Swiss Reinsurance Co., the world’s second-biggest reinsurer, said Brazil’s infrastructure spending as it prepares for the 2014 World Cup soccer tournament and the 2016 Olympics means the country will be a “high-growth market” for the company.
Most revenue gains for the Zurich-based company will be in emerging markets such as Latin America, while those in the U.S. and other developed countries remain “flat to low,” said Walter Bell, chairman of the Swiss Re unit for U.S., Canada and Brazil.
“Our commitment to the region is long term,” Bell said in an interview at the World Economic Forum on Latin America in Cartagena, Colombia. “Brazil is at the top of the list. Mexico -- we’re very bullish on Mexico.”
Brazil said in January it plans to spend 19.5 billion reais ($11 billion) to improve infrastructure and prepare for the World Cup in two years. Rio de Janeiro state, whose capital will host the Olympics, expects as much as $90 billion in investments in the next three years, primarily in shipbuilding, iron and steel manufacturing and nuclear power, Governor Sergio Cabral said last week.
Brazil’s planned infrastructure investments mean it “will be a high-growth market for some time to come,” Bell said. He declined to say how much he expected revenue in the region to increase.
Reinsurance rates may react to this year’s “excessive” catastrophes such as the February earthquake in Chile and the Xynthia windstorm that crossed Spain and France, Bell said.
‘Elasticity’ in Rates
“The market has been predicting rates would rise,” he said. “With that kind of severity and frequency of risk, pricing will probably have to be more reflective of what the risk reinsurers and insurers are taking on these days. There’s some elasticity in the rates.”
Swiss Re said last month it expects about $500 million in claims from the Chile quake and about 100 million Swiss francs ($93 million) in losses from Xynthia.
The temblor won’t affect the company’s plans in the South American country, Bell said.
“We’re committed to the Chilean market,” he said. “It won’t affect our strategy as long as the rates are commensurate with the risk.”
Global reinsurance prices dropped 6 percent for policies renewed Jan. 1 after catastrophe damage fell and capital markets improved, according to Marsh & McLennan Cos. Only two tropical storms struck the U.S. in 2009, compared with 2008 when Hurricanes Ike and Gustav contributed to $27 billion in costs to insurers, according to the Insurance Information Institute.
Swiss Re increased its dividend in February and reported a 2009 profit gain, recovering from the previous year when the reinsurer reported a loss of about 1 billion francs tied to securities such as credit-default swaps.
The company has yet to evaluate losses from Mexico’s strongest earthquake in seven years, which struck Baja state on April 4, Bell said.
The merger of Bermuda-based reinsurer Max Capital Group Ltd. and Harbor Point Ltd. won’t have an impact on Swiss Re’s competitiveness, according to Bell.
“You’re going to see additional consolidation in the industry,” he said. “I do not think it will affect us. Our size gives us a market leader’s position and we plan to maintain that.”
Swiss Re shed workers’ compensation unit CyberComp in August and consulting firm Conning & Co. in June to focus on its core reinsurance operations.
Shares dropped 2.6 percent to 52.35 francs in Zurich trading.