Latin America presents risk and opportunity for Spanish firms

One of the big themes at the recent Ferma Forum in Madrid was how Spanish risk managers can help develop relationships with their Latin American peers. This comes as no surprise. Spanish companies have a big presence in countries like Mexico, Colombia, Chile, Peru and Brazil, where they are significant players in sectors like construction, energy and banking. Not only that, but they harbour plans to maintain their growth trajectories in the region. A survey published in April by Instituto de Empresas (IE), a business school in Madrid, found that 76% of Spanish companies present in Latin America plan to increase their investments in the region. Among SMEs, the ratio reaches 80%. However, doing business in Latin America comes with risk even for companies that are experienced in the region and share languages and several cultural traits. In the same IE survey, 50% of respondents said their Latin American operations are heavily impacted by inflation, 49% by currency instability and 38% by regulatory and legal changes. Furthermore, several Latin American markets are severely exposed to catastrophic events such as earthquakes and hurricanes. That is the case in major economies like México, Chile, Colombia and Perú. Even Brazil and Argentina, which for a long time were free from catastrophic exposures, have posted huge economic losses from droughts and flooding in recent years. There are also political risks that cannot be ignored. Spanish companies have been targeted in Mexico by former president Andrés Manuel López Obrador as part of his campaign to demand retribution from Spain for its colonial rule. In 2023, after fustigating energy group Iberdrola for several years, the Mexican government bought a portfolio of 13 clean energy assets from the company for more than $6bn, in a deal that some people saw as nationalisation by stealth. Less subtle was the government of Argentina back in 2012 when it decided to expropriate 51% of the shares in oil company YPF, which until then belonged to Spain’s Repsol. Two years later, after difficult negotiations, the government and Repsol reached an agreement to settle litigation for $5bn. It is fair to say, therefore, that risk managers have a key role to play in their companies’ activities in Latin America. And Spanish firms in particular benefit from access to what has become, in practice, an insurance hub for multinationals in Madrid. Agustín Espinosa de los Monteros, chief broking officer of commercial risk at Aon in Madrid, said this is an advantage, especially when it comes to transferring nat cat risks, which demand a lot of insurance capacity. “Nat cat risks require high volumes of premiums, and local insurers have a limited capacity,” he said. “So it is a great advantage that in Spain a hub of insurers has been established to underwrite Latam risks.” The best-known example is Mapfre, the Spanish insurance giant, which has a growing reinsurance and specialty presence in international markets with its Global Risks unit, and is also Latin America’s biggest P&C underwriter. Mapfre closed 2023 with a 6.3% market share thanks to its presence in key countries like Brazil, México, Colombia and Chile. But rivals such as AXA XL and HDI also write Latin American risks from the Spanish capital. Cover for construction activities is a big area of expertise in Madrid, in large part due to the ever-growing presence of Spanish construction groups in Latin America and elsewhere. But Espinosa de los Monteros noted that although Madrid is an important source of insurance for Spanish multinationals, many also look to complete their insurance programmes with capacity from London and Miami. He pointed out that covers may be hard to arrange in some Latin American markets such as Venezuela and Argentina due to political and economic turmoil, which make insurers wary of deploying capacity. The insurance market in Brazil is tightly regulated and some covers, such as collective health insurance, present challenges for companies. Political risks remain a complicated coverage in the region too, although capacity can be found if buyers are willing to pay the rates demanded by insurers, said Espinosa de los Monteros. Experts agree that the Latin American markets generally follow global trends. As a result, the friendlier market for buyers seen in the US and Europe may soon start to be felt in the region. “I would say that the trend right now is one of stabilisation, although we must wait and see the results of the current nat cat season to check the direction the market will take,” Espinosa de los Monteros concluded.

Latin America presents risk and opportunity for Spanish firms

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