After a successful first year of operations, Bermuda reinsurer Latin American Re (LARe), is expanding its horizons.

The Class 3 company, which last month won an initial AM Best Co. rating of "A-'' (Excellent), was opened to concentrate on writing mainly property reinsurance for primary companies operating in the Latin American area.

Duff & Phelps Credit Rating Co. had already assigned a preliminary claims paying ability rating of `A' (Single A).

General counsel and senior vice president, John M. Barger, said, "We've been very successful, exceeding our business plan for the first year. We've increased our expectations for the second year as we continue to grow.

"But we have a long term point of view for the region. Those who try to get in and out of that market quickly, instead of making a commitment down there, are likely to fail.'' LARe is operating in Latin America as a traditional reinsurer, but is also expecting, along with partners, to offer new products.

"Not only new products from the standpoint of traditional insurance and reinsurance,'' said Mr. Barger, "but also financial solutions. We think the situation is ripe down there for those kinds of opportunities and we have already closed a couple of deals on the financial insurance side of the business.'' LARe's aim was to provide multi-line reinsurance to the region, emphasising short-tail, multi-peril property reinsurance and, to a limited extent, casualty, marine, aviation and other lines of reinsurance.

LARe also envisaged entering other reinsurance niches, which may include workers' compensation, directors & officers, financial and finite reinsurance contracts on both a treaty and facultative basis.

"There is a terrific opportunity in the region,'' he said. "We also believe that it's a market that is ready to be served better by people who are focused exclusively on that area.'' The required commitment to the market has deterred other international players from following LARe's lead. Barriers to entry include the need for a very strong balance sheet and formidable partners.

The Bermuda company was capitalised at $100 million by Risk Capital Re ($25 million) and Exel Ltd.'s reinsurance company, now XL Mid Ocean Re ($75 million).

It is offering cover in Mexico, Central America, South America and the Caribbean Basin in a region changed dramatically by reforms which began in the 1980s in Chile.

Privatisation, deregulation and democratisation, together with trade expansion, were the trends critical to change in the region.

The major countries have all become democracies with the fall of the Soviet Empire and the lack of funding for revolutions. The growth in trade has been dramatic, involving the US and EEC countries.

Mr. Barger said, "In the old days you would have inflation rates that would reach up to 5,000 percent in the region. You would have people who would pull out ten credit cards and basically pay each one off everyday. It discouraged savings.'' The inflation rate in Brazil was around two to three percent last year, and less than that in Argentina.

But there's opportunity in Latin America now because the commitment to contain inflation led to a growth in savings and investments, followed by a dramatic growth in insurance.

In Chile, insurance penetration grew from one percent to about 4.5 percent of GDP. It is about six or 7 percent in the US.

Direct insurance premiums are growing in Latin America at four times the global rate -- from $19.3 billion in 1992 to $37 billion in 1996.

"That's significant growth,'' said Mr. Barger, "and we expect that to continue, with dramatic growth over the next ten years.'' Improving underwriting standards, more market discipline and higher professionalism, together with better regulation in the region is providing increased opportunities across all lines.

Mr. Barger said, "They are very, very concerned about not becoming quite as mired in regulatory details as in the United States, but they also realise the need to create standards for their insurance companies.'' Even in the face of market turbulence, he said there are compelling opportunities. And advantages to doing business there, as opposed to the emerging markets of Asia, include the common culture which exists across all countries in the region, with just two main languages.

Portuguese is spoken in Brazil, and Spanish throughout the rest of the region.

There is also a common religious orientation of primarily Roman Catholic.

Mr. Barger said, "It's pretty much a homogeneous grouping of people. In Asia, you can't transport techniques across cultures. Religions and dialects are different.

"In Latin America, we saw a block of 450 million consumers who were under served in the current market environment.'' John Barger