Gold rush of LatAm losing its shine

The rush to the Latin American region is losing its allure for some reinsurers, claims James Grieves, senior vice president and regional manager of the Latin America and Caribbean region at SCOR.

“With an increasing focus on expense ratios, particularly in the Lloyd’s markets, the number of reinsurers based in the region looks like it will be contracting,” he says.

Grieves adds that despite no shortage of reinsurance capacity, the market is maintaining a degree of discipline and consensus on pricing.

The July renewal was positive and continued the slowly firming trend seen through the January, April and July renewals, indicating that the underlying pressure and expectation is for an upward movement in pricing, he explains.

There does, however, appear to be a slight dislocation in pricing between the treaty and facultative businesses—the price improvement is “more pronounced and universal on the facultative business, while treaty is still seeing a patchy response”.

According to Grieves, there are clear increases in Chile and Peru due to capacity requirements but other territories are showing flat or more modest increases.

“This slight dislocation between facultative and treaty is causing cedants and markets to pursue co-insurance rather than engage the increasing prices in the facultative market which is something treaty underwriters need to be aware of and guard against,” he warns.

Despite the dislocation, Grieves believes, the underlying impetus is moving in the direction of firmer pricing and a tightening of terms and conditions.

In the region, SCOR is continuing to grow organically and to seek opportunities “selectively”, especially if the uplift in pricing gains traction, he adds.

‘Loss creep’ is a great concern for Grieves. He says it’s been a feature of certain markets and segments for many years but now it seems to be becoming more commonplace.

Typhoon Jebi, which hit Japan last year, appears to be one of the latest examples of this, with Grieves stating that each quarterly update from reinsurers is providing an increased reserve on the ever-expanding loss.

“In 2017 there was significant loss deterioration following Hurricane Maria hitting Puerto Rico, caused mainly by ill-disciplined underwriting, in particular business interruption policies, and exacerbated by political moves to speed up claims payments which backfired,” he adds.

This is in contrast with the English-speaking Caribbean, where the loss estimates provided by companies in the immediate aftermath of an event tend to be “remarkably accurate”, with the final settlement tending to be slightly less than the initial estimates.

“Why can these markets make accurate estimates on a consistent basis when it is beyond others?” he asks.

A watershed moment

The potential for consolidation in the insurance market, particularly the expansion of the ‘multi-Latina’ segment, is likely to dominate conversation at FIDES, says Grieves.

“Consolidation will continue—the expansion of the multi-Latina segment as well as the traditional global/regional players, but as we have seen before some groups do it well and many do not!”

The harnessing of technology and using it to simplify products and reduce distribution costs is likely to be another hot topic.

Grieves says that while the rest of the world is generally more advanced than Latin America, technology-oriented products are coming of age in the region.

Although SCOR’s strategy has remained consistent over many years, the reinsurer is planning to place more emphasis on technology and assisting its customers with reducing the costs of product distribution in the future.

While no changes are expected for specific lines or markets, Grieves warns that the political environment needs careful analysis.

“Argentina has an important election coming up, which could prove to be a watershed moment. Mexico has had elections and appears to be regressing. The recovery in Brazil seems to be in the balance while Bolivia could show some promise,” he says.

With an economic slowdown in progress, it’s clear that insurers and reinsurers alike are casting a keen eye over the region.