Santander's swoops for Abbey, Alliance & Leicester and Bradford & Bingley have seen the Spanish financial services giant rapidly become synonymous with savings - not to mention Lewis Hamilton - in the UK and a household name. Alongside the continued might of Mapfre, this has prompted some commentators to suggest Madrid may be on the verge of a new era of influence as one of Europe's foremost financial centres.
But something that is less remarked upon is the Spanish capital's recent success at serving as a launch pad for European insurers with a keen eye on expansion into Latin America. The strong historical, cultural and language links between the two regions make it a natural point of interface for the European and South American markets - and one an increasing number of insurers appear keen to exploit.
Someone who knows these markets well and has an expert's eye for potential insurer opportunities is Joaquin Ruiz Echauri, Madrid-based partner at law firm Lovells. As head of its Spanish insurance and reinsurance team, Mr Echauri is a specialist in contentious advice to insurance industry clients including mergers and acquisitions, reorganisations, joint ventures and authorisations. He joined Lovells in 2007 after 15 years working in the Spanish insurance sector as an in-house lawyer and heading up the insurance department of Ernst & Young in Spain.
So why does he view Madrid as the ultimate Latin American launch pad - what are the specific opportunities available to European insurers and how challenging is it to export operations to the region, mired as it is historically in political risk?
"Madrid is one of two doors into Latin America, and we absolutely recognise Miami as the other," says Mr Echauri. "They complement each other very well and are not really in competition. European insurers tend to use Madrid, while those in the US will typically take the Miami route."
Existing player power
Currently, two insurance players dominate the Latin American market: Mapfre, which opened operations there more than 20 years ago, and AIG (now Chartis). He describes both as "extremely successful" but believes opportunities are ripe for other insurers to enter and grow.
Latin America is obviously a vast geographical area, so where specifically does he see potential for European or other insurers to export operations via the ‘springboard' of Madrid?
"My feeling is that, if you want to get into something in Latin America, it is better to forget the richest southern part," responds Mr Echauri. "Brazil and Argentina may be the most attractive, but they are also the most expensive. Real opportunities exist in other countries, such as Venezuela, Colombia, Ecuador and Peru."
While happy to concede that these countries have been plagued by political risk - with Venezuela, for example, added to the ‘very high risk' category this January when Aon produced its annual political risk map, joining the likes of Afghanistan, Iraq and North Korea - he adds: "If you look at the accounts of these countries, they are the cheapest from an insurance perspective and, therefore, offer the most profitable solution.
"I would describe the Latin American insurance market as one with better possibilities for acquisitions. If you take economies like Venezuela or Ecuador, political risk will always be an issue - and Spanish companies have had terrible problems with that in the past. But this is also a market with many mid-sized companies, locally owned with strong databases of clients - and, in theory at least, fantastic targets to be acquired.
"Politics is obviously a big deal in Latin America and will determine what strategy external players should follow. To make an acquisition in an isolated country - let's suppose, for instance, that Zurich wanted to buy a company in Peru - makes no sense unless there is a strategic plan."
And it is here that Mr Echauri detects a change. "Until now, European and US insurance players haven't really had strategic plans for Latin America but I think there is a real opportunity emerging for big insurance carriers there. It is illogical to think that in five or 10 years time the market with continue to be dominated by Mapfre or AIG [Chartis]."
So what evidence is there to date of insurance companies using Madrid as a springboard into the region? "XL has announced that its Spanish team will have responsibilities for Latin America," he points out. "It made this announcement very recently, at the beginning of February."
Allianz Global Corporate & Speciality meanwhile seems to be focusing more on the Iberian Peninsula but also Brazil, he says. "It is currently in the process of reorganising its operations and incorporating a branch in Spain, which it has announced will be up and running in 2010. Until now, this was just a division of Allianz."
Mr Echauri continues: "Interestingly, Axa talks about the ‘Mediterranean area' and this is controlled by Madrid. So it has two different divisions in Spain: one that focuses on the Spanish domestic market and one that looks after the ‘Mediterranean area' where people hold responsibilities across different countries. And what's even more interesting is that this ‘Mediterranean' division includes some countries in Latin America - it's like the Roman Dream. But it works because Axa is utilising its Spanish speaking resources."
However, Mr Echauri admits that at least one large insurer does not reflect the apparent general trend of utilising Madrid as a Latin American launch pad - "After selling its business in Spain to Liberty in 2001, RSA has right now only a small nascent operation in Spain but it is already working in five or six countries in Latin America," explains Mr Echauri. "Unusually, it doesn't employ the Madrid base for its Latin American operations but chooses instead to control these from London. It incorporated its branch in Spain about 18 months ago and is definitely focusing on the Spanish market. The Latin American operations are completely independent and it would not have the capabilities in Madrid to run these in any case as, and indicated, it is a nascent new office."
But, bearing in mind the wider trend, are these lines of responsibility at RSA likely to shift in the future? "That would seem a natural progression."
Adding to the allure for those European insurers currently based in Madrid, who hold responsibilities for exported operations in Latin America, is the region's rising skills base. Mr Echauri comments: "I have seen a huge change from the 1990s to now in Latin America in terms of the quality of those in the insurance industry and its lawyers. Everything has changed for the better. My first experience there at the beginning of the 1990s was of a really terrible time for insurers. I remember very well one international Spanish company that had a programme of insurance captive companies and many problems with claims in Argentina and Chile; we helped them when they were having horrible experiences with local legal counsel. But that has changed.
"We used that say that us - the Spanish - were the nice guys; we open the doors and have the know-how about what the people in Latin America need, whether they are coming from the US or UK. Why? Because, from a legal perspective, one of the major needs of a local insurance operation surrounds the reinsurance they buy. If you are a US, UK or European insurer and you have a particular problem about your reinsurance layer in Argentina, for example, you need to interpret what a local lawyer is saying. So the focus of the Spanish expert is fundamental - simply because our legal systems are really close and we understand perfectly the particularities of what they are saying."
Mr Echauri also explains that there are networks of law associations which serve as strong platforms for good communication across the two regions. For example, the international association of insurance law - AIDA - has a regional grouping focused on Spain, South and Central America.
Another reason why Madrid makes sense is from a regulatory perspective. "General regulation of the insurance sector is pretty similar to what we had in Spain prior to joining the European Union," explains Mr Echauri. "It's very protectionist - for example, the requirements to hold funds and reserves in local accounts. So one of the problems we have detected - and helped European operators with - is regulatory matters and relationships with local regulators. Essentially we have to think like we are in Spain 20 years ago. And it is very useful for insurers to have local Spanish abilities to deal with the authorities - because sometimes it is just a matter of convincing them. Many times I have prepared opinions for insurers indicating to the local insurance authority that this or that operation is indeed in agreeance with local regulatory rules."
Mr Echauri is personally excited about the prospects in Latin America for another reason - Lovells' imminent merger with Hogan & Hartson, due to become effective on 1 May 2010. He says the focus now is on "combining our strengths" for Latin America. "In Lovells we already have US lawyers who speak Spanish, which is fantastic. But, from the merger, the number of Spanish speaking US lawyers we gain is incredible. Hogan's Miami office is a good example of that and they are excited too because they share our focus."
In fact, Hogan Lovells will have an office in the Venezuelan capital Caracas. Mr Echauris explains the firm is already "well connected with the local energy industry in oil" but will now "share the capabilities and connections we have with the local insurance market". As for the future, he concludes: "I cannot obviously say for sure but I would be very surprised if, in one year or 18 months' time, Hogan Lovells did not have other local offices in Latin America." After all, if his predictions about Madrid fuelling a flurry of European insurers expansion in the region is proved correct, it is only natural to assume insurance lawyers will flourish where their paymasters reside.
- Over 20 start-ups pledge support for proposed insurtech trade body
- Customers in line for compensation as UK broker fails
- Zurich CUO takes on RSA UK role
- Lloyd’s sees diminished results even as it shrugs off 2017 losses
- My other life: Assistant football referee - David Roome, NMU Glasgow
- Marsh appoints UK corporate CEO
- Amanda Blanc makes first appearance as ABI chair