Cedants: beware of opportunistic, untested capital

Cedants in Latin America should be wary of low pricing and cheap capital, warns Marco Giovane, senior vice president, facultative and marketing managerfor Trans Re.

“Most of the time this is not the solution,” he said. “The region has to understand that there is a lot more to reinsurance than just underwriting, so insurance companies should look very closely at what is behind a reinsurance company’s underwriting.

“We have seen an increased presence of opportunistic capital within the region that offers capacity and low prices. The rest of the companies that have been present for many years are giving the market knowhow and capacity, and behind that is the ability and willingness to help companies to grow or help them in a moment of stress.”

Giovane worries the opportunistic capital that has entered the region has not gone through a stress test such as handling a big cat event. They only see the premium and the good results offered by the market and forget that when the time comes they need to be prepared to give an adequate and supportive service to their clients.

“I am not sure that all these companies here at the moment would be able to do that,” said Giovane.

Trans Re is keeping a very traditional approach towards the region, he added—but it is also evolving this approach in order to be first in the line in terms of offering suitable products.

“Offering capacity and pricing is important but not the most important thing—that has to go together with the willingness to work with customers as part of a long term trading relationship. We have a very stable group of clients that appreciate not only our underwriting but also what we offer post underwriting.”

This approach is bolstered by the company’s commitment to putting local faces behind its departments so that someone who knows the market and speaks the language is only a phone call away.

“Speed of response is one of the strongest things that we have,” he said.

Over the coming year Trans Re will pursue growth in terms of the different lines and products it offers in the region, said Giovane.  The region is becoming very competitive, not only on the insurance side but also on the reinsurance side so we are preparing for the challenges ahead.

In pursuing this growth, Giovane is mindful of the challenges that are presented by the economic conditions in some Latin American countries.

“I think we are going towards a period of economic stagnation,” he said.

Other issues include problems around currency controls in certain countries, high inflation, political instability and the shift towards reinsurance nationalisation, particularly in Argentina.

“We have increased regulation, which is not necessarily a negative point: we support the regulations and the regulatory offices but there is a problem when politics starts influencing these offices in order to make a point or demonstrate power.  We agree with the goal of customer protection but sometime we wish Regulators coordinate their approach better.”

Despite its challenges, the Latin American market is still growing. Giovane perceives opportunities arising from low insurance penetration and demand for new products.

“Another important factor is that Latin America is a big region and each country behaves by its own rules, which although it can turn into a challenge, with the knowhow, you can always achieve a good balance and spread your probability of losses,” he said.

Trans Re combines a local presence through its network of local offices in Latin America coordinated by its Miami office, he added.

“We always take the view of a traditional reinsurer, which includes working closely with the regulators in order to make them understand the needs of the international market. We work closely with our clients to give them the products or services they need in order to adapt to the region’s challenges by providing local underwriting, accounting and actuarial services.”

Giovane expects the mergers and acquisitions of companies within the Latin American market to be a hot topic at FIDES, along with the adaptation of insurance and reinsurance products to cover the consequences of climate changes.

“It will be important to adapt to the increasingly drastic effects of climate change,” he said. “Everyone is talking about floods but there is also the other side, which is drought. This touches different lines of business, from agriculture to property and cat covers, so it will be interesting to have discussions around that.”

Marco Giovane can be contacted at: mgiovane@transre.com