that an insured company sells to a new customer, it sends a request for us to evaluate the default risk of the new client.
Crédito y Cauciín analysts will then issue a risk assessment in which they set an insurance level for the company to work with the new client. This is how credit insurance works; this is how it happens in all parts of the world. The only differences are local legislation, local customs of each country.
GTR: Is Crédito y Cauciín concerned that Brazil’s export credit insurance market already has four competitors (SBCE, Euler Hermes, Mapfre and Secreb)
JAVC: Crédito y Cauciín considers the existence of competition as something good that leads to benefits to the insureds. Crédito y Cauciín is betting that its business model, which is 100% client-oriented, will thrive in Brazil.
The fact that all those export credit insurance players are already active here in Brazil shows the unique potential that this product has in the country. I think that’s good. If a certain business has more competitors, this is ultimately good for the consumer.
GTR: What differentials does Crédito y Cauciín intend to introduce to this market
JAVC: As I commented previously, Crédito y Cauciín has a client-focused business model. As a difference, besides being the second-largest player in global credit insurance market due to its business merger with Atradius, and that its business model is exclusively client-oriented, Crédito y Cauciín brought a tailor-made approach to each transaction, always living up to the clients’s necessities.
GTR: What’s the policies’s longest tenor
JAVC: The longest tenor for the export credit insurance policy is 360 days. It’s a short-term policy. Longer terms can be assessed too.
GTR: How are you preparing to insure exports to risky countries such as Venezuela, Ecuador and Bolivia, for example
JAVC: Well, Crédito y Cauciín is a company that has been in the Spanish credit insurance industry for 80 years. The company was founded in 1929. So it has a database comprising insureds in Spain and Portugal with transactions in all countries.
The fact that Crédito y Cauciín has two insurance companies here in Brazil will contribute due to us being much closer to clients and giving more service, more market knowledge.
Definitely, Crédito y Cauciín’s proximity to this market will lead to greater benefits to its insureds.
Crédito y Cauciín already has databases with clients in Venezuela, Argentina and also Brazilian clients because we already have insureds in Portugal and Spain doing these transactions. Besides, Crédito y Cauciín and Atradius are already present in more than 45 countries in the world.
GTR: Is it easy to work with the Brazilian insurance authorities
JAVC: The experience Crédito y Cauciín has with Susep, IRB and all other bodies is very positive. Not only do we find good professionals at Susep, but also people who are always willing to meet our requests.
This way, our opinion regarding Susep is excellent. It has a good and well-educated staff.
GTR: What exporting sectors will Crédito y Cauciín aim atJAVC: Crédito y Cauciín will offer its export credit insurance product to all companies selling goods or services on credit. Our business will comprise, will be focused on medium and small-sized companies, but also bigger companies.
We are new in Brazil but already have an 80-year experience in Spain, which makes our portfolio very well diversified. Initially we will offer our product to all sectors within the Brazilian economy.
GTR: Will exporters be able to utilise your policy as guarantee for bank financing
JAVC: One of the advantages of a credit insurance policy is that it gives access to better financing, better conditions with a bank due to the fact that a credit insurance policy brings security to the insured in case of default.
If that happens, the insured will receive between 80% and 90% indemnification over the due amount.
Rogério Vergara, executive director at Mapfre in So PauloGTR: Mapfre’s arrival in the Brazilian market had been talked about for a long time. Why did it take Mapfre so long
RV: It was due to legal and bureaucratic procedures that are traditional in the Brazilian market for the approval of an insurance company. The decision was taken in 2005 and since then we have been dealing with bureaucratic procedures.
GTR: How much did Mapfre invest in Brazil
RV: €3mn.
GTR: And what’s the maximum coverage
RV: As much as 90% of the export amount.
GTR: The Brazilian market already has several competitors. What does Mapfre plan to offer to differentiate itself from the competition
RV: This question is a little difficult to answer. What does an automobile insurance company offer that is different from others
- And how many operate in Brazil
- Many.
Why is the automobile segment the largest among insurance companies in Brazil
- Because there are many insurance companies offering many products to different types of insureds.
The export credit market is very small. It’s small because there are few companies operating in it. The action of developing this market depends directly on the action undertaken by the insurance company.
Mapfre has one difference from the others: it is a large sales network. We can target exporting companies everywhere in Brazil.
GTR: About six months ago we ran an article in which one export credit insurance company with operations in Brazil said pricing had fallen by more than half since 1998 due to new players entering the Brazilian market. What do you make of it
RV: When you have two or three insurance companies operating in the same region, it is natural that they engage in a price war, because they operate in the same market, with the same type of clients, the same market niche. Mapfre’s objective is to operate in Brazil as a whole, with small, medium and big exporters.
GTR: What market share do you intend to have after one year in Brazil
RV: It’s difficult to say because I have no idea how much the market will grow in the next few years. The market has been growing substantially in dollars in the last three years and honestly I don’t know what the market will be like.
But if we hit anything between 10% and 20% of market share at the end of 2007, we will be happy.
GTR: What tenor will the policy cover
RV: The legal obligatory tenor. The Brazilian market permits insurance companies to operate only in so-called short-term sales, which are sales up to two years.
GTR: Is Mapfre interested to be awarded the Brazilian government contract to manage the medium and long-term Export Guarantee Fund
RV: Mapfre is interested to operate in the medium and long-term markets, but not to manage a government contract. Our function is not to render services to a transaction in which we don’t have a say. We are insurers, not administrators.
We want to assume risks, we want to operate in the medium and long-term markets as long as the government allows that. But the management of government policies, of the risks in the government’s hands must be done by the government.
GTR: So Mapfre has appetite to operate in the medium and long term. Does it depend only on the local authorities
RV: Sure.
GTR: What other Latin American countries does Mapfre operate in
RV: Mexico, Chile and Colombia.
GTR: Does your export credit insurance product cover all of an exporter’s sales [global policy] or is it deal-by-deal
RV: Our intention is to cover on a global basis, the global operation of the exporting company. We know there are some cases and it’s very traditional in Brazil that coverage be given on a transaction-by-transaction basis in some cases. So we will evaluate those individual transactions but our intention is centered on global operations.
GTR: What exporting sectors does Mapfre plan to focus on
RV: The main exporting sectors in Brazil. It’s worthless to think we will only act in certain sectors. Marble and granite, for example. We will not operate in exports of marble and granite because the complaint ratio and loss ratio are very high.
In other words, we will work in all Brazilian exports that need export credit insurance, except in those sectors where we finds bigger recovery difficulty or a higher loss ratio.
GTR: Potential insureds quite often bring to the insurance company only the worst risks, keeping the best ones to them. Are you concerned about this
RV: I would say everything is negotiable. Everything. If the client wants to present to Mapfre, and doesn’t want ‘globality’, doesn’t want those risks deemed as ‘best’, such as those with less probability of default, and wants to pass on to Mapfre only the part in the portfolio in which he has less control on, this is reflected directly on the cost.
The lower revenues are, the bigger the risk is. And the bigger the premium is.
GTR: What’s the advantage of export credit insurance over letters of credit in Brazil
RV: It’s easier to export with export credit insurance than to require the importer in a different country to issue a letter of credit. It’s much easier for an importer to be covered by an insurance company as opposed to a letter of credit because it’s cheaper for him. The export turns out easier and cheaper.
