The FINANCIAL — Brazil is leading a construction boom in Latin America – an opportunity the Lloyd’s market is positioned to explore following the formation of its new construction consortium. As host nation of both the 2014 Football World Cup and 2016 Olympics, Brazil is arguably the world’s hotspot for infrastructure investment – and a honeypot for construction underwriters, according to Lloyd’s, the world’s specialist insurance market.
The Brazilian Government last year pledged to spend $69bn improving Brazil’s transportation systems by 2014, while the infrastructure budget for the Olympics alone is $14.2bn, according to PricewaterhouseCoopers (PwC). And the construction boom is set to continue long after these global events – trade magazine International Construction predicts that the efforts to fulfil Brazil’s huge economic potential will keep construction spending well ahead of regional and global averages for a decade.
One group keen to explore Brazil’s potential is the new Lloyd’s construction consortium, which launched in May this year. Lloyd’s syndicates Beazely, Canopius, Hardy and Talbot have joined forces to offer underwriting capacity of $166m, allowing the consortium to compete with major global carriers on some of the world’s biggest construction projects, according to Lloyd's.
David Turner, Global Construction Practice Leader at Talbot Underwriting, says Brazil will be at the forefront of the new consortium’s plans, but acknowledges that there is more to Latin America (Latam) than Brazil. “Colombia is investing a significant amount in transportation infrastructure in the next few years and is also developing its energy and power sectors,” he says, adding that Peru, Chile and Venezuela also have growth potential.
Tony Buckle, Head of Global Engineering at Swiss Re, highlights Mexico and Colombia as “exciting countries with impressive rates of growth and significant construction plans.” Mexico, for example, pledged to implement a similar transport infrastructure spend as Brazil between 2011 and 2015, according to Swiss Re.
Construction spending in Latam increased by more than 3.4% in 2012, but in 2013 it is expected to post a 5.2% gain, driven primarily by infrastructure build-outs, according to International Construction. Brazil and Argentina have the largest Latin American markets for infrastructure construction, while Panama is due to have the fastest growth in 2013 at 13.7%, thanks to a major canal project and construction of the Panama City metro.
The Lloyd’s consortium, which according to Turner already has deals in the pipeline, will target large projects (typically more than $200m in size) across a variety of sectors. Turner highlights power, downstream energy, mining, transportation and other forms of infrastructure such as water desalination and treatment plants as key drivers of new business.
“Lloyd’s has the flexibility to write long duration policies and has also been able to underwrite special bespoke coverages such as terrorism which may not be available in more conventional markets,” said Nigel Ralph, Underwriting Performance Executive at Lloyd’s.
However, despite a high level of expertise, Turner estimates Lloyd’s has just a 10% share of global construction reinsurance business. “Lloyd’s hasn’t been able to make significant in-roads into this space in spite of the fact that it boasts many experienced underwriters – no single syndicate has had sufficient capacity to mount a serious challenge to the established global carriers such as Munich Re, AIG and Zurich,” he said. “The consortium’s aggregate capacity of $166m now puts us into a reasonable league when it comes to major quoting markets,” Ralph added.
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