Risk Insider: Joe Tocco

Risk and Reward in Latin America

By: | January 25, 2016

Currently AXA XL's Chief Executive of North America P&C, Joe Tocco has enjoyed three decades in the insurance industry at various organizations. He is also a veteran of the U.S. Navy, where he served as a nuclear field service engineer. He can be reached at [email protected]

All businesses and investors seek growth opportunities. One of the most intriguing is Latin America, a region that recorded gross domestic product growth in the past five years second only to the emerging economies of Asia.

What we have to remember, however, is that with growth comes risk. High-growth regions such as Latin America have risks that reflect – and sometimes outpace — economic activity.

The engineer in me knows that the best way to solve a problem is to get close to it and fully understand it. This approach works well in managing risk, wherever you may find it.

So let’s look a little closer at Latin America.

Latin America’s risks should not dissuade businesses from seeking rewards in the region. As it does everywhere else in the world, risk goes hand in hand with opportunity.

With a population exceeding 600 million people and a GDP of more than $6 trillion, Latin America offers enormous potential for businesses across many industries. From construction to infrastructure to oil and gas projects, the region continues to attract billions of dollars in foreign investment.

The United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) notes that foreign direct investment in the region fell overall in 2014, however.

Foreign investment in the region in 2014 was $158.8 billion, down from a record of almost $190 billion in 2013. Investment in Brazil dropped slightly but increased sharply in Chile and Paraguay.

According to the ECLAC, while outside investment is slowing somewhat, Latin America is seeing the emergence of more trans-national companies, known as “multi-Latinas.” These are multi-national companies that trade mainly within Latin America, though some are expanding globally.

That’s an intriguing development. But as companies grow, add trading partners, bring new products and services to the marketplace, and enter Latin America, they need to consider more coordinated approaches to their property and casualty risk management.

What are some of the key risks that business face in Latin America?

Environmental risk is a concern, especially for heavy industries such as mining, energy and construction.

Professional and management liability in Latin America is an emerging but fast-growing risk in the region, too, as services have overtaken manufacturing and natural resources as the largest sector for foreign investment.

Political risk and trade credit are other risks in the region.

And let’s not forget the frequency and severity of natural catastrophes. The strongest hurricane ever in the Western Hemisphere, Patricia, struck Mexico in October this year packing maximum sustained winds of 200 mph.

Just one month earlier, Chile suffered an 8.3-magnitude earthquake that triggered a tsunami alert. Long known as one of the most seismically active locations on the planet, Chile has experienced three of the world’s most powerful quakes in the past five years, as well as the strongest quake in recorded history, a magnitude 9.5 in 1960.

Latin America’s risks should not dissuade businesses from seeking rewards in the region. As it does everywhere else in the world, risk goes hand in hand with opportunity.

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The R&I Editorial Team can be reached at [email protected]