VENEZUELA, learns to diversify after turbulent political times LATEST REPORT April, 2002
Venezuela emerging from a difficult decade
Interview with
Mr Victor Meintjes President of Seguros Caracas de Liberty Mutual
For World Investment News Ltd, September 20th 2000.
Could you first give our readers a brief historical background of Seguros Caracas?
Liberty Mutual purchased the majority of the shares of Seguros Caracas in 1995 from the FOGADE (Fondo de Garantía de Depósitos y Protección Bancaria). At the time of acquisition the company was bankrupt and reflected a negative net equity. Although Seguros Caracas experienced a financial crisis in 1994 and 1995 the company has had a strong market presence in Venezuela since it was founded in 1943. Other important strengths the company had were a network of offices throughout the country and a strong and loyal sales force of exclusive producers and independent agents. Also, because of the good reputation the company had gained in Venezuela we decided to name the new company Seguros Caracas de Liberty Mutual thereby capitalizing on the reputation of the local company and adding the Liberty Mutual name and its reputation. At acquisition Seguros Caracas was the seventh largest insurer in Venezuela in terms of premium volume. In 1997 we reached the number three position and in 1998 and 1999 we were in second place. Since May of this year we have been in the number one position.
I am happy to add that the company’s growth in units and persons insured and premium volume has been accompanied by growing profitability. Liberty International is very satisfied so far with the performance of Seguros Caracas and the profits produced to date. Seguros Caracas also meets the return on equity target set by Liberty International.
The objective of the company is to be a leader in individual lines of insurance and small and medium size commercial and industrial business. We are leaders in individual health, auto and personal accident insurance.
We have thirty-eight offices in seven regions and we are market leaders in the majority of them. Our mission is to continue offering our quality products and services at affordable prices. Liberty International’s expansion into Venezuela is part of a long-term strategy and its commitment to having a strong market presence in selected international markets.
Seguros Caracas is an all line insurance company, what do you mainly specialize in?
The overall Venezuelan insurance market is comprised mainly of health and automobile insurance, which constitutes 80% of the market premiums. We are leaders in providing this coverage. We also offer various other products namely; personal accident, property/casualty coverages for small and medium size business entities and life insurance. We focus on our vision to develop and retain preferred small and medium size business clients and place great emphasis on meeting their needs.
Venezuela is a country where people do not take much insurance, not even those who have a car and a house. What are your plans to build the market; do you perhaps have some kind of joint plan with your competitors?
One of the problems is the present economic situation in Venezuela and the decline in the purchasing power of the Venezuelan people.
The flood catastrophe, which occurred in December 1999, increased the awareness of the need for insurance protection, especially for the segment of people who could afford to have insurance protection but unfortunately had not purchased adequate insurance coverage to protect their property.
Car theft and stolen property have posted dramatic increases. The crime situation has also contributed to the increased demand for insurance protection. This has contributed to premium growth generated by the fortunate demographic sector that can afford to pay the premiums. However, there is the diminishing market in the lower economic sector comprising of the people that have lost their purchasing power. The solution in the future is to carefully study their needs and develop alternative products to insure this sector of the market.
Do you believe that the premiums are reasonable in Venezuela or do you still have margins to review?
Various companies in the market have lost money during 1998 and 1999; they generated technical underwriting losses and negative net bottom line results. In the case of Seguros Caracas the results speak for themselves. However, the percentage of our bottom line profit to net written premiums has decreased from approximately 7% in 1997 to 4% in 1999. I understand that the rule of thumb internationally is 6% to 8%.
I would say that the premiums we charge are adequate but that the margins are thin.
According to the figures you just gave us you have thirty-eight offices around the country, and you distribute your products throughout two thousand five hundred insurance agents, do you still have expansion plans here in Venezuela?
During this year we have reported a 36% growth over last year 1999. Our preferred class of individual automobile business was a primary contribution to this growth. Our intention is to optimize on every opportunity that the market offers and we are prepared to invest more money to strengthen our market position and our operation throughout the country. For the past four years we have reported profitable bottom line results and we are strongly positioning ourselves to continue to produce an optimum return on our investment. We are very optimistic about Venezuela and our position in the market. We manage the company through the implementation of effective work processes and internal controls. We monitor the execution of key critical initiatives primarily designed to improve the quality of our services. As a specific example, nobody in the underwriting front office area can issue a policy without going through our fully automated policy issuance process, which is guided by pre-established risk selection, and corresponding pricing. We focus on the basics, which could be well defined as simple as A, B, C that represents adequate premiums, better claims service and common sense underwriting. Our physical operating structure is designed to meet the needs of our clients. As we mentioned earlier, as a premier insurance provider we offer three major lines of business; namely, automobile, health and property & casualty. Each of these major product lines are managed through a strategic business unit, which is managed by seasoned specialists who have business know how in the field of underwriting, premium financing and claims settlement services.
Earlier this year we further enhanced our communication capability nationwide to facilitate sound decision-making and the monitoring of our results. This communication vehicle is used by all managers to review trends and initiate timely appropriate action to correct deviations from plan.
What could be the change your customer had in your image between 1994 and now, and do you think your company is sufficiently customer oriented like you would like it to be?
In 1994 many insurance companies including Seguros Caracas had serious financial problems. Since acquisition we have demonstrated our financial strength and commitment by consistently paying claims promptly. We have also built a financially solid insurance company demonstrated through profitable growth and developing a very strong solvency margin.
Since acquisition we have automated the majority of our day-to-day processes and this is visible to the customer through substantially improved service.
Our mission is to provide the best products and services to the insurance market. It is easier to say than do but we are striving to be the best insurance company in Venezuela in terms of quality of products and service.
Mr. Meintjes, you mentioned that Seguros Caracas is a financially strong company, could you please describe to us your financial position?
At acquisition in 1995 the company had a sixty-four million-dollar negative equity. Today Seguros Caracas de Liberty Mutual has a positive net book equity of ninety-nine million dollars. We have income producing invested assets of one hundred and forty million dollars and we have more than forty percent in excess coverage (as required by the Superintendent of Insurance) of investments covering premium and loss reserves. The company’s net equity of ninety-nine million dollars is comprised of fifty-two million dollars of capital and forty-seven million dollars in retained earnings. We have come a long way in a short time.
Do you have any plan to merge and what is your assessment on this process that is going on in the market?
We are continually evaluating acquisition opportunities and if the opportunity arose to acquire an insurance portfolio or company compatible with Seguros Caracas de Liberty Mutual which would add to our results and return on equity it would be ideal. The insurance mergers, which have taken place in the market recently, are mergers between companies in an already difficult financial position so time will tell us to whether they will be successful.
Over the past few years large foreign insurance companies have entered the Venezuelan insurance market through acquisition of local companies. Currently, foreign owned companies generate approximately 60% of the insurance premiums in Venezuela. I believe this is a good thing as these companies are financially sound and in the longer run this will translate into better products and services for the Venezuelan insurance buyer due to increased efficiency and competition.
Also, insurance regulations are becoming stricter as relates to solvency margins, accounting disclosure, etc., and therefore the business of insurance needs to be operated by companies which have the know how and adequate financial backing.
Around the world we are witnessing mergers between banks and insurance companies, do you think it is possible for this market?
In Venezuela various large banks own insurance companies. However, many insurance companies do not own banks.
In the future it would be interesting to have a strategic alliance with a bank without necessarily merging. We will continue to focus on our business, which is insurance.
You also mentioned before you did some investments, what about new technologies? How have you been investing in Internet and e-business? Do you believe the market is mature for that, and has it demanded such an investment?
The market is not yet sufficiently mature in the use of technology. I believe Venezuela only has approximately five hundred thousand Internet users. In Venezuela there still exist many difficulties, which are obstacles to optimizing the use of technology. An example is in the area of collection of premiums. In Brazil the banks collect the insureds’ installments on behalf of the insurance company. It is difficult to adapt this process in Venezuela and we have to rely on collectors who are company staff. However, in 1995, since acquisition we have increased the company’s productivity and service capability substantially.
Our revenue has grown 325% and our workforce has reduced 50%. This has been possible through the use of technology. Increasing the use of technology remains as one of the key initiatives of Seguros Caracas. As far as Internet is concerned we are using this technology in a small way internally but in the future this will be a major working tool.
The country is going through a very interesting period of transition. Being the President of a profitable company in Venezuela, could you give some arguments for foreign investors to come into the country today?
Venezuela offers various opportunities for business development especially in the area of communications, natural gas, power generation and petroleum-derived products. There are critical prerequisites that an investor must explore before investing in Venezuela, such as, the legal framework that affects their business and, the potential market in the industry you want to invest in. After analyzing the pros and cons, I believe there could be sound reasons to invest. However to invest in Venezuela you must always think of long term.
Venezuela is strategically situated between two large markets namely; USA and Latin America. This proximity to these two large markets will offer advantages for future economical development. According to my experience Venezuelans are hard working people and we have a very dedicated work force. The country has a great climate and offers great opportunities for tourism. Venezuela has great potential.
Finally on a more personal level, I would like to ask you about your professional background. What motivated you to get involved internationally and how do you see yourself growing in this company?
I was born and raised in South Africa. My hometown was Johannesburg. I had a dream to come to live in the USA and in 1978 I decided to make that dream a reality. I was educated in South Africa and qualified as a Chartered Accountant. I worked for many years in the accounting profession but in 1978 I was offered a position with Cigna a large global insurance company in the Regional Office for Latin America located in Coral Gables in Miami, Florida. My first assignment as General Manager was a Cigna operation in Guatemala. I was shortly transferred to Colombia where I managed a merger between Cigna companies and AFIA, which was another major international insurer. Shortly after integration of both companies I was sent to London for three years as Vice President of local branch operations. Thereafter, I was offered the position of President to manage Cigna Canada.
During 1993 a number of well-qualified executives left Cigna to pursue their careers in Liberty International. I was offered a position in Liberty International as the President of Seguros Caracas in 1995. My mission was to rehabilitate the company as quickly as possible and re-enter the market to grow and make money. I saw this as a great challenge and accepted the mission. This has been the most fulfilling working experience of my life.
NOTE: World Investment News Ltd cannot be held responsible for the content of unedited transcriptions.
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