Mr. David Saettone - General Manager - Pacífico Seguros

David Saettone General Manager Pacífico Seguros

Press Tribune: Over the last few years the economy in Peru has been growing steadily. In your opinion, what are the main challenges to keep the Peruvian economy growing at the same rate?

Mr. Saettone: The main driver of growth now is investment, especially private investment so that's something that needs to continue in order to keep this growth systematic. We had a period at the beginning of this expansion where the main driver of growth was exports and we have seen that how it topped. Today what is driving growth is investment, which is very encouraging. This means that Peru is starting this virtuous cycle of investment and growth. Our main challenge now is to develop the public infrastructure of the country in order to go along the economic growth that we are experiencing. We have to invest in transportation, in ports, in energy production in order to have this growth become more sustained.

Press Tribune: In 2005 the insurance sector worldwide suffered big losses, this was due mainly to all the meteorological disasters, at the same time the company had a growth of 7.8%, how do you explain this result?

Mr. Saettone: 2005 was 3 years ago; it was a tough year for the world insurance industry. All the losses related to hurricanes, big losses in the US, Mexico, the Caribbean. In the case of Peru we were also affected by losses, mainly in the fishing industry where we had a lot of losses related to fishing vessels. This affected our loss ratios. Nevertheless, the economic growth meant there were also other assets that were being insured and that explains the growth we experienced. 2006, on the other hand, was a very good year for the world insurance industry because we didn't register any loses. As a matter of fact rates in Peru went down last year in insurance, about 20 premiums increased of 15% and again the explanation lies in the investments that are taking place, the new assets that are coming into service in the country that is generating more premiums, in the case of Pacífico we were able to grow at those rates, and this year, in the first quarter the insurance sector has grown at a 3% rate and Pacífico has grown by 25%.

Press Tribune: What are the main factors that explain such performance for this first quarter of the year?

Mr. Saettone: Basically what we did during the last years has been to empower people. We have defined our mission: we are going to serve our clients. This means that we have to give top quality service and we have developed certain attributes for our services that really set us apart from the competition. Auto insurance, for instance. You know Lima, you can see the traffic and we have the following promise:
If you have a car accident we will be there in 15 minutes, if not we will give you 100$ to be used in Pacífico. And we are compliant with that standard in 97% of the cases, which is very good, and our competitors have not been able to match that.

That kind of service that is generating word of mouth and goodwill among our clients who are coming to Pacífico and we have coupled that good level of service quality with efficiencies in our operations. This way we can also offer very competitive rates. We offer very high quality service and great rates.

In terms of management style, we have a lot of people who are not only trained in insurance but also trained in other disciplines. You will find a lot of them that have US education and MBAs, which is the kind of know-how that is helping us transform service in the insurance industry: people who are highly empowered with the capacity to make decisions and really decide on the spot. That is really showing on the growth rate. Last but not least, our success is based on our 5 core principles: long term relationships, superior understanding, pricing and underwriting of customers risks, unrivalled claims service, extraordinary service and financial strength backed by Credicorp, Peru's largest financial conglomerate, and AIG.

Press Tribune: What is the main advantage to have a partner such as American International Group?

Mr. Saettone: The main advantage is that we get to incorporate a lot of AIG know-how. We give them back the exposure to a rapid expanding market and also access to those clients who are operating abroad who buy their insurance products. The other thing that we are working with AIG is in micro insurance and insurance products for lower income people where the evolvements that we are taking place in Peru can be applied by AIG in other developing countries where they operate.

Press Tribune: What is the main competitive advantage of Pacifico in the insurance market?

Mr. Saettone: Well, I think the main factor that differentiates us from the competition is how we provide service to our clients. We believe that it is very important that we are there when our clients suffer a loss, and we pay the claims out properly and in a fair way. Pacífico over the years has developed that market edge, and that is what really set us apart from the competition. The level of service that you get from Pacífico is very hard to get from our competitors.

Press Tribune: Pacífico is ranked with top classifications (including the investment grade from Fitch that reflects adequate capitalization ratios, above average liquidity and solid market share) that have allowed the company to have insurance operations outside Peru. What does this mean for the company?

Mr. Saettone: Basically the economic growth that we have experienced in Peru, the competitive environment that we had, Peru has one of the most liberal economies in the region and it has created a very favorable environment for international investment. We have a lot of Peruvian companies that have now generated the capacity to invest abroad, so as part of our business strategy what we are going with our local clients abroad and we are insuring their interests in other countries. We have very important Peruvian conglomerates that are investing in many countries, and Pacífico is insuring their assets and their operations in those places.

Press Tribune: Over 50% of the population in Peru lives below the poverty line. What is the commitment that Pacífico has with the community to fight against this poverty?

Mr. Saettone: On the macro perspective, I think one of the greatest challenges that we have in Peru is to make the benefits of the economic world reach people who are below the poverty line. In the case of Pacífico we are very committed to the community implementing corporate social responsibility programmes as a tool to develop a sustainable development seeking social and economic results. Our key communities have been selected taking into account the core problems of the Peruvian society so as to guarantee a direct impact on our business. We have focussed our CSR programmes towards health projects, security of citizens, personal and professional development of children and youngsters. We are all participating very actively in the corporate social activities, from the top managers to the collaborators in Pacifico.

Press Tribune: What impact is going to have the FTA with the USA on the insurance sector and how are you preparing Pacifico to provide the best services once the FTA will be ratified?

Mr. Saettone: In terms of the FTA it is something we are eagerly awaiting, because there is always a delay, we have been close to getting the deal done for the last 2 years and there always seems that something comes up and puts it further away. Now again it seems that it is within reach, I think that it is something that will benefit Peru because it will give us access to a much larger market. Like you mentioned, the largest market in the world, and I think that Peru is in a very competitive position to struggle those markets. We will also benefit from the products that the US has to offer to us.

In terms of insurance Peru has one of the most liberal insurance legislations in the world. Peruvian companies can hire their insurance anywhere they want, it doesn't have to be to an insurance company, so in terms of competitiveness we are ready for the FTA. Nevertheless we see it very optimistically because it will fuel also our growth, those exports that will go to the US will need to be insured, the imports that will be coming from the US will also need to be insured, also the infrastructure that will be set in Peru as a result of the FTA needs to be insured, and having AIG as a partner we are in a good position to profit from that. We are developing new products and we are modifying our services so that we can serve our clients properly for the FTA. For example, Peruvians who prove their company is selling products to the US would need to have product liability insurance that is something you don't normally need in Peru. This is very important if you want to penetrate the US market, so we set up the partnership with AIG and we are ready to offer that.

The other thing is that Peru will be exporting a lot of perishables, a lot of food products, agricultural products to the US. Those also need to be insured, but in order to insure those products you also need to develop a logistic network that manages the risk. We have to be careful, for example, if you put the containers with fresh products here in Callao on its way to Miami it does not get off loaded in Panama, so we need to insure that, but we also need to work with international operators who will be handling this kind of risks and that is something that is very underdeveloped in Peru. This export growth has been fairly recent for the last few years and that is the sort of opportunities we are looking at.

From a Peruvian perspective I think that the FTA is very important, not only for Peru but for the region. Like I said, I think that Peru now being in this cycle where you have investment-net growth is probably already set into this virtuous cycle of growth but we have to take care of the political cycle and we have elections coming in 2011. If we don't take care of the social issues and we don't have that economic growth translated into benefits to the population that will be jeopardized, so it is fundamental that the next 2,3 or 4 years we have that economic growth trickled down to all of these people. That is why you see a lot of efforts from private companies in social programs. There has to be a government stand point in order to bring health and education and that sort of things, and I think that the FTA will be fundamental for that. It will generate employment. If you look at what traditionally has been giving growth improvement, mining for example, it is very capital intense, it makes the GDP numbers and the macro numbers look very good, but in terms of employment it generates little. If we now look at the kind of opportunities that are being opened by the FTA we generate a lot of employment and we will really start making things trickled down, and you don't get to see it that clearly yet because it takes a while but there is wealth creation in the country. In the last five years the number of families which are in the highest sector which is the A sector has doubled and that has come along with an increase of the middle class. We didn't have a middle class, so those are the economic benefits that we are seeing.

Now what we need to do is to get the lowest segments of the population benefit from this growth also. The kind of industries that we are opening up with the FTA is helping that operation. The other sector that is helping a lot in that sense is tourism, where we are growing at a rate 20% and tourism is service and service is extremely labor intensive. Along the years Peru has developed a pretty good infrastructure for the hospitality industry, but it is not yet up to par. We do have a lot of good schools, we have good chefs coming out, good hospitality workers and we see volume exports in things that we didn't imagine we would have volume exports before. For example in airline frequencies all of the flights to and out of Peru are full, and they are not full of Peruvians, they are full of tourists, and we have a limit there. Our airport was prioritized in 2000, and now there is a big difference, and is that kind of thing investment in infrastructure, plus the openness of new markets like the FTA that will generate the employment. This will push Peru forward, if we are able to make this economic stability that we have had for the last 15 or 16 years be accompanied by political stability, Peru can play a very important role in stabilizing the Latin American region. If you look at geography Peru is located in a perfect place in order to carry out this economic integration of Latin America with the rest of the world, we have great ports that will take the trade from Asia and other regions, we will have this project exporting gas from Peru to Mexico, to the US or wherever it is needed and we will have roads linking Brazil which is also a great market for Peru, and also Bolivia with the Inter Oceanic Highway. There is really a great opportunity for us in Peru, but we really need to get the social aspect covered, because if we don't it is very easy to make things go bad and having a close relationship with the US. I think will help greatly there, that is probably one of the greatest benefits I see in the FTA.

Press Tribune: What are your priorities for the company?

Mr. Saettone: Our main focus is growth, we are benefiting from all the investments that are taking place in the country. Those investments need to be insured so we are working with our reinsurance and technical staff in order to provide the reinsurance services that the economic world requires. We see this as an investment. We also focus at a personal level where an increase in employment and in the income of the population is generating demand for insurance products, so that is where our main focus is now.

Press Tribune: Is there any personal message that you would like to convey to our readers?

Mr Saettone: I think that the most important message is that Peru is a very favorable environment for international investment. Where you can do very good business transactions and it is a land of opportunity for those who have the ability to invest and take advantage of these opportunities. I think that is the main point, and mention it because I see it with the reinsurers who still have the image of the Peru of the 80s and when you bring them down here and they take a look at Peru they are surprised and they find a lot of business opportunities here, which they can take advantage of, I think that is the main reason, come to Peru, visit it, get to know it and you will see that we are very business oriented.