Barents Re's bet on the European market

Panama-based reinsurer Barents Re is a fast-growing company that has significantly expanded its operations in Latin America as well as globally during the last several years.

In December last year the company obtained a capital injection of US$100mn to help finance its continued international expansion.

To find out more about the company's international expansion plans, BNamericas spoke to Barents Re's general director Gerardo García. This is the first of a two-part interview.

BNamericas: What is the main objective of the capital increase?

García: The principal objective of the capital increase is to finance our expansion plan in Europe, which is the market where we are today seeing the strongest growth. The extra capital will help us to acquire insurance companies in the European market and also to strengthen our reinsurance capacity in Europe.

BNamericas: Where are you growing most in Europe and in which countries to you plan to expand? 

García: Where we are growing most and want to expand is mainly in Spain, Italy, France, Germany and Eastern Europe.

BNamericas: Why have you decided to expand in Europe at this moment?

García: There are several reasons. The first reason is that the valuation of companies in Europe is today very favorable as valuations decreased as a result of the European crisis. So it's a question of a time with attractive opportunities where in many cases you can buy assets for less than their real value. And at the same time, company valuations in Latin America are in many cases very high.

There are also signs that the world economy has turned a corner and growth is coming back to Europe and other developed markets, while the economic growth in Latin America is likely to be slower than in the past. So for us it's an opportunity to acquire insurance companies at reasonable prices in countries that have much higher insurance penetration than Latin America. 

BNamericas: As a reinsurer, what is the reason for buying insurance companies in Europe?

García: Part of our strategy now is to have a vertical integration of our business. We don't want to just depend on the business that the insurance companies cede to us. We want to go to the final client, structure the business, be the insurance company, issue the policy, as well as being the reinsurer. And in this way you eliminate several intermediaries along the way and you can reduce your costs, become much more efficient and you can obtain higher margins than your peers.

I believe this will be a growing trend with more reinsurance companies entering the direct insurance business. And this is a trend that is driven by falling margins in the industry. Today there are also insurance companies in some markets that have become pure intermediaries and since we as reinsurers are risking our capital but we don't make the final subscription decision, we then prefer to do this directly by having our own insurance companies.