A bright outlook for LatAm despite risks
Despite several downside risks for the Latin American growth outlook, the insurance outlook for the region remains “relatively bright” this year, according to Fitch Ratings.
Eduardo Recinos, senior director in Fitch Ratings’ Latin American insurance rating group, explained that a number of events are requiring insurers to offer coverage in basically all business lines.
These events include the “recovery of gross domestic product in countries such as Brazil, Argentina, Paraguay, Dominican Republic and Central American countries, the multibillion infrastructure public investments in countries such as Colombia and Peru, and the ambitious communication, financial, and energy reforms taking place in Mexico”.
Across the region, Fitch expects insurance premium growth to be close to double digits in 2017.
“We believe the soft market is the greatest trend among reinsurers in Latin America, but also worldwide,” added Recinos.
He said: “The market continues to be affected by tight operating profits due to decreasing return on equity and higher combined and operational ratios above 100 percent and 90 percent, respectively, as of halfway through 2017.”
Recinos, who is also the regional co-head, explained that the rating agency expects the soft reinsurance market to continue, at least in the medium term.
Although a pricing floor doesn’t seem to have been reached, Fitch has observed that the Latin American market has commonly reflected above-average premiums.
“In the scenario of rising premiums, we don’t expect the Latin American market to be initially affected as other more developed markets could be,” he said.
Recinos expects catastrophic events to dominate discussions at FIDES, including analysing catastrophic models along with alternative capital structures such as insurance-linked securities (ILS) and catastrophe (cat) bonds.
Recently, the Mexican government confirmed it will receive a $150 million payout from the World Bank-supported International Bank for Reconstruction and Development (IBRD)/Fonden 2017 cat bond.
“As of today, Mexico is the only country in the region operating a cat bond, but it has been reported that Peru, Chile, Colombia and Mexico (the four member countries of the Pacific Alliance, a Latin American trade bloc), in partnership with reinsurer Swiss Re, are looking to develop cat bond cover for earthquake risk,” he concluded.
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