LatAm reinsurance rates out of sync with other regions
Reinsurance rates in the Latin American region are sometimes lower than those in Europe, making it difficult for Sompo to justify the deployment of capital to the region.
“We tend to forget that the Latin American countries are competing with other regions in the world for reinsurance capacity,” Micaela Cojocaru, Sompo International Reinsurance deputy head of trade credit and surety, told FIDES Today.
“Sometimes we get higher prices in Europe than in Latin America,” she noted.
If countries with lower risk offer better business margins, it is difficult to justify deploying larger capacities in Latin America, Cojocaru said.
Sompo International is focusing on specialty lines in Latin America, particularly surety, marine, engineering, and agribusiness.
“The line in which we find prices are not satisfactory for us is property,” Cojocaru said.
Sompo is very restrictive in its participation in natural catastrophe reinsurance cover as rates have been under significant pressure lately.
“In a few cases, conditions in Latin America have enabled us to participate,” Cojocaru said.
Even two recent earthquakes in Mexico may not move the needle due to overcapacity in the market, she added.
Insured losses from a magnitude 7.1 earthquake that struck central Mexico on September 19 could reach $2 billion, according to estimates.
This tremor followed a magnitude 8.1 earthquake that struck off the southern coast of Mexico.
“I have not seen a strong effect on rates but we are also not yet in the final quoting phase in nat cat covers,” Cojocaru said. “My hope is that rates will go up but I fear they won’t.”
Nevertheless, Mexico remains one of Cojocaru’s favourite markets in Latin America, and her confidence in Mexican companies remains solid. A professional operating environment with experienced players makes Mexico an attractive place to do business, she said.
The Latin American market Cojocaru perceives as most challenging at the moment is Colombia.
The expectation that the peace agreement with the Farc leftist rebel group would boost economic growth has attracted international insurers to the country, either by creating subsidiaries or by launching new insurance companies. This has led to an overcapacity of insurance and even larger overcapacity of reinsurance, Cojocaru said.
In 2015 for example, WR Berkley Corporation formed Berkley International Seguros Colombia to provide a full range of commercial insurance products, including construction all risk, surety, general liability and directors and officers liability. Berkley Insurance Company entered the Colombian reinsurance market in 2014 by establishing a representative office in Bogotá.
Over the last few years the market has gone through an extreme development with rates going down and claims ratios increasing, Cojocaru noted. Conditions continue to get softer and measures taken by the insurance supervisor banning the subsidising of one line through another, as well as capital requirements, have not yet shown the intended effect, she added.
“We are decreasing some participations in Colombia and we have also seen established reinsurers stepping out of this market,” Cojocaru said.
Don't miss the latest industry news - Sign up to our free email newsletters
More storeis from the FIDES Day Three Newsletter
Big insurers exit LatAm on back of poor performance
FIDES 2017 highlights opportunities for LatAm insurance industry
Protection gap the main talking point at FIDES 2017
Do regulators understand insurtech?
Austerity heavy on Central America and Caribbean economies
Gen Re talks regulatory requests and new opportunities
Argo Group opens Miami office to tackle LatAm market
LatAm recovery strengthens as election cycle starts
Microinsurance covers 52m people in LatAm
Re/insurers prepare for growth in LatAm
PartnerRe aims to double its market share in LatAm
Rates and retentions: main concerns of brokers
Lessons learned from Mexico earthquakes
Earthquakes may sour appetite of ILS investors
The industry must prove itself to clients after disasters
