Working Committees

Training Committee

	Interview to Marcelo Moreno Montiel

Name:	Marcelo Moreno Montiel
Age:	66 years
Education:	MBA in INCAE Business School, Costa Rica
Professional career:	President of Reaseguradora del Ecuador (1994-1996) President of the Asociación de Compañías de Seguros del Ecuador (Association of Insurance Companies of Ecuador) (1984-1985/1987-1988) President of the Panamerican Surety Association (1994-1996) General Manager of Seguros Equinoccial S.A. (1974-1997) President of Seguros Oriente S.A. (2000- to date)

Interviewer: How did you become interested in the insurance business? How were your beginnings in the industry? And in the surety business?

Marcelo Moreno: I started my career in December 1972 with Grupo Gran Colombiano (Bogota), and a group of Ecuadorean businessmen. Together, we founded Seguros Equinoccial S.A.

I took my first steps in the insurance area at Aseguradora Gran Colombiana, where I became specialized in reinsurance. Later I was appointed Head of Reinsurance at Seguros Equinoccial S.A.

In 1974, there was a change in the company's shareholding and I became General Manager.

In 1987, when I was President of the Asociación de Compañías de Seguros del Ecuador, and Antonio Arosemena Gómez Lince was President of the Chamber, we agreed on merging both associations into Fedeseg: "Federación de Empresas de Seguros del Ecuador" (Federation of Ecuadorean Insurance Companies).

Mr. Agustín de Vedia, from Aseguradores de Cauciones, Argentina, invited Seguros Equinoccial S.A. to join the Panamerican Surety Association. With their support as reinsurers, we started the surety bonds line and became the first company to issue performance bonds as a general line, including Bid bonds, Advance payment bonds, Performance bonds and Proper use of letter of credit.

By the time the line was authorized, the Ecuadorean legislation did not consider insurance policies as contract guarantees; only bank, mortgage and pledge guarantees were accepted.

Interviewer: Do you remember your first operation, your first policy? What problems did you have to overcome?

Marcelo Moreno: With resources coming from the oil boom in Ecuador, public contracting was promoted, especially in the road and hydroelectric areas. In 1985 the Ley de Licitaciones y Concurso de Ofertas (Bidding law) was amended to include policies issued by insurance companies to guarantee bid, performance and advance payment.

For the contractors, bonds issued by insurance companies had the following advantages:

The clauses of bonds issued by insurance companies protected their interests as compared to bank guarantees, which were unconditional.

Banks used the contractor's credit capacity in loans and guarantees, whereas if bonds were issued by insurance companies, this capacity remained available and could be used as working capital.

In case of claims, reinsurers are the main source of payment, and the insurance company covers retention; banks lack this kind of protection.

Bonds issued by insurance companies are, therefore, more convenient for all parties involved in the process than bank guarantees.

It was a good choice vis-à-vis bank guarantees, their distinctive feature being the conditions on payment or calling. Contractors started then to notice the benefits of this instrument which somehow protected their interests.

The main obstacle came up when the new Ley de Contratación Pública (Public Contracting Law) was passed. This law regulated the calling process by means of exorbitant on demand clauses (unconditional, irrevocable and immediate payment clauses). The unconditional nature emerges after non-fulfillment has been proved and after the contract's economic and accounting settlement.

Interviewer: How did you become aware of the need to develop the surety market?

Marcelo Moreno: In showing the advantages of the policy in the local market and the fact that, in the case of calling, resources came from abroad (reinsurance) and did not affect the assets of the local financial and banking entities.

Bank guarantees had no conditions and they thus automatically became on demand guarantees; for this reason, the public sector was looking for an instrument similar to bank guarantees and consequently included the exorbitant first demand clause in the Ley de Licitaciones.

Interviewer: What did you do as a company to develop the market?

Marcelo Moreno: Given the relevance of the public sector works, insurers did not bind technical assets as banks did, since surety bond limits were determined by reinsurance capacity and not by credit line.

Interviewer: Why do you think this business tended towards on demand bonds rather than to contract bonds?

Marcelo Moreno: Surety insurance policies included conditions that represented an obstacle to the calling process as compared to bank guarantees, from the beneficiaries' point of view.

Although the Ley de Contratación Pública does not impose any restriction on the contractor or bidder as regards the submission of guarantees, even today many public entities accept only bank guarantees.

Interviewer: How did you manage to make surety bonds preferable?

Marcelo Moreno: Contractors found these guarantees more convenient than bank guarantees because of their terms and conditions and because credit limits were not affected.

Interviewer: What kind of support did you get? Which role did the Asociación de Seguros del Ecuador or others play? How did you get to the present situation?

Marcelo Moreno: In November 1984, I was in charge of the Organization Committee of the III Regional Surety Seminar, organized by the Panamerican Surety Association in Quito.

The Banks Superintendent, the General Controller, the Minister of Public Works and the associations of contractors and insurance companies attended this meeting as guests.

On that occasion, we had the honor of listening to lecturers such as Jorge Orozco Lainé and Agustín de Vedia talking about demand bonds.

In 1985, the Ley de Licitaciones y Concurso de Ofertas of Ecuador was amended and the proposals and conclusions of that Surety Seminar were taken into account.

In 1987, the State General Controller requested PASA's advise so that, based on the discussions which had taken place at the III Regional Surety Seminar, the first steps towards a change in the legislation then in force be taken.

In 1990, the Ley de Contratación Pública was enacted, and the bidding law then in force was abolished. That same year PASA's General Assembly was also held in Quito.

Interviewer: What trend do you foresee for Ecuador and for the Andean Region?

Marcelo Moreno: In Ecuador, surety bonds issued by specialized companies are becoming increasingly important as the use of bank guarantees decreases.

Interviewed by Adriana Alvarez, Seguros Oriente, Quito, Ecuador. May 2011

CONDENSED AND CONSOLIDATED STATEMENT OF CONDITION
PRIVATE BANKING SYSTEM
EVOLUTION OF CONTINGENT ACCOUNTS 2000-2009

(in thousand USD)

	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
BONDS AND GUARANTEES (INSURED RISK VALUE)	736,553	651,648	367,039	366,780	430,416	411,310	437,321	458,394	550,913	539,278	N/D
BANKS-GENERATED PRODUCTION	18,414	16,291	9,176	9,170	10,760	10,283	10,933	11,460	13,773	13,482
INSURANCE COMPANIES-GENERATED PRODUCTION	N/D	N/D	16,488	17,835	21,549	23,981	32,499	38,973	75,346	76,159	76,249
BANKS/INSURANCE COMPANIES RELATIONSHIP in %			56%	51%	50%	43%	34%	29%	18%	18%

Source: Banks Superintendence / Statistics

* Figures include an estimated commission (rate) of 2.5% per year