Latin America attracts more reinsurers

More and more global reinsurers are showing an interest in doing business in Latin America encourage by the attractive growth prospects in the region, according to Matthias Marwege, senior executive manager at Munich Re, responsible for Latin America, Spain, Portugal and the Caribbean.

“The increased interest from reinsurers from all over the world confirms our view on the attractiveness of the Latin American reinsurance markets. As demand for reinsurance in the region is growing, also in the future there are many business prospects for Munich Re,” he said.

But he said the key to securing this growth in the market will be developing innovative solutions to protect risks that were previously uninsured or underinsured. “Given the still low insurance density in Latin America, we see great opportunities for our clients, intermediaries and for Munich Re,” he said.

“Where there are complex risks, such as in connection with the expansion of infrastructure, we can contribute. The same applies to the development of sustainable solutions for agricultural insurance and for coverage concepts for the protection of state assets.”

He said that while the entire continent remains an attractive growth market for Munich Re, the company sees particular potential in the Pacific countries Chile, Peru, Colombia and Mexico.

“Overall, we predict that several million people in Latin America will be buying insurance for the first time in the coming years, and also that considerable investments will be made in the expansion or modernisation of infrastructure. These macroeconomic developments are leading to insurance-market growth rates in excess of the general rate of economic growth,” Marwege said.

Munich Re is already reinsuring clients in almost all countries in Latin America and has offices in Argentina, Brazil, Chile, Colombia, Mexico and Venezuela.

“I think it’s important to have a clear mid-term and long-term strategy for Latin America as we have,” he said. “We have seen several ups and downs over the last decades. Nevertheless, our business has done very well and therefore we are committed to developing in this region and being represented there through our local offices.

“That is different to some other reinsurers who don’t have this local presence, or are reconsidering their local presence. We are convinced we need to be close to the market.”

Marwege believes some the main talking points at FIDES will include the health of the global economy including macro-economic prospects for Latin America and the impact of lower commodity prices and volatility in capital markets as seen in Colombia this year.

Other topics will include the diverse economic growth prospects for the region depending on the respective political situation, in particular influence of infrastructure investments as well as the regulatory environment and the extra demand for capacity in these fast-growing countries.

Finally, the supply of capacity from new sources such as reinsurers from emerging markets will be a talking point as will the theme of sustainability as a key aspect for doing business for both insurers and reinsurers, he said.

He said another big theme at the event will be how the prolonged low interest-rate environment has led to a gradual reduction in investment earnings and has increased the importance of the underwriting result – but he believes innovations are helping the industry overcome this.

“The industry is developing new cover concepts in life with modified savings and guarantee products to cope with the challenge. I’m convinced that underwriting excellence and discipline is key in times of uncertainty,” Marwege said. “Hence, pricing needs to be based on risk-free rates, and a strict focus on the liability side should be the main source of value creation.”

But he does not believe the biggest talking point in the reinsurance markets globally – the influx of alternative capital – will have a material effect on the markets in Latin America just yet.

He said that the main driver of the recent significant growth in alternative capacity has been the global scarcity of investment opportunities due to the low-interest-rate environment. But Munich Re believes that alternative risk transfer products are a supplement to traditional reinsurance and are only suitable for peak peril risks with a high availability and reliability of external models.

Furthermore, he believes the capital inflow will remain first and foremost within the non-proportional natural catastrophe segment, such as large US scenarios. Hence reinsurers with a pure or predominant focus on large catastrophe capacities will come under pressure.

“We do not expect that pension funds or other fully collateralised capital will enter the Latin American markets directly in the near future. However, there may be indirect ways in which this capital reaches Latin America such as by providing capital to reinsurers or by international players that use such capital in their global placements,” Marwege said.