Insurance & Bonds
Safeguarding assets
For 30 years OCS has provided support
for Odebrecht Group entrepreneur-partners
in all their businesses around the world
written by: José Enrique Barreiro
photos by: Luciana De Francesco
Soon, a pool of international insurance companies had issued a USD 272-million bond for the project – the largest ever provided for a Brazilian company at the time. That enabled the entrepreneur-partners to go ahead and sign the contract and build Petrobras 18. Capable of producing up to 100,000 barrels of oil per day, the platform was a major milestone in the history of Brazil’s struggle for national oil self-sufficiency, and is still fully operational in Campos Basin, offshore of Rio de Janeiro State.
Yes, some things in life can happen by chance. But you have to be prepared to seize those opportunities. Marcos Lima and the OCS team were prepared, in the case of the Petrobras 18 project, and played their role within the Group as its founder, Norberto Odebrecht, describes it: “OCS provides support for the entrepreneur-partners, the men working on the line at Odebrecht, so they can achieve their basic mission: winning the trust of our Clients and Investors.” Marcos Lima and his team had begun learning about surety bonds in 1991, when Odebrecht established a presence in the United States. But OCS’s history dates back much further than that.
The birth of OCS
Stewardship of the company’s assets had been a hallmark of Norberto Odebrecht’s business operations since 1944, when he founded his first individually owned construction firm at the age of 23 – the contractor that gave rise to the Odebrecht Group. At first, he handled insurance matters himself. He learned to do that after a curious incident happened in the mid-1940s. One day, his company’s only truck needed repairs, and he had a gut feeling that if something happened to that vehicle, he would have lost most of his current assets. So he decided to insure it. The very next day, the repair shop caught fire and the truck was destroyed.
"The work OCS is doing is a market benchmark. Not only because of the dynamic, proactive work of the team led by Marcos Lima, but because of their constant drive to find the best insurance solutions for Odebrecht’s operations”
Patrick Larraigotti, President of Sulamerica Seguros
As a result of that experience, one of the entrepreneur’s ongoing priorities became making sure that his company’s assets were protected and covering the engineering and construction risks for the projects he was building. For a long time, the company outsourced insurance coverage to local brokers who selected the insurance companies responsible for issuing policies. Then, as the contracting company grew and began operating in several Brazilian states in the 1970s, Norberto Odebrecht delegated responsibility for that area to Director Walter Caymmi Gomes, who started building up a systemized insurance culture within the organization.
That model lasted until 1978. As Victor Gradin, a Member of the Board of Odebrecht S.A., explains: “By the late 1970s, our Engineering & Construction operations were expanding in Brazil, and we were diversifying our businesses and working on our first projects outside the country. That required handling risk management and metrics for insurance coverage in a different way. So OCS was created in 1978 – initially with the name of FEO – Corretora e Administradora de Seguros.”
The creation of a captive broker to provide insurance services to Odebrecht’s subsidiaries sparked an interesting philosophical debate among the organization’s leaders. The idea was for the new company to centralize knowledge and management of insurance matters for the entire Group, which went against its philosophy of decentralized entrepreneurship – one of the basic tenets of the Odebrecht Entrepreneurial Technology (TEO).
Gilberto Sá, a Member of the Board of Odebrecht S.A., was one of the leaders in favor of centralization, in this case, in view of the fact that the new brokerage firm would be dealing directly with the shareholders’ assets, which would standardize the handling of risks throughout the organization and establish a “memory bank” on its insurance practices. “Odebrecht had grown, and the size it had reached by the late 1970s generated a massive volume of insurance and bond business. From then on, they were handled by the same broker, which gave us clout and enabled us to obtain – among other advantages – competitive rates and more flexibility and adequate treatment when evaluating risks,” says Gilberto. “It was a very fruitful discussion, and it became clear that although we are a 99%-decentralized Group, we had to centralize Insurance & Bonds,” he adds. Soon after the captive broker had been created, it started getting results that showed the Entrepreneurial Leaders (CEOs) and Entrepreneur-Partners that they had made the right decision. In Gilberto’s assessment: “Today, nobody disputes that model because, back then, stretching the parameters of TEO wouldn’t have lasted 24 hours if the results OCS achieved had not been satisfactory.”
Ever since, over the course of 30 years, and as a result of the development of the Group’s businesses, OCS has been building up its own expertise and taking on even more functions. According to Alvaro Novis, who has been the senior officer Responsible for Finance at Odebrecht S.A. since 1998, the captive broker has never lost the spirit that guided its creation: “OCS’s longevity is based on several factors, chief among them the fact that it was created on the basis of a well-defined directive – protecting the shareholders’ assets – and it has never lost sight of that.”
Rio Sul, the first challenge
The new company’s first challenge was insuring the construction of Rio Sul, an office-shopping complex that Construtora Norberto Odebrecht was building in the Botafogo district of Rio de Janeiro, which is still a landmark in that city – and home to one of its biggest shopping malls. But the challenges did not take long to grow. By 1979, Odebrecht was beginning to drill offshore oil wells through OPL (Odebrecht Perfurações Ltda.), had entered the petrochemicals industry by acquiring one-third of CPC –Companhia Petroquímica Camaçari, and had signed its first contract for a project outside Brazil, to build the Charcani V hydroelectric plant in Peru. The following year, the Group acquired CBPO, a São Paulo construction firm, which had several hydroelectric plant construction projects under way. Odebrecht’s captive broker had been born at a time when the Group’s operations were expanding broadly, and right from the outset, it had to manage the bigger, more complex risks resulting from that growth. To meet that challenge, it organized itself according to its clients’ needs and formed teams of experts drawn from the insurance industry.
Once it had surmounted those initial challenges, others came along in quick succession. In 1984, an OCS team crossed the Atlantic to help Construtora Norberto Odebrecht with the contract for the Capanda hydroelectric plant in Angola. That was an ultra-high-risk and extremely complex project, due to the internal conflicts in that country at the time, which meant there were physical risks involved to the people working there, as well as difficulties with procurement and logistics. Two years later, OCS took part in the process of winning contracts to build the PPL (Pichi Picún Leufú) hydroelectric plant in Argentina and the Santa Elena irrigation project in Ecuador. In 1988, they crossed the Atlantic once again, this time flying to Portugal to help with Odebrecht’s acquisition of Bento Pedroso Construções (BPC), a longstanding Portuguese contracting firm that has been part of the Group for 20 years.
"Without a doubt, OCS provides the Odebrecht Group with the state-of-the-art in the field of Risk Management“
José Rudge, President of Unibanco-AIG Seguros
But the watershed year was 1990. That was when OCS made the most significant leap forward in its history – getting to know the US surety bond market through Construtora Norberto Odebrecht’s initial projects in the United States. But at this point, we must go back to 1929 to fully understand what surety bonds mean to that country’s construction market. Due to the financial havoc wrought by the famous Wall Street crash that year, the US Government stepped in. President Roosevelt’s New Deal program included massive government investments to help rebuild the nation’s economy, and put the government in charge of it. In a country with liberal traditions that was averse to state interference in the economy, despite the nation’s fragile state at the time, that move met with strong resistance. But Roosevelt and his advisors came up with some creative solutions. One of them involved insurance: any government contract or project involving government funds worth USD 35,000 or more had to be bonded by an insurance company to guarantee its completion. “If the contractor didn’t underwrite the bond, an insurance company had to do it,” sums up Gilberto Sá. As a result, the government played a role while ensuring that contractual responsibilities remained in the private sector. In the following years, the US government invested billions of dollars to bolster the economy, which also gave an astonishing boost to the growth and increasing sophistication of the country’s surety bond industry while other countries continued to work with traditional forms of insurance.
International learning experience
When Construtora Norberto Odebrecht arrived in the US in 1990 and began prospecting the market for business opportunities, CNO members realized that they would have to follow the practices that had been established in that country since the 1930s: they would have to obtain surety bonds in order to sign the contracts they won there. In the US, bid bonds and performance bonds are required to tender a bid; they must be issued by a first-rate insurance company and presented along with the technical bid. Emílio Odebrecht, Chairman of the Board of Odebrecht S.A., recalls: “When we won our first contract in the United States, we embarked on a new international learning experience. Among other things, we learned that, in order to work in that country, we needed to have a guarantor for our character and our ability to obtain resources and build our projects. We needed the surety companies.”
But how could Construtora Norberto Odebrecht present its US clients with a guarantee that it would carry out its contracts and deliver them with the agreed standards of quality? The company had a long-standing reputation in Brazil and nearly 10 years’ experience of working outside its home country, but it was an unknown quantity in the US construction and insurance & bond markets. Difficulties like these had forced other Brazilian contractors to give up on that market. Odebrecht, however, was willing to adapt and learn. In other words, Marcos Lima and his team faced a fresh challenge. Marcos takes up the story: “We started introducing ourselves and building relationships, and we soon embarked on our first partnerships with US brokers and insurance companies, which taught us the ropes and helped us build up our knowledge of surety bonds.”
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Emílio Odebrecht firmly underscores the importance of the captive broker’s role during that period in Odebrecht’s history: “OCS was a decisive factor in our learning experience, laying the groundwork so that international partners like AIG, Marsh, Aon and Cigna would believe in us.” The company’s relationship with these partners was established with such a high level of trust that they have continued working together over the years, in other countries and different businesses. As Emílio Odebrecht observes: “When Odebrecht intensified its operations in Europe, those surety companies were there by our side – and to this day, we are still partnering with them in Latin America and Africa, in our petrochemicals and bioenergy businesses and everywhere Odebrecht is present.” He also makes a point of illustrating this story with some figures: “In 18 years, we have placed USD 16 billion in surety bonds for our operations, without filing a single claim.” Representatives of those surety companies share Emílio’s perception. According to Michael Yang, from AIU – American International Underwriters, a subsidiary of AIG (Odebrecht’s leading insurer for its line of surety bonds): “We have an 18-year relationship with OCS, and it is one of the most solid and longstanding relationships we have had with a company from outside the United States. We were lucky to find each other.” Yang adds that it is a tremendous pleasure to work with the OCS team, and particularly mentions Marcos Lima, Eduardo Castro, Vinício Fonseca and Laudelino Soares, with whom he has the closest contact: “In addition to being partners in business, they have become my personal friends.”
The CEO of AIU, Hamilton Chichierchio da Silva, agrees with Yang and gives his own explanation for the success of that partnership: “The relationship between AIG and OCS is one of the most successful in the insurance industry, because it is based on a high degree of trust and long-term commitments.” Hamilton makes a point of stressing that this is not a “fair-weather” partnership: “Those solid foundations mean that we stick together in good times and bad, when insurance and bond service providers are hard to find.”
OCS has experienced some foul weather, and has always been able to count on its international partners to provide Odebrecht with the support it needs. That has been patently clear on at least two occasions. The first was in 1990, when the Brazilian government canceled the National Treasury’s guarantee for service exports, forcing the Brazilian engineering and construction firms that depended on those guarantees for their international operations to find other guarantee mechanisms instead. With the decisive support of Marsh Inc., a New York-based insurance company, OCS was able to obtain a revolving line of international surety bonds for Odebrecht, initially worth USD 150 million, which enabled the Group to carry on with its engineering and construction projects in Latin America and Africa. The second time, between 1999 and 2002, the challenge was even more severe. Brazil was experiencing a serious international credit crunch that was aggravated by the 9/11 terrorist attacks in the United States. Like most Brazilian multinationals, Odebrecht was finding it hard to obtain surety bonds. Once again, OCS played a decisive role in negotiating 19 operations totaling USD 1.3 billion in bonds, most of which were renewed for up to two years, so that Odebrecht could carry on with its international projects.
"OCS has one of the most highly qualified teams in the insurance and bond market, capable of providing the best global services. But what sets them apart is the ethical and intelligent way they run their business, providing high value added in terms of knowledge, global reach, the range of products and a long-term commitment to their partners”
Hamilton da Silva, CEO of AIU – American International Underwriters
Renato Baiardi, a Member of the Board of Odebrecht S.A., observes that OCS has also played an important role in Odebrecht’s recent history, in terms of the Group’s growth and survival: “When we needed to get performance bonds to win contracts abroad, OCS ensured that we could get those bonds from the world’s best insurance companies, which allowed us to grow. And when credit was hard to find on the international market, we had to come up with creative solutions to get funding for the organization, and OCS found it, thereby helping ensure our survival.”
Competitive edge
Partnering with first-rate international insurance companies has yielded tremendous results outside the US and Brazil. For example, AIG had been present in 180 countries for many years. In partnership with that company and other insurers, Odebrecht was able to take lines of bonds and insurance to the countries where it intended to establish a presence or was already working, which gave it a strong competitive edge, particularly among new clients. According to Gilberto Sá: “When we arrived in a country, we’d tell the client, ‘We want to build your hydroelectric plant,’ and they’d ask, ‘And who are you?’ So we’d say, “We’re Odebrecht and here is our insurance company, who you already know and can tell you all about us.’” The insurance company not only introduced Odebrecht, but most important, offered contract and performance bonds, which made it much easier to get new business.
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When Odebrecht acquired the British SLP Engineering company in 1992, surety bonds were an important tool for maintaining that company’s existing backlog, which was worth roughly £150 million. Previously, SLP had given its clients a parent company guarantee issued by the Morton Thiokol Company. After the sale, Morton naturally cancelled those guarantees, which inconvenienced SLP’s clients – the world’s largest oil companies. So OCS and its partner-insurers stepped in once again and came up with the idea of offering Morton a surety bond in exchange for its parent company guarantees, so that these could be maintained to keep up SLP’s existing contracts. “The creativity with which it established relationships with the insurance world and develops financial products has made OCS a cutting-edge, pioneer company that is making an outstanding contribution to our organization’s growth in Brazil and worldwide,” says Ruy Sampaio, the officer responsible for Investments at Odebrecht S.A.
Industry: the next challenge
In the early 90s, Odebrecht began providing engineering and construction services in 24 countries at once. And wherever Odebrecht went, OCS went. Meanwhile, in Brazil, the Group had acquired controlling interest in major petrochemical companies through the government’s privatization program, including PPH and Poliolefinas, producers of thermoplastic resins, and Salgema, a chlor-alkali manufacturer. As a result, OCS also faced growing challenges in the petrochemical sector. Previously, Odebrecht had just invested in those companies, but now it was running them. As a result, OCS had to form a dedicated team of experts to focus on that business and embark on yet another learning experience – this time around, it was in the field of industrial insurance and bonds.
That learning experience turned out to be essential because Odebrecht’s petrochemicals area was growing non-stop. Then, a major milestone in that area took place in 2001: the acquisition, in partnership with the Mariani Group, of controlling interest in Copene, the naphtha cracker at the Camaçari Petrochemical Complex in Bahia. After two attempts to auction off the company, in which Odebrecht was one of the sellers (because it owned shares in Copene), the Group decided to change its position and become one of the buyers. OCS structured and obtained a USD 400-million stand-by bond for the Group as an alternative to a loan for the acquisition of shares in Copene – in the end, it did not even have to be used.
"The qualities that set OCS apart include professionalism, impartiality and value added – the result of all this could only be the high quality of the services it provides”
Francisco Aldenor Andrade, Director of the Reinsurance Institute of Brazil
Hamilton Chichierchio da Silva has never forgotten that operation, which for him was one of the most important events in the entire 18-year relationship between AIG and OCS. As he tells it: “Odebrecht needed a very high and extremely complex bond to finalize the acquisition of Copene and consolidate Braskem. At the time, it seemed impossible to find partners in the market that would be willing to help issue that bond. Even at our company, the operation was initially dismissed as unfeasible. The deadline was running out and I had to go on vacation. Then my friend Marcos Lima, who has full access to me at any time (at home, by cell, when I’m traveling or even on vacation) called me early one morning at the hotel where I was staying. My wife and I were still asleep. She woke up and answered the phone. It was Marcos, who urgently needed my help. I got to work on it that same morning, as soon as our New York office opened. It took a few hours on the phone to convince my partners to agree to that operation, but I finally managed it. A few days later, Marcos sent some beautiful flowers to my wife, along with a card with words we’ll never forget.”
The acquisition of Copene led to the creation of Braskem S.A. in 2002, a corporation that consolidated all of the Odebrecht Group’s petrochemical assets. Soon afterwards, OCS became the new company’s captive broker and began formulating Braskem’s Insurance Policy, which was approved that same year. Pedro Novis, the President and CEO of Odebrecht S.A., explains how that happened so fast: “The expertise and commitment of OCS’s teams to our insurance and bond programs is providing rapid and creative responses to the intense changes taking place in the insurance world. As a result, it is making a significant contribution toward achieving our objectives for 2010.” One proof of this is that the OCS team, which had obtained insurance coverage worth USD 6 billion for all of Odebrecht’s petrochemical assets, was able to renew that coverage in 2002 despite the massive contraction of the global insurance industry as a result of the 9/11 attacks in the United States.
According to Bernardo Gradin, the Entrepreneurial Leader (CEO) for the Chemicals & Petrochemicals business, OCS provides specialized support for the Group’s subsidiaries. “However, its team’s entrepreneurial capacity to meet the needs of the companies it supports and their clients by building a solid relationship with the insurance companies is an important productivity advantage for our businesses,” says Bernardo. He believes that OCS has become an important intangible asset for the Group because of the solid reputation it has achieved, the relationships it has developed and its effective pursuit of complex solutions to provide support for Odebrecht’s entrepreneur-partners.
Benedicto Junior, Construtora Norberto Odebrecht’s Vice President for Infrastructure in Brazil, has a similar opinion: “OCS’s main role today is not to obtain insurance and bonds, but to interact with our entrepreneur-partners in a way that qualifies them to identify and allocate the risks associated with our businesses.”
Benedicto remembers the crucial role that the OCS team played on the São Paulo Metro Line 4 project, from obtaining the high insurance and bond coverage the client required to providing support when a serious incident happened in January 2004: “OCS formed a team that provided services directly to the people affected by it and obtained compensation for victims’ relatives within 90 days, working closely with the insurance company and the Public Defender’s Office.”
A new cycle
Following the restructuring of the Odebrecht Group and the creation of Braskem, the organization embarked on a new cycle in its history. From 2002 and 2004, it laid the groundwork for a new period of growth, and in 2005, the Group began growing its businesses. By 2007, the goals it had set for the end of the decade had already been achieved. Odebrecht already ranked among the top three private-sector industrial groups in Brazil and had attained annual earnings of USD 15 billion. Today, Construtora Norberto Odebrecht and Braskem are the leaders in their respective markets in Latin America. Following the creation of ETH Bioenergy, Odebrecht is now operating in the Sugar/Ethanol business, which has tremendous growth potential.
In view of this new situation, OCS has renewed its mission statement. “Given these new realities involving the assets of the Group’s subsidiaries and their projects, we are now focusing on the creation of integrated solutions that will make projects and businesses viable from the investor’s standpoint,” says Marcos Lima. A good example of this new role is the support OCS provided to Consórcio Madeira Energia, a consortium led by Odebrecht and Furnas, when they tendered the winning bid at the auction for the Santo Antônio hydroelectric plant on the Madeira River in the Brazilian state of Rondônia. That project will be built by a joint-venture contractor, also led by Odebrecht, in partnership with Andrade Gutierrez. As a result, the structure for insurance and bonds obtained for this project must meet Odebrecht’s needs as an investor and a contractor.
"The different thing about OCS is its attitude. They don’t give up on a project easily, no matter how tough it is. And they always find a solution”
Michael Yang, Chief Underwriters Officer of AIU
OCS is constantly updating and changing its operations to meet the needs of all the Group’s businesses. In the assessment of Marcelo Odebrecht, Vice President of Odebrecht S.A.: “In a process of constant qualitative development with long-term international partnerships with insurance companies and reinsurers – while continually innovating, as in the case of the recent operation with AIG and the IADB – OCS is giving us the consistency and secure risk management we need to help us get surety bonds for major projects we are building in Brazil and around the world, while stewarding the assets of our shareholders and investors.” The operation Marcelo is referring to was carried out in 2007, when OCS negotiated an agreement signed by AIG and the Inter-American Development Bank (IADB) that increased the line of surety bonds available for Construtora Norberto Odebrecht’s projects in Latin America and the Caribbean by USD 400 million. The creativity of that operation garnered OCS and its partners the Deal of the Year award from the British magazine Trade Finance.
As it celebrates its 30th anniversary in 2008, OCS is continuing to play its role as a support company that is focused on safeguarding the assets of Odebrecht’s shareholders and helping make our subsidiaries’ businesses viable, while maintaining its long-term relationships with the global insurance industry, particularly in the field of surety bonds. But Pedro Novis alerts that, “In an organization like ours, which has a talent and calling for non-stop growth, the challenges will keep coming. Our Vision for 2020 is already approaching, opening up more room for the expansion of our current businesses, and OCS will play an even bigger role in that process.” Marcelo Odebrecht adds some numbers to that challenge: “I’d like to congratulate Marcos Lima and the entire OCS team on their anniversary. I’d also like to point out that there will be no shortage of challenges in the next 30 years, but the challenge now is to accomplish as much in the next three years as we did in the last 30.”