Insurance - Brazil

Marcelo Pinheiro Franco


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BNamericas: What are the characteristics of the export credit insurance segment in Brazil?

Franco: We're talking about short-term export credit insurance operations, usually with terms up to 180 days. Some go beyond this limit, up to two years, but the vast majority - I'd say 99% - are up to 180 days. It's an international policy that covers the client's portfolio for a year.

BNamericas: SBCE increased premiums 72.8% in January-April compared to the same period in 2006. Did you expect this rate of premium growth?

Franco: No, it was beyond our expectations. We had anticipated premiums growth more in line with last year because the first few months of the year are usually slower than later in the year. But we signed an important contract at the beginning of the year that had a big impact on our performance in the first four months. Without this contract, we had premium growth of 40% in the period, which is still more than last year.

BNamericas: SBCE saw premiums rise significantly in January-April, but not at the same rate as the segment as whole. Is SBCE one step behind the market?

Franco: The whole market is benefiting from the rise in exports and fundamentally from the growth in the export credit insurance segment. Exporters realize export credit insurance is worth the price and it works as a type of guarantee for export financing.

Exports are still growing but not at the same rate as last year. Imports are definitely rising at a greater rate but that's not our business. Our business is exports.

But because the export credit insurance segment within exports as a whole still has so much potential, it's growing at a quicker rate than exports themselves. We saw premiums grow around 40% in the first four months of the year, excluding that one large contract, even though exports grew at a lower rate.

BNamericas: What was this big contract?

Franco: I can't say. Premiums rose 73% overall but I can't downplay the contract and it had a significant impact.

BNamericas: Will this rate of growth continue for the rest of the year?

Franco: I don't think so. It'll get to a point where it will slow down but we expect premium growth for the year to surpass last year.

There are always variables that can have a negative or positive impact, such as interest rates or the exchange rate, which are extremely important to export industries.

BNamericas: How much will premiums grow?

Franco: I would say 15-20% compared to last year, 15% would be more realistic from a conservative point of view.

Of course, the central bank isn't going to tell the market where the exchange rate is going because you just don't do that, but if it stays around 2 reais to the dollar, then we'll likely increase premiums at least 15% this year.

But the export credit insurance segment still has a long way to go. Even though exports are becoming more stable, export credit insurance still has the potential to grow a lot.

BNamericas: Even with lower export growth and a weak dollar, two foreign insurers have begun offering export credit products this year. What does this mean for the local market and for SBCE?

Franco: I think there's enough room for everyone and the new players realized that a while ago. They're welcome to come because they'll help the segment grow. Export credit insurance is still in the development stages in Brazil.

For middle-market companies and even big corporations that don't buy export credit insurance, the arrival of new players will help create a benchmark and create parameters such as comparisons between export credit insurers in terms of products, rates, quality of service, and so on.

We're calm. This company has been in the market for 10 years. We have a solid client list that has been steadily expanding.

BNamericas: Are your customers mostly large corporations or midsize businesses?

Franco: We work easily with both corporate and middle-market clients.

BNamericas: You said premiums will likely rise at least 15% this year. Will SBCE record a profit?

Franco: Yes, but much of that depends on the loss ratio. For every US$1.00 you charge in premiums, you pay US$0.60 in claims, which leaves you US$0.40 to cover administrative costs, taxes and so forth. I don't have a precise number for profits this year.

BNamericas: French credit insurer Coface is the largest shareholder in SBCE with 27.5%. Is there any competition between SBCE and Coface?

Franco: No. Coface is our largest shareholder, but in export credit insurance in Brazil, Coface works through SBCE. SBCE was formed as a joint venture with Coface and various other shareholders and Coface has always been a pioneer in the export credit insurance market. Coface's participation in SBCE since the beginning has always been very important from a technical point of view.

Coface now has another company in Brazil, but it only works with domestic credit insurance.

BNamericas: Coface has also said it wants to buy a controlling stake in SBCE. How will that affect SBCE's operations?

Franco: That's a matter for the shareholders.

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