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Latin American Markets Are Hot for a Reason

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26 October 2011
Juan Mazzini

Let me tell you this: I love Latin America!

Latin America is often viewed as a travel destination, with good reason. Just consider its amazing beauty, from Antarctica to Mexican Los Cabos. Its history, from the time of the Mayas, Incas, and natives to modern days. It has many locations that provide unique views of history, such as Machu Pichu and Camino del Inca in Peru; Tikal and Antigua in Guatemala; even in thriving Mexico City, where at one corner from “El Zocalo” you can see how civilization evolved with the clash of three cultures. Did I mention tasty wine and food and gorgeous beaches?

But another aspect of Latin America is bringing visitors: the thriving economy. There are some exciting things going on in Latin American business, and insurance is no exception.

In the not-too-distant past, Latin America was an afterthought for many global businesses. This was a rational approach, given the constant economic turmoil, weak democratic governments, and closed economies. But things have changed. Since the early ’80s democracies have become more mature. Economies have opened, and countries have invested in infrastructure. An increasingly skilled labor pool has increased Latin America’s export value.

Consider Brazil, the dominant economy in Latin America. Since 1939, reinsurance in Brazil had been solely the domain of the government, via the Brazilian Institute of Reinsurance (IRB Brazil Re). On January 15, 2007, Complementary Law 126 eliminated the state monopoly. Also, not too many years ago, Brazil had a strict policy toward importing IT, which resulted in most technology being produced locally, both parts and labor. Today in Brazil (or any other Latin American country), you can find most of the new electronic gadgets and technology available in the rest of the world.

In the last few years Brazil and Peru have been awarded an Investment Grade note, attracting a significant inflow of money to their economies.

Brazil and the group of countries from emerging markets known as BRIC (Brazil, Russia, India, and China) have experienced phenomenal growth since 2002.Brazil drives most of the growth experienced by its partners in Mercosur (the economic treaty that groups most of the South American countries). BRIC countries are also important customers for most of the relevant countries in Latin America.

What we are seeing is that Latin America is experiencing more favorable international commerce than the industrialized world, which is experiencing very low growth rates.

Growth expected for the Latin American region in 2011 is 4.5%; the world rate will be 3.2%; and in industrialized countries, growth will only be 1.4%.

BRIC economies expect growth of 4.0%, 4.5%, 7.8%, and 9.0% respectively, helping emerging markets achieve growth of 5.8% by the end of 2011.

When you compare this growth to the 1.4% average in industrialized countries, you start to understand why many companies are looking into Latin America and emerging countries in general as a place to invest, and not just opportunistically.

To understand the impact this will have, we might want look at global share of GDP. Emerging countries had 35% of global share of GDP 10 years ago. Today they have 40%, and 10 years from now they could have 50%, equal to the developed markets.

The increase in economic activity in the region will create more opportunities for insurers because enterprises will need to protect their assets, properties, and employees.Personal wealth growth will create opportunity for insurance products related to wealth management and protection, investment, savings, and capital accumulation.

Of course there is still room for improvement to make the Latin American market even more attractive. Economies, investment policies, and money flows should be more tightly assembled and coordinated with other countries from inside and outside the region. But in general things are moving in the right direction.

At minimum, most insurers and vendors should be thinking about the potential for Latin America as an expansion market.

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