Investing in Latin America: Opportunities and Risks for Asian Multinationals

In recent years, a number of Asian multinational companies (MNCs) have been expanding into Latin America due to the region’s potential as an emerging market. In its Q3 2021 report, S&P Global revised its growth forecast for the six major Latin American economies to 5.9%, up from 4.9% — a significant rebound after an almost 7% decrease in 2020 when the pandemic hit.

The projected economic growth in Latin America is accompanied by competitive labor costs and proximity to key markets in the Americas, which favors foreign direct investment. Additionally, Latin America’s regional efforts to increase digital access since 2010 is also supporting the growth of its consumer markets. 

Latin America’s insurance markets may also be conducive to foreign investment, as the region’s insurance pricing increases in recent quarters have been among the lowest globally:

Based on annual gross domestic product (GDP), Brazil is the largest Latin American economy followed by Mexico, Argentina and Colombia. Recently, the Grow with Confidence in Latin America webcast series by Marsh highlighted and analyzed the insurance challenges that Asian MNCs may need to overcome to access the opportunities in each of these four markets.

Brazil

Economic Overview

Brazil has improved the public sector’s productivity through public administration reforms and reduced tax uncertainty for companies through tax reforms. The effectiveness of these measures is reflected by increases in foreign direct investments (FDIs) over the past decade.

Opportunities in Brazil are also present in renewable energy and sustainable agriculture due to a focus on low carbon emission and infrastructural projects for basic sanitation facilities and waste treatment.

Notably among Latin American markets, Brazil has been leading in terms of financing for public offering of shares since 2007, with around USD10 billion in place for 2021. The significant financing is largely due to Brazil’s privatization reforms, which include the 2021 Brazilian Investments Partnerships Program with 180 projects in its current portfolio.

Asia is now in its fourth wave of investments in Brazil, with Singapore, Hong Kong, Taiwan, and India joining China, Japan, and South Korea in Brazil’s agribusiness, high technology, renewable energy and infrastructure sectors.

Insurance Considerations

When investing in Brazil, common client insurance concerns include property, business interruption, cyber insurance, and risk management. 

Almost all multinationals in Brazil require security tax litigation due to a change in the law in a 2014 law. This reflects the need for investors and businesses to continuously adapt to changes in policy wording in response to changes in legislation and the growing maturity of risk management, including the rising importance of ESG concerns.

With combined industry and insurance market expertise, Marsh can deliver an integrated solution for investors, ranging from compliance with the Lei Geral de Proteção de Dados Pessoais (LGPD), Brazil’s general data protection law, to assessing cyber risks, along with designing and implementing the necessary risk transfer solutions.

Mexico

Economic Overview

Mexico is the second largest economy in Latin America after Brazil and an oil exporter, and consistently ranks among the United States’ top three trading partners. With economic performance closely tied to that of the US economy, Mexico’s economy is expected to expand by 2.9% in 2022, as the US economy is forecast to grow by 6.2%.

Insurance Considerations

As in most of Latin America, Mexico has robust anti-money laundering requirements, which means local entities and investors should expect to submit detailed documents in compliance with legislations.

It is noteworthy for investors that Mexico only requires five compulsory insurances for businesses, namely liability insurances for passengers, parking lots, hotel, environment, and third party automobile insurance.

Specifically, no non-admitted policies are allowed, hence all lines of business should be fronted or insured in Mexico.

In many cases, the local insurance market can provide more competitive rates, hence it is advisable to get quotes from both international and local markets.

Argentina

Economic Overview

Argentina’s main economic activities are in mining, agroindustry, fishing and automobile. It is also an oil producer.

Overall, Argentina’s GDP in the first quarter of 2021 showed a 2.6% increase in seasonally adjusted terms with respect to the fourth quarter of 2020. Its exports increased 28.3% in 2021.

Insurance Considerations

While reinsurance can be freely placed across borders, non-admitted insurance is prohibited in Argentina, hence insurance policies are fronted as a standard procedure.

Most of Argentina’s obligatory insurances are liabilities, such as motor third party or ship owners’ liability. There are, however, a few peculiarities to be noted, such as the environmental bond, which cannot be replaced by a general liability covering accidental pollution. While directors and officers (D&O) liability is typically a liability insurance in Argentina, there is an additional need to purchase a small D&O bond to comply with a specific regulation.

Colombia

Economic Overview

Asian companies are mainly investing in Colombia’s infrastructural opportunities which would allow its economy to grow by an additional 1.5% in 2022, from its projected 3.5% in 2021 and 3.7% in 2020.

Foreign direct investments drive the development of Colombia’s infrastructure, which in turn is expected to support the growth of Colombia’s main industries of agribusiness, financial institutions, real estate, and public administration.

Insurance Considerations

With an insurance market size of USD 8.5 million, there is good capacity in Colombia for companies to procure coverage for mandatory insurances. The most common coverages procured include:

• Workers compensation.
• Decennial insurance (insurance against hidden building defects).
• General liability for airplanes, port activities, oil & gas handling, public/cargo transportation.
• Ecological insurance, required if business operations will impact the environment or if the business will require an environmental license.
• Cyber insurance.
• Social unrest and related insurances, such as strike, riot, civil commotion, terrorism and business continuity management.

Unlike Brazil, Mexico and Argentina, non-admitted insurance is allowed except for mandatory insurance.

In accordance to strict regulations, insurers request for detailed anti-money laundering information from clients, as part of their obligation of working alongside the financial industry. Such information is also mandatory as every contract has bond requirements. To assist businesses’ entry into Colombia, Marsh has a specialist team for surety placements in place.

How Marsh Asia Client Services can help investors succeed in Latin America

With its multiple markets and differing characteristics and regulations, Latin America is a complex business landscape for investors new to the region. Markets are well-regulated and with several peculiarities, so choosing to partner with a specialized broker and risk advisor for expansion into the region can be highly beneficial.

By partnering with a specialized broker and risk advisor, not only can Asia’s multinationals get a more astute assessment of the opportunities available in Latin America’s diverse markets, they can also avoid common pitfalls of doing business in the region and more effectively identify and mitigate potential risks.

Marsh is the only broker with an Asia Client Services (ACS) practice connected to a global network. In Latin America, our ACS team works seamlessly with your organization in your local language, providing valuable guidance and oversight and helping develop solutions that effectively address risks. The partnership enables your business to expand into the region and fulfill growth ambitions with confidence.

Have questions about investing in Latin America? Contact us now for a consultation.