Declining oil prices set to squeeze LatAm re/insurers

Government efforts to counter the effects of declining oil prices by raising taxes for re/insurers will be a significant theme in the LatAm region over the coming year. That is the view of Daniel Duesterhaus, general manager for Central and South America at Hannover Re.

“The economies in countries such as Venezuela, Ecuador, Colombia and Brazil are especially affected by declines in oil prices,” he said. “Where their incomes are being cut by declining oil prices, they are going to look to the private sector to generate extra revenue streams.”

Other key themes for discussion at FIDES this year will include the soft market conditions in both the reinsurance market and the primary market, he said.

“If we have a frequency of very large cat events, will smaller and less diversified reinsurers be able to pay for that within a short time frame? That’s something we should be asking,” he added.

Duesterhausexpects much of the talk at FIDES to focus on the mergers and acquisitions taking place in re/insurance and what impact they will have on the LatAm market.

He added that the current challenges for re/insurers in the region relate to the political environments in some LatAm countries and changes to local regulations; while countries such as Brazil have opened themselves up to international players in recent years, there is also the restriction of the free market in countries such as Venezuela, Argentina and Ecuador.

Much of the growth potential in the LatAm region relates to the growth of the middle class and the related urge to maintain and secure certain levels of wealth, said Duesterhaus. A related theme is the growth of commercial, industrial and mortgage-related property insurance lines, as well as property cat insurance.

There is also significant growth in auto business, life, and D&O liability insurance, he added.

He said that Hannover Re’s plans in the LatAm region over the coming year will focus on fostering existing and new client relationships by offering and developing new products while maintaining a continuous relationship without any significant changes.

“The LatAm market will continue to grow, but it varies according to country and the emphasis of its political leadership. Insurance penetration will increase further and demand for reinsurance will continue to rise strongly in nat cat-exposed territories.

“A lot will also depend on macroeconomic conditions and the decisions of local governments,” he added.