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Written February 24, 1998
Miami's reinsurance market up and rising :
Latin America's growing economies are propelling Miami to strong position in world's reinsurance sector.

International and private banking are not the only fast growing financial services in Miami. According to some experts, Miami is becoming a regional center for reinsurance. Reinsurance is the ultimate protection for an insurance company who wants to be insured against the risk that a disaster forces it to indemnify too many clients at a time.

Miami has become the small London of reinsurance
"Of an overall world insurance market of $ 50 billion, reinsurance would represent $ 5 billion - and perhaps as much as $400 million is contracted in Miami", said Patrick Cerceau, managing director of Axa Re Latin America Inc., a French reinsurance company who has opened offices on 1200 Brickell Avenue. "Miami becomes the small London of reinsurance", added Clément Jourdain, general manager of Mutuelles du Mans Management Company of Miami, Inc. a branch of another French reinsurance agency that maintains offices in the Colonnade building in Coral Gables.

The main reason for this increasingly improving trend is the fast economic development taking place in Latin America, experts said. "Latin America represents 1.7% of the world insurance market of approximately $50 billion," said Mr. Jourdain. "These countries have strong growth, and insurance is growing even more. When you just have enough to eat you don't buy insurance, but when a country develops, the insurance needs catch up. It's also true for life insurance. Many companies in emerging countries don't have a large capital base, so they also rely more on reinsurance."

In 1995, there were only six reinsurance companies
So most of the reinsurance companies come to Miami as a regional center for serving Latin America. Axa and Mutuelles du Mans actually relocated Latin American operations in Miami after doing business for years from Mexico and Caracas respectively. "After Venezuela restored the foreign exchange control in 1995, we have closed our Caracas bureau in March 1996 and relocated in Miami. We had done a survey of different Latin American cities like Bogota, Santiago, Buenos Aires or Mexico, but finally Miami won."

Axa Re Latin America opened its Miami office in March 1997 just after closing its Mexico office. Since then, others have followed. "When we started our research for a new location in 1995, there were only six reinsurance companies in Miami, and they were all Americans," said Mr. Jourdain. "We've been the first non-American to settle here in March 1996, now there are some Australians and Italians. And then the London reinsurance brokers are coming. Heath, Guy Carpenter, AON, Swire Blanch, Willis Faber, there is a new one every month." One of the most recent to open an office here is London-based Business Reinsurance Reaction, Mr. Cerceau said.

World leaders' reinsurance operations in Miami
Most of the world leaders conduct reinsurance operations in Miami. "The two large US reinsurers, Transatlantic Re and Employers Re, which is the world's third largest, are here," said Mr. Cerceau. "Munich Re and Swiss Re, the two world leaders, are still not in Miami, but that's because they are big enough to have separate offices in several individual Latin American countries." The fifth largest, the Italian Generali, is also in Miami, in the same 1200 Brickell building as Axa re. And the French reinsurance leader, Scor, has also a presence in Miami through All State, a US reinsurance company it had taken over.

"The reinsurance market in Miami has been mushrooming. Nineteen international reinsurance companies and 14 reinsurance brokers have opened offices in Miami over the last two years," Mr. Cerceau said. "There are numerous newcomers. Today it is a real strength. Miami has now the capacity to reinsure 90% of all risks incurred by Latin American and Caribbean countries."

If history is repeated, Miami could be promised to a great destiny in that business. "We've been the first foreign reinsurer to settle in Miami," said Mr. Jourdain. "We had been the first foreign reinsurer to open an office in Singapoor in 1979 and there are 50 of them today."

Being in Miami attracts Latin American clients
The first reason why reinsurance companies put their spell on Miami is its mix of Latin American gateway with sound US financial standards, experts say. "Here we have Latin America in a stable territory, not only politically but also economically, and we're not exposed to devaluations anymore," said Mr. Cerceau. "The state of rights is important for a group like ours. Miami can really become a financial center for Latin America as the latter has no real competitor with the same kind of financial safety and regulation as the US can guarantee."

Other reason cited is the cheaper operating costs of Miami compared to some Latin American capitals. "Many costs seemed cheaper in Mexico because they were labelled in a cheaper currency, but at the end the overall operating cost was higher," said Mr. Cerceau. Telecommunication prices make a difference. "The telephone bill from Miami to Paris is four times cheaper than from Caracas to Paris, which represents a big cost saving for our business", said Mr. Jourdain.

"Because the Miami office has no administrative capability, it's only a commercial representation, all the back-office work is done in France." The workplace environment is also more dynamic. "We had ten employees in Caracas, here we can do the same job with height," said Mr. Jourdain.

But overall, convenience seems to be the most crucial factor in Miami's allure to the Latin American reinsurance business. "There were technical problems of being in Mexico," said Mr. Cerceau. "There were no direct flights on a regular basis to Argentina or Brazil, and we had to commute via Miami to fly to Colombia or Central America. We always had to stop in Panama and lose a half day on transit."

Being in Miami also attracts more Latin American clients than being in Latin America, experts say. "When I was in Caracas I have received five visits of foreign clients in eighteen months, here I have three visitors a week," said Mr. Jourdain. The number of reinsurance offers we've reviewed has doubled or tripled in the first year we were here. I would recommend any international corporation who wants to settle in Latin America to come to Miami."

Latin America's exposure to catastrophes
Miami should continue to attract more reinsurance companies as the business keeps good perspectives in Latin America. Latine America's exposure to catastrophes such as earthquakes on the Andean side, cyclones on the South American coast and hurricanes in the Caribbeans make the market attractive, although reinsurers recognize it's a risky business.

"You can't have revenue targets in this business," Mr. Jourdain said, "because you don't know how much what you sell is going to cost you until the damage happens. There are cycles where premiums are low because there are few casualties. And then a series of disasters happen and the premiums go up again because some reinsurers are financially hit and get out of the market.

After Hugo cost $5 billion in 1989, people thought the record repayments were over. But the series of big casualties went on with the Piper Alpha offshore exploration platform in 1990 and the Mireille typhoon in 1991 in Japan. And then came Andrew in 1992, which cost $15 billion. It really was the greatest casualty ever and it caused the reinsurance premiums to rise 4 or 5 fold." It remains to be seen if El Niño will challenge such an impact on the reinsurance market.

Gilles Pouzin