The Latin American re/insurance market: a rich retrospective
It is just six months since re/insurers and brokers landed in Rio de Janeiro, Brazil, to attend FIDES 2023. In our special LatAm focus during March 2024, Intelligent Insurer will reflect on and review the highs and lows of this huge, opportunity-filled region, starting with this look back at the conference.
As re/insurers arrived in Rio de Janeiro to attend the Inter-American Federation of Insurance Companies (FIDES) conference in September 2023, most of Latin America had returned to normality after the COVID-19 pandemic. However, exposure to natural catastrophes and cyber risks remained high on the agenda for delegates.
In this retrospective look at the highlights of the region’s key event, from Intelligent Insurer’s coverage in FIDES Today, we get a snapshot of market conditions, growth expectations and what the experts were saying at that time. It provides a rich context for the market we now see in LatAm, just six months on.
Premiums outpace GDP
Growing risk awareness and financial literacy across LatAm will help drive growth, according to Kaspar Mueller, president, reinsurance, Latin America, at Swiss Re. But he told FIDES Today in September that there is also a lot of work to do, particularly for the insurance industry to narrow the growing protection gap.
“Key for growth is a stable and predictable regulatory and legal environment.” Kaspar Mueller, Swiss Re
The Swiss Re leader said it was an exciting time to be involved in the LatAm insurance markets—the forecast from the Swiss Re Institute showed that total premiums for the region will outpace gross domestic product (GDP) annually over the next five years.
“Key for growth is a stable and predictable regulatory and legal environment, which unfortunately continues to be a challenge in several countries across the region. We are committed to supporting our clients along this growth trajectory by bringing risk knowledge, data insights and meaningful reinsurance capacity.”
He said that Swiss Re has been performing strongly in LatAm over the past years, with both top and bottom-line growth above the industry average.
Nat cat pullback
Global reinsurers have pulled back from natural catastrophe lines in LatAm as this line of business has become loss-making overall in recent years.
Alexandre Chang, director, insurance ratings, at Fitch Ratings, said that prices had failed to keep pace with increasingly frequent, severe, and volatile weather-related losses due to climate change.
He told FIDES Today that this pullback from nat cat lines had taken the form of global reinsurers “tightening their terms and conditions to limit their aggregate covers and low layers of natural catastrophe protection”.
For insurers in LatAm, this has sometimes meant they are much less protected against natural catastrophe events.
But, Chang added, this presents an interesting opportunity for regional or local reinsurers who have ample underwriting expertise in the region, mainly in property/casualty, including catastrophe risk.
“Regional reinsurers with expertise outside LatAm have shifted to a wide array of non-catastrophe lines.” Carlos De la Torre, AM Best
Carlos De la Torre, managing director Latin America at AM Best, said that property/casualty continues to be the backbone of the region’s reinsurance market, especially given its nat cat exposures.
However, De la Torre told FIDES Today that regional reinsurers with expertise outside LatAm have shifted to a wide array of non-catastrophe lines, both in the region and beyond, focusing mostly on fidelity and other low-exposure liabilities.
Country growth picks
Ricardo Ortega, head of Latin America, broker relations, at Beazley, told FIDES Todaythat while the LatAm region can pose challenges for re/insurers, there are also many opportunities, especially as inflation starts to come under control and some countries see growth in their insurance markets.
He said that Beazley is looking to strengthen and consolidate its position as a specialty reinsurer in the region and expand the reach of its traditional lines through strategic partnerships in the region.
Ortega added that since setting up a Latin American placement hub in Miami around seven years ago Beazley has experienced double-digit growth year on year. His top six picks for countries where he expects to see growth over the next five years were Argentina, Brazil, Chile, Colombia, Mexico and Peru.
Optimism from Deutsche Rück
“The growth is ongoing, but the opportunities are massive, and not due only to cyclical factors such as the current hard market,” was the positive market outlook from Florian Kummer, managing director, Latin America at Deutsche Rück, when he spoke to FIDES Today.
“These are structural trends on the demand side, beyond the effect of economic cycles.” Florian Kummer, Deutsche Rück
Deutsche Rück started writing business in LatAm only three years ago, but Kummer was clear that this part of the business has enjoyed good growth and is seeing many more opportunities in the region, in part buoyed by the hard market.
“If we look at the underlying fundamentals of our industry, there is reason to believe that there will be a continued growth of insurance and reinsurance demand in Latin America in the coming years and probably decades, leading to growth rates far above GDP growth.
“The expansion—and resilience—of the middle classes in Latin America, the transformation in the business sector and a changing and growing risk landscape are the main drivers. Take natural catastrophes re/insurance as an example. Capacities needed today to meet the demand are significantly higher than they were 10 or 20 years ago.
“These are structural trends on the demand side, beyond the effect of economic cycles. In summary, we are very confident that our target markets will be growing strongly in the long run,” he said.
ILS durability in the Americas
Aon Securities’ chief executive officer Paul Schultz told FIDES Today that insurance-linked securities (ILS) have proved their durability in LatAm.
“The ILS sector has helped the industry to restabilise by delivering record levels of capacity.” Paul Schultz, Aon Securities
He explained that after a period of volatility in the wider risk transfer markets, the ILS sector has helped the industry to restabilise by delivering record levels of capacity. Innovation has helped to drive the sector’s growth—a trend that is particularly noticeable in the Americas, he added.
In Q1 2023, the World Bank issued a $350 million floating rate “Catastrophe-Linked Capital at Risk Note” for the Republic of Chile through its IBRD programme, under the name IBRD CAR 131. Placed by Aon Securities along with two counterparts, the catastrophe bond represented the majority portion of a wider risk transfer programme which provided Chile with a total of $630 million in financial protection against earthquakes—the largest-ever single country catastrophe bond and swap transaction.
Schultz said: “Despite being placed during a particularly challenging time, the transaction was highly regarded among investors and drew significant interest from the market.”
Brazil in focus
Brazil is the largest economy and the largest re/insurance market in LatAm. In 2023 it was showing positive signs with high interest rates aiding reinsurers and supporting robust pricing.
However, economic volatility and regulatory restrictions in this powerhouse of a country meant that rating agency AM Best maintained a “negative” outlook on Brazil’s reinsurance market in March 2023. Speaking to FIDES Today, Ricardo Rodriguez Perez, financial analyst at AM Best, explained: “We decided to maintain our negative outlook on Brazil’s reinsurance market in March 2023 for several reasons, including greater uncertainty during vulnerable times for Brazil’s economy, the country’s large fiscal deficit, the deceleration of the overall economy and conservative GDP growth forecasts, among others.
“There’s an insular aspect to the industry, with regulations on foreign assets that have stopped domestic reinsurers growing abroad. On a positive note, the persistently high interest rates continue to benefit the insurance industry, with high prices in underwriting also benefiting the primary industry,” he said.
On a more positive note, the Brazilian insurance market was headed for strong growth, according to a projection by the National Confederation of Insurers (CNseg). This is partly because the insurance market is relatively small in relation to the size of Brazil’s economy and partly because of plans developed by various representative bodies to grow the market.
CNseg indicated that the Brazilian insurance market would grow by 11 percent in 2023, which was not including mandatory vehicle insurance and health insurance.
Casualty insurance (not including mandatory vehicle insurance) was forecast to grow 18 percent in 2023, while two more areas expected to grow were auto, with a rise of 23 percent, and agricultural with an increase of 20 percent.
A report by Fitch Ratings said that the cyber insurance market in Brazil has the potential for “dramatic expansion”, as the product offers financial benefits for a growing risk which market participants are facing. The report, titled “Brazilian cyber insurance market overview”, released in August 2023, said that direct cyber insurance premiums grew 27 percent to R$98 million in 1H23, compared with R$77 million in 1H22.
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