28 October 2015 Insurance

Beazley optimistic about niche opportunities in Latin America

The Latin American market offers opportunities for specialist insurers like Beazley, which are able to bring new and innovative products to the local markets. That is the view of Ricardo Ortega, head of broker relations for Beazley in Latin America.

As a specialist insurer, the niches Beazley operates in do not always reflect what is happening in the more mainstream or traditional insurance areas, he added.

“Just because the high-level indicators may be stalling doesn't mean that a whole market is. The performance of Beazley Group's marine book, where we have continued to produce strong underwriting results though very depressed market conditions, is testament to this.”

More broadly speaking, one of the key challenges presented by the Latin American market is the current macro-economic situation, he continued.

“As per the latest report released by the International Monetary Fund, the whole region projects negative growth of 0.5% next year, largely driven by the political and economic crisis in Brazil and Venezuela where GDP projections for the current year are negative 3% and 10% respectively.”

He added that the political environment affects the re/insurance market as a whole, but most acutely affects the energy and agricultural markets, as a result of declining commodity prices (for oil and grain); the marine market, as a result of the result of falling exports; and the construction market, due to the decline in the number of infrastructure projects.

He added that falling commodity prices, the slowdown of China, and high basic interest rates and inflation, have had a direct impact on insurance activity, due to a significant decrease in the number of infrastructure projects and foreign investments in the region.

“From a reinsurance perspective, the market overall remains competitive with insurers seeking growth in the region, and therefore creating pricing challenges.”

The Latin American market has historically been dominated by traditional insurance products.  This offers opportunities for specialist insurers like Beazley:

“We are able to bring new and innovative products to the local markets such as cyber, professional indemnity, marine liability, sports personal accident, and contingency products (such as event cancellation and non-appearance), among others.

“We are a specialist insurer that operates in niches where skilled and highly experienced underwriters are needed to assess and price the risk.”

The product portfolio of Beazley is skewed towards areas that mainstream insurers have traditionally found it difficult to operate in, he added

From a regulatory standpoint, Ortega does not see significant regulatory barriers, as Lloyd’s is licensed to operate in the main Latin American economies.

“Brazil’s recently released new regulation – CNSP Resolution 322 – which gradually relaxes the compulsory cession to local reinsurers from the current 40 percent to 15 percent in 2020, and increase the intra-group cession gradually from the current 20 percent to 75 percent in 2020, has been welcomed by a few international markets, including Lloyd’s, and caused some discomfort to those who have invested and created a local reinsurance operation to entertain the compulsory cession of 40 percent,” he noted.

At FIDES Ortega expects to see interesting discussions in two areas:  how to improve underwriting results and how to achieve top line growth in such a competitive environment.

“I would expect discussions round risk modelling, risk management and claims handling to address the first topic; and discussions around innovative products and embedded solutions to address the second topic,” he said.

“When it comes to bringing in new products, or to embedding new products into existing policies, we are offering new choices for brokers and clients in Latin America.”

While Beazley sees attractive growth opportunities in Latin America, its focus will always be on profitability rather than growth for growth's sake, he added.

“Insurers that set themselves hard and fast targets for top line growth tend to lose money very quickly,” he said.

“Our initial objective is to strengthen relationships that Beazley already has in the Latin American region and to develop business that doesn't ordinarily come to Lloyd's.  We see particular opportunities in cyber, jewellers’ block, energy, marine, and professional and management liability lines.”

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