Scope for growth: the rise of Latin America

In a sometimes volatile and always diverse market, there’s nevertheless strong optimism that Latin America is set for significant growth. Where and how it will come remain uncertain, but one thing looks increasingly clear: managing general agents (MGAs) will be at the centre of it.

Diverse, unpredictable and growing fast, the Latin American market offers no shortage of challenges for the insurance industry—but also a tremendous opportunity. Low market penetration is characteristic of the region. According to AM Best’s managing director for Latin America Carlos De la Torre, insurance penetration in Chile is a little over 4 percent—and that’s one of the stronger markets. Regionally it’s below 3 percent. 

“New entrants are bringing a fresh perspective.” Andrea García-Beltrán, Nirvana

However, for De la Torre, low penetration is just “premiums insurers haven’t written yet”. LatAm is a “thriving, continuously growing region”—albeit volatile. When he spoke to Intelligent Insurer, De la Torre had recently returned from Miami Insurance Week, held in a city that’s become a hub for Latin American re/insurance. So, too, had the other two participants who joined Intelligent Insurer’s Claire Churchard: 

• Andrea García-Beltrán, cyber head for Europe at MGA Nirvana; and 

• Miguel González Arrate, president of Miami-based Baalnak Reinsurance and Innovation.

As Arrate said, the event itself illustrates the growing optimism in the industry regarding Latin America’s prospects. 

“We’ve been participating in the event since the beginning, and the number of people and companies represented has increased dramatically,” he said, “not only in terms of capacity but also the service companies now around.”

García-Beltrán agreed and pointed to sessions on cyber risks as one explanation for the optimism about the market. 

“It shows an increased acceptance of new products and interest in developing areas of risk such as cyber,” she said. “New entrants are bringing a fresh perspective and competition and fostering innovation.”

Areas for growth: energy, e-commerce, cyber and D&O

It isn’t easy to generalise when it comes to where opportunities arise. As De la Torre explains, it’s a diverse market. While most of the LatAm countries are Spanish-speaking, the similarities often end there. 

“There is a big difference between the ways of thinking in each, and every company and country has a different approach. There’s not a single view,” he said. “Local buyers tend to be very specialised in their appetites.”

Nevertheless, one can identify some of the more “vibrant economies”, according to Arrate. They include Brazil and Mexico, but also Colombia. Particular sectors also look ripe for further growth, he added. Among them is e-commerce, which will drive demand in two areas: marine cargo to provide cover for transportation, and nat cat coverage relating to storage—notwithstanding the challenges that brings, given the region’s exposure, particularly to hurricanes. 

The market will grow, added Arrate, as existing and new providers embrace technology to address what he identifies as a gap in intermediation at reinsurance and retail levels. “If we can bring more technology into retail intermediation, it will allow for better penetration and higher premiums,” he said.

For García-Beltrán, there were three main areas for potential growth: cover for energy projects, both renewable and traditional; directors and officers’ liability fuelled by startups in the region and the need to protect leadership teams and boost investor confidence; and cyber. 

“Across the whole region, digitisation is increasing, and businesses are recognising the importance of protecting against cyber risk,” she said. “That is a huge opportunity within the SME and micro market segment.” Brazil, Chile, Colombia and Mexico look to be key markets.

The rise of the MGA

“Now the markets are going regional.” Miguel González Arrate, Baalnak Reinsurance

Two additional factors are likely to support the growth of the LatAm market. The first is the “tropicalisation” of capacity—adapting products and wordings from other markets to apply across LatAm or several countries within it. 

“In the past, you had to go to two or three places to do the reinsurance business. Now the markets are going regional,” explained Arrate.

Related to that is the role of MGAs, which are ready access to a local presence. “It is the easiest, most effective way of deploying capacity and being able to do so in a way that serves the region and specific needs of the country,” he said. “They are going to be the future.”

He is not alone in that judgement. According to De la Torre at AM Best, which recently launched a performance assessment service for MGAs, reinsurance and ceding companies are increasingly alive to the value of MGAs. They bring certainty to capacity providers, brokers, and others in a region with its fair share of volatility and instability. 

“The market is now heavily influenced by the local presence of delegating underwriting authority enterprises or MGAs,” he said. “They are the driving force in the market.”

Those who are looking to grow in the market should take time to investigate them, he suggested, to understand their capacity providers, processes, local relationships and talent. 

“That is key to making better decisions,” said De la Torre. “In a changing and diverse market, there is one certainty: they are here to stay.” 

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