26 October 2015 News

Capital markets coming to Latin America: Bruno Freire

New products and opportunities, especially parametric and index products, will be hot topics at FIDES, says Bruno Freire, CEO of Brazilian reinsurer Austral Re.

He also expects a lot of talk around the consolidation of the market and mergers and acquisitions (M&A), and on the possible involvement of the capital markets.

“I believe this is something that will come here soon,” he said. At present, Latin America’s relatively bureaucratic approach to legislation is a prohibitive factor, he added. Another factor is a lack of cat modelling, but the growing tendency for the capital markets to cover other lines of business will make it easier for them to enter the region.

“I don’t see cat bonds in Latin America—at least in the near future—but we could see sidecars, for example, because for that you need less data. We could also see capital market involvement in parametric insurance.”

However, there need to be changes in the law to be able to transfer risks to the capital market, he noted.

“In Latin America the rules are too specific and you don’t have as much flexibility to innovate,” he said. “In a way the capital markets are already here because international reinsurers bring capacity through the capital markets—so while the capital markets are not directly accessing Latin America, they are indirectly accessing it.

“What needs to be done now is to create an environment where it is possible for capital markets to come directly to the region, and not only through traditional reinsurers.”

The big slowdown in economic growth of the region is a key challenge for the reinsurance industry at present—especially in Brazil, and especially with declining investment in infrastructure, said Freire.

The soft market continues to be an issue, and with the increase in M&A there are fewer local or regional reinsurance buyers but more global reinsurance buyers.

“They don’t buy reinsurance through the region; they buy it globally,” he said.

Another issue for the Latin American reinsurance industry is the decline in construction projects, he said.

He added that surety risks could be an opportunity but also a very big risk for the reinsurers of this market.

For 2016, he sees Austral Re focusing on expanding beyond Brazil to become more regional: it is now in Peru and is obtaining licences to write in Argentina, Paraguay, Colombia, Ecuador, Panama and Mexico.

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