“Mapfre is an increasingly global company”

Two insurance specialists sit down, facing each other. They’ve come together to discuss insurance, but soon go beyond that: from the ongoing crisis to the importance of international expansion, many topics were debated during the interview conducted by Steve Jackson, Managing Director of Cooper Gay, head of Latin American operations and a member of the BrokersLink Board.

For the first time in his life, Steve Jackson took on the role of a journalist at the request of MDS, and sat down for a talk with Alfredo Castelo, Managing Director of Mapfre Global Risks (MGR), Chairman of Mapfre Caución y Crédito, the company specialized in Bond and Credit Insurance, and General Manager of Mapfre International. He was recently appointed third Vice-Chairman of Mapfre's Global Business division.

Alfredo Castelo, 43, has been with Mapfre for six years and is excited about the Group’s future and its evolving global positioning. This conversation between two specialists was informed, mostly, by the importance of Latin America, a market these two devoted insurance professionals feel very strongly about.

You need to break downthe topic, because there is an insurance market for retail and another one for wholesale. In Spain the auto insurance market is very competitive due to the crisis. Prices will make or break an insurance product for retail.
As for the corporate market, we're on a long, hard road. Studies show that the insurance industry player will have to boost their balance sheets because of Solvency II. This will drive up expense, with a final repercussion on product pricing.

Credit insurance took heavy hits due to the crisis. At Mapfre Caución y Credito, which handles this particular line, we feel that the sector is a lot tougher and contracts were renewed at greatly increased rates, but this increase was short-lived and highly specific.

Yes, but that was because of a reduction of investment income. Companies with conservative investment policies found their standing in the market improved, and the Mapfre Group is clearly enjoying a privileged position. Detailed risk analysis is also needed of paramount importance.

We’re building up our teams and organization. Human resources are our chief asset. We encourage talent within the company, it’s our habit to seek out talent internally and promote people. But things are changing. Mapfre is more and more of a global Group. So we also need to recruit externally. We don't seem to have that many applicants...
The insurance sector is not as competent at marketing itself as the banking sector, which impacts the way we attract talent. As an industry, we’re brimming with potential and have a bright future ahead of us. Yet we fail to market our business as an attractive, exciting endeavor. However, the situation is changing, by and by. Truly I believe that we will motivate more and more talented people to join the insurance sector.

Once more, I’d like to point out that insurance works differently for individuals and corporate clients. For individual clients the impact of technological breakthroughs is already a reality. Buying habits have changed a lot. In the US and UK, the percentage of auto insurance contracted over the Internet or telephone services has already surpassed the numbers sold by traditional, agent-led sales.
This will become the norm throughout the world, sooner or later. The increased relevance of social networks, such as Facebook, is leading insurance companies to invest in new communication channels. We have to analyze such new tools and make the most of them. It would be to our benefit as social networks may become an important distribution channel.

We’re dealing with a significant infrastructure that could mean very competitive cost strategies. On the other hand, you need to spend a lot more on advertising and information technologies.

Now, if you look at the corporate segment, this is an opportunity we must seize, because it allows us to develop closer relationships with our customers. We have to work on finding the best way to capitalize on the ongoing technological revolution. Through our website, we can establish direct contact with customers, offer a number of services…
Maintain communication with brokers… Our Mapfre brokers’ portal, for instance, serves up a wealth of information, namely on insurance portfolios and processes, making the brokers’ job easier. We’re making the most of all the available channels to improve our operations, with repercussions on costs.

Mapfre has always enjoyed a reputation for specialty service. Look at the company’s operations around six years ago. We were running ten or twelve separate insurance companies in Spain because each one dedicated itself to a given line of business.

To me, this was one of the advantages Mapfre had to offer: It was highly specialized. But things have changed, and technology also allows us to change. It was in 2004 that Mapfre decided to establish a business unit that would specialize in corporations.

We started a company that sold corporate insurance, Mapfre Industrial, and another that specialized in credit and surety bond insurance, Mapfre Caución y Crédito. We integrated both of them and established what we called the corporate unit, at the time.

This coincided with our restructuring of the Mapfre Group and our acquisition of Musini, a state-run company that handled the business of state-owned corporations (nowadays, these corporations are public-private partnerships or privatized for the most part). Musini was very experienced when it came to large-scale, corporate risks in Spain. It was a match made in heaven. Musini became a part of our corporate unit. Two or three years elapsed, and the company was focused on Spanish customers and their interests abroad. In 2006-7 our yardstick was Ibex 35, where the 35 top Spanish companies are rated.
Mapfre had 27 customers among these 35 top companies. So you might say that our market share in Spain was highly relevant. We had to open up and explore new markets in order to grow, carry out our plans and keep growing.

Of course. We handled the affairs of Spanish customers in and outside Spain. We wanted to open up to Europe and established three branch offices.

The first one was in London, the second in Paris and the third in Köln, Germany. The rationale for opening these branches… Well, we at Mapfre like to look before we leap... The goal was to become acquainted with risk trends outside the Spanish market.

While in Spain our goal was to become leaders in any program we took part in, in other European countries we went for a quieter approach, often following the terms established by the insurance carrier leading such programs as we might be involved in.

Truth be told, our European strategy was a success. This year, after a three-year run, we’re closing the books with over 70 million Euros generated across these offices.

Our strategy was very cautious. We handpicked established professionals to lead our branch offices in each market. We hired people who had made a name for themselves and we knew could run the business as we intended. Their professional experience opened doors to a world of international programs.

In late 2008, a change happened that divides "before” and "after” at MGR. Until then, the company was a part of Mapfre’s "domestic business” and, that year, it became a full-fledged international operation. We incorporated MGR into the international business division so we could duplicate the Spanish model in other countries. In 2009 we went about it and began to operate in Mexico, Colombia, Brazil, Chile and Argentina.

Transitioning into European activities, we wanted to include Portugal in our plans. We now operate there through Mapfre Seguros Gerais. This company deals with the commercial side of the business.

When it secures a new client, it sends the relevant data to Spain, where we process the underwriting.

Exactly so. The difference is that the European offices are branch offices and here, taking very low profit margins into consideration, we avoid duplication of activities. We make the most of our local Mapfre structures to develop the business.

This strategy gives us more scope and geographic diversity, which is all the more important when you realize that it gives us capabilities our clients value.

In 2010, we took an additional step and began to operate in all countries where Mapfre has direct insurance operations. We’re present in 24 markets. The only one where we had no initial presence was the US market.
Three years ago Mapfre acquired a North American company which is now being restructured and acculturated to become a Mapfre company. We would like this company to lead our business development eff orts in the US within 2-3 years. Internally, we’re working on what we call our USA Plan. During the first stage, we’ll serve our customers’ needs in the US and, later, secure global American clients.

Mapfre has just come out of a major restructuring effort, where MGR gained a lot more solidity. Mapfre has become a multinational corporation with a head office in Spain. In turn, Spain is now perceived as one of the markets where Mapfre operates and, given its size, is of extreme relevance to the organization.

Mapfre is comprised of three major business divisions. The first one is Spain, with Seguro Directo (Direct Insurance). The second is Seguro Directo Internacional (Internacional Direct Insurance) and the third, Riesgos Globales (Global Risk). MGR is now a part of the third division and distinguishes itself thanks to its strategic traits. So MGR represents a tool for Mapfre to develop global business and become a world-class player.
We’re very pleased with the way the Project is going. Underwriting is centralized in Spain, while sales management (enjoying a great dynamic at the moment) is carried out through the Mapfre units abroad.
This means that business is secured by teams in local companies, with people who are savvier about corporate risk and may, for example, identify opportunities connected with worker needs or the car fleets at customer businesses. So we avoid structural or functional overlap and are more open to new business opportunities. But centralized underwriting may have to be decentralized by and by, so that we may grow. Little by little, our local units will have to become more autonomous, as we don’t want every single decision to be made in Spain.

Brokers are fundamental. The added value a professional broker brings to a client is essential.

At MGR, nearly 100% of business is mediated by brokers, and by "broker" I don’t just mean large, multinational brokerage fi rms. Our company is increasingly global and we need to rely on the knowledge of local brokers. They may be smaller-sized outfits, but they really matter to our international business. Having said that, I believe that José Manuel Fonseca had a really bright idea when he decided to start BrokersLink. It’s a magnificent structure to address customer needs. We find it absolutely logical to rely on this kind of organization.

We’re operating exclusively in the Philippines. We have a direct insurance company there, which still operates at reduced levels. However it is beyond questioning that this market has a strong development potential. What we’re doing is tending to our customers’ needs in Asia.
We resort to local companies to render services, but commercially speaking, we're not very active in Asia at the moment. Our strategy is one of slow, steady advance. Going for quick entry into a number of markets is a very risky proposition.

Asia is a world in itself, market-wise, and Asian countries are quite different from each other.

I don’t head Mapfre America personally, but I am in touch with the regional leader. Mapfre América was born of a desire to go international, in the 1980s.

The bet on Latin America emerged naturally due to the linguistic and cultural ties with Spain.
Initially, operations in this region run into some difficulties, namely due to the differences among countries, to their varying circumstances and to their also different currencies. But our investment in Latin America is now paying off — premiums grew by 20% and revenues before taxes increased by 51% in 2010.

Yes, and we’re set to consolidate our presence. This year, Mapfre bought 65% of the Mundial Group, which operates in five Latin American countries, and signed a deal with the Bank of Brazil to distribute insurance through the Bank’s network. Our position as Latin American market leaders will grow stronger.

Spain is the number one country for us, although its relative significance is diminishing. We’re very excited about Brazil. We’re in another, highly dynamic market, Colombia. Then there’s Mexico, Chile and Argentina. These are the five countries I would name as favourites, and the ones that represent the bulk of our expectations.

There are differences of course, although in a globalized world we’re more and more alike. One of the three key aspects in Latin America is insurance market capacity available to the local companies.

When compared with spanish companies they have less capacity available and thus they need to resort to other markets such as the London market.

Another difference is that the notion of setting up international programs is only now taking hold in Latin America (in Spain we are already present). Now there’s a significant opportunity: not only can we offer added value but also streamline our processes to a large degree.

The use of captives is also more fully developed in Spain than in Latin America. Again, this is an opportunity. Resorting to captives is good for insurance companies, as customers take on a part of their risk.

Obviously there are cultural differences. However, if Argentina and Brazil are obviously different, so is Mexico if you compare it to either of those countries.

Brazil plays a very significant economic role in Latin America, and as a market, it has rather specific traits. Once it was highly regulated and is now opening up.

Our reinsurer Mapfre Re is licensed as a local reinsurer and thus made a clear commitment to the Brazilian market. MGR also makes management easier.

As a market, no doubt, it is unique. Mapfre, however, sees it as a worthwhile place to invest in, and expects major development in the future.

We must realize that it is a huge market. The new company we’ve established might post results of up to 3.5 billion Euros. No company in Spain generates that kind of revenue.

 I’ve been with the company for six years and am very pleased. I made steady progress. I was given the opportunity to assume a number of roles which helped develop my professional skill. When I joined Mapfre I was invited to work at the Bond and Credit Insurance section. It was a very important project, which got complicated by the economic crisis. After that, I took on a leadership role at Mapfre Empresas in Spain, MGR and Industriales.
This was very significant, as I had a global outlook on the company’s business in Spain. The last significant change was in 2009, when I became Managing Director of MGR and also General Manager of Mapfre Internacional, the holding company that oversees the development of Mapfre outside of Latin America and Spain. This is my job. We have local executives in place, but also an oversight function that has kept me very busy. It’s been a nonstop activity for me, working for such a prominent Group.

If you get your act together, you have time for everything. You need willpower to accomplish your goals. To me, family comes first. I devote a good deal of time to my family and friends. When I can spare the time, I devote some to sports. In fact I’ve been devoting more and more time to it.

I’ve faced serious contenders (laughter). I love to jog, I do it pretty much everyday, at 6.30 in the morning. I go out to the park and jog for half an hour to forty minutes. I believe it gives you a boost for the rest of the day. I love to go sailing, and indulge in a bit of golf. Golf is time-consuming, though… These are my three main hobbies but of course family comes first.

Insurance has all these interesting aspects or fields and I think you should look for the enjoyable side in anything you do, because it cheers you up. And work, work, work! You need work-life balance, but you also need to work hard. Obviously, you must be willing to learn and be humble.

Already present in Chile, Mapfre was affected by the 8.8-Richter scale earthquake that shook the country in February 2010. However, Alfredo Castelo points out that, although the insurance industry was hurt by this natural disaster, "where damage to the insurance industry is concerned, no great harm was done, because companies are honoring the financial commitments” they had assumed. Mapfre had carefully weighed their exposure in the country. Castelo admits however that, "if the quake had been elsewhere, we’d be facing devastating consequences. Chile enforces a very strict building code”.

The international expansion of Mapfre’s Global Risk division, in 2008, was a strategic turning point for the Mapfre Group. It then reinforced its global scope and consolidated its presence in Latin America. Almost 80 years old (Mapfre was established in 1933), the Group posted net revenue to the amount of 933,5 million Euros in 2010, which represents a 0,7% drop vis-à-vis the corresponding period, caused by the repercussions of the earthquake in Chile. Profits went up by 8,8%, rising above 20,4 million Euros, driven by the international business, which already represents 60% of the Group total amount of managed premiums and 40% of the insurance business revenue. Mapfre is present in 43 countries, employs upwards of 36,000 people and has 70,000 collaborators.

Steve Jackson is Managing Director at Cooper Gay, plays a prominent role in the company’s Latin American operations and sits at BrokersLink Board. Boasting 27 years’ experience at Cooper Gay, he was born into a family where the insurance business had in fact become a tradition. His father worked at the Royal Insurance Company for 25 years, and his evolving career had the family move from country to country. So Steve was given a chance to learn Spanish as a child. Now with Cooper Gay, he too travels all the time, but London is the place he calls home. He is now 45, with two teenaged children and one of his New Year resolutions for 2011 is to spend more time with them and devote himself to his favourite sports: tennis, golf and squash.