MDS Group’s Fonseca identifies ‘triangle of opportunity’

Insight, Perspectives

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MDS, which transformed itself from a captive broker into the biggest insurance intermediary in Portugal and the third-biggest in Brazil, is now expanding into Africa

The profile of Jose Fonseca, chief executive of the Porto-headquartered insurance broker and risk management consultancy, the MDS Group, has in recent years assumed a global dimension through his role as chairman of BrokersLink, the independent insurance broker network. But for much of the past three decades, Fonseca was best known for his contribution to several important developments in the insurance and risk management sectors of the Portuguese-speaking world.

For example, in the mid-1980s, when he was the head of internal insurance at Portugal’s largest retail bank, BPA, he introduced the first life and accident and health bancassurance products to the Portuguese market. The life insurance product proved particularly successful and BPA captured a 6% market share the first year. Fonseca remains one of the most recognisable figures in the Portuguese insurance industry. He is the chairman of Apogeris, the Portuguese association of risk managers, and a former vice-president of the Federation of European Risk Management Associations (Ferma).

When he joined MDS as chief executive in 2000, the company was a captive broker owned by Sonae, the giant Portuguese retail and telecommunications conglomerate. Back then, Sonae’s insurance programmes accounted for 95% of the business handled by MDS. Today, through a combination of mergers and acquisitions and organic expansion, MDS has become the largest insurance broker in Portugal.

More importantly, the business provided by the two shareholders, Sonae and
the Suzano Group of Brazil, accounts for less than 6% of MDS’s business volume, which accounted for around $650m in insurance premiums (without reinsurance premiums) in 2012. “In 2000, the business from Sonae, which was then our main client, was very important to us. Sonae is still a very important client of ours. But the situation is very different today,” Fonseca says.

MDS, Fonseca explains, is less an insurance broker for Sonae and more of a specialist risk-management resource for the entire conglomerate. “We are a broker for Sonae but we are also part of their risk-management team. Sonae has a very integrated global risk management and insurance strategy and MDS plays an important role in it,” he says.

Risk specialist

MDS performs a similar function for the Suzano group in Brazil where MDS is the third-largest insurance broker in the country after Aon and Marsh. The move to establish a presence in Brazil began almost as soon Fonseca became chief executive in 2000 and pretty much parallels the expansion of MDS in Portugal. The differing population figures and the pace of the economic growth in the two countries are very much reflected in the volume of the business that passes through MDS Portugal and MDS Brazil respectively. In
terms of MDS Global revenues, which amounted to around $63m in 2012, MDS Brazil accounted for 60% and MDS Portugal the remaining 40%.

“MDS Portugal is a big broker relative to size of the market in Portugal. MDS is one of the biggest brokers in Europe. But in absolute terms, our operation in Brazil is bigger than it is in Portugal,” Fonseca says.

So although MDS’s operations in Portugal are smaller than those in Brazil, the Portuguese insurance market is a much more mature and diversified market.

“While the operations are somewhat different, there is a close relationship between MDS Portugal and MDS Brazil, both exchanging advanced services and expertise. We are integrating the two modes of operation at present. It is a strategic and delicate effort as we still need to diversify our solutions portfolio to grow in a mature country such as Portugal with its 10 million people. Brazil, by comparison, has a population of 200 million people. The market situation in Portugal led us to the decision to expand our
operations in Africa.”

Intellectual capital

But there is a significant degree of intellectual capital that is generated in a market as mature as Portugal’s, Fonseca explains. “We leverage the know-how acquired by our teams along with their significant expertise of the Portuguese, European and London markets, by sharing knowledge and resources with our Brazilian teams.”

MDS operates as a highly diversified corporate retail broker in Portugal and includes MDS Auto, which specialises in the motor industry and is engaged in partnership with Caeteno group, a large auto and bus manufacturer that also manages numerous car dealerships throughout the Iberian peninsula; MDS Affinity, which sells insurance products to professional and industry groupings;MDS Seguros Continente, an insurance broker that distributes its products through a chain of hyper markets operated by Sonae and is serviced online and through a call centre; HighDome PCC, a protected cell captive insurer based in Malta,  which rents out cells to companies; and Herco, a risk consulting firm and wholesale broking operation that was launched last year.

“So, we have a portfolio of diversified lines of business that allows us to grow and service a broad range of needs for our clients in Portugal,” Fonseca says.

In 2009, the Suzano Group acquired a 49.99% stake in MDS Holdings, the parent company that owns both MDS Brazil and MDS Portugal. This was nearly a decade after MDS had first established a presence in Brazil through a partnership arrangement with Lazam, a local corporate broker owned by the Suzano Group.

Brazil and Africa

The initial driver was to help MDS’s clients in Portugal to develop their business in that country. The arrangement was made more permanent in 2002 when MDS took a 45% stake in Lazam, rebranding the business MDS-Lazam. Since then the revenue generated by the business has grown from Real1.8m ($897,021) to Real70m in 2012.

MDS Portugal, which employs 430 people and has 12 offices across the country, mainly operates as a corporate broker with a strong presence in the in the Brazilian employee benefits and corporate affinity  markets.

More recently, MDS has been focusing on the increasing opportunities presented by the Lusophone (Portuguese-speaking) trading triangle of Brazil, Portugal and two of the latter=92s former African colonies, Angola and Mozambique. Portuguese, Fonseca says, is the fourth most widely spoken language in the world. While MDS has been active in the southern African region for the past three years, the company only established MDS Angola, a 50-50 joint-venture with a local partner (which, for Fonseca, is a critical success factor in African markets), last year.

The company is creating an awareness of MDS and of the benefits of insurance in Angola by organising risk management conferences for the energy (Angola is the second-largest oil producer in Africa after Nigeria) and mining industries The company also works with the local insurance companies and the
regulatory authorities.

“Angola is a natural market for us. It is Portuguese-speaking, a fast-growing economy and an expanding insurance market. It is also a country that has a historical relationship with Portugal. The Angolan market
recognises the need for insurance expertise and consulting services. We believe MDS can assist in that regard.”

In Africa, MDS’s focus is on Angola and Mozambique. Other former Portuguese colonies in the region are Cape Verde, Guinea-Bissau, Sao Tome and Principe. Unlike in Angola, MDS for the moment is servicing the Mozambique market from Portugal. “We have teams travelling back and forth and our objective is to provide a full service offering in both Angola and Mozambique. There are substantial investments from Portugal, Brazil and China into these two countries. Our plan is to leverage all of those opportunities and we are aware there must be a specific ‘African flavor’ in our service offerings. There is a strong relationship between Angola, Mozambique, Portugal and Brazil because they are all part of the same Lusophone commonwealth.”

Part of this African perspective is not to position MDS as only the broker for Portuguese and Brazilian investment into Anglo or Mozambique. “Our vision is to play a key role in the local market and become the main Angolan broker.” In a related development, MDS has recently set-up a Chinese desk and recruited a Chinese insurance executive. “This is to help us develop the business with the Chinese community. Chinese investment is very strong in Africa, particularly in Angola and Mozambique.”

BrokersLink

MDS’s emphasis on the Lusophone markets is complemented by the increasing importance that Fonseca attaches to the BrokerLink network to provide a global service to clients based outside of the Lusophone territories.

Indeed, Fonseca has devoted a huge amount of time and energy to promoting BrokersLink. With Fonseca as the driving force, BrokersLink was first launched in 2004 as a European regional network for a number of Portuguese, Spanish and French insurance brokers at MDS’s headquarters in Porto.

At that point, Fonseca says, MDS was still a minor broker in Portugal with Sonae asits main global client. “I invited a number of our partners in Spain and France. The idea was to create a European network, so I organised a business lunch with the prospective partners and I had already come up with the name, the logo and brochure. So that was how BrokersLink started. We grew very fast in Europe and it became clear we had to extend the network to the other continents.”

This involved first establishing partnerships with the PanAsian Alliance, an insurance broker network in Asia and Alinter, a similar network in Latin America. Later, BrokersLink formed partnerships with like minded organisations in North America including Crystal & Company, one of the largest privately held brokerage in the US. Then in 2008 in Bangkok, it was decided to merge all the regional networks into a global network called BrokersLink. A year later, in Hong Kong, BrokersLink formally became a global, integrated network. The event, Fonseca explains, represented a second birth for the organisation.

Fonseca points out BrokersLink is much more than a marketing tool. Within the network, he says, there is a clear model for profit sharing when members refer business to each other. “It is a critical point if we want to
compete effectively against the global brokers and deliver a consistent level of service to our clients in all countries. We expect a best in class service from each member and we monitor the quality of that service. BrokersLink is a business oriented organisation, although it is also a very effective marketing tool. As an independent broker in any given country, it is always challenging to compete against the resources and expertise of a global broker.

However, within the BrokerLink community, we have members who are experts in a specific industry or specialty such as construction, aviation, employee benefits, cyber risks, to name a few, who can contribute and assist a member on a particular project. Besides the broker members, we have the
specialty resources members such as specialty risk consultants, risk engineers, captive management consultants and lawyers etc. They are resources made available to the entire organisation. Overall, there are three driving forces at BrokersLink: we are client driven, we are knowledge driven and we are relationship driven.”

Other partnerships

MDS has a strategic relationship with London market broker, Cooper Gay Swett and Crawford (CGSC). MDS holds a 10% stake in the company. Fonseca, who is a member of the board at CGSC Holdings, explains the importance of the London market broker to MDS’s operations. “CGSC provides us with an access to the London reinsurance market and to first-class reinsurance expertise. CGSC is a professional and highly specialised reinsurance broker.”

However, Fonseca says MDS does not work with CGSC on an exclusive basis. “CGSC is our preferred reinsurance broker but there is no exclusive arrangement. We like to work with partners who want to work with us and not because we are obligated to work with them. It is the same approach at BrokersLink where there is a strong business flow between members, but it is not mandatory to work with each other. Insurance is a people’s business and you need to feel comfortable with your business partners. As a result, we also work with other reinsurance brokers.”

Earlier this year, MDS joined forces with Towers Watson to establish an employee benefits consulting practice in Portugal. “It is an arrangement that creates value for both partners. As a broker, we are now able to provide a broader and more complete, range of services while Towers Watson has access to our client base. Every year we organise a big employee benefits conference in Portugal which is extremely well received by the market.

MDS, Fonseca says, has managed to grow steadily despite the financial crisis in Portugal. “In terms of resisting the crisis, it really helped that we were a diversified business.” Fonseca is particularly pleased with MDS’s performance in 2012. In Portugal, MDS increased its turnover 10% and in Brazil by 6%. “This is all organic growth in both markets. We developed the Angolan business to a point where we are in very good shape for 2013. In terms of growing the business, we are more ambitious in 2013 than we were last year. We are prepared to invest the right level of resources to offer the best service to our clients.”

Written by Rasaad Jamie, Global markets editor – Insurance Day

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