Unstable optimism in LatAm

It may be politics as much as premiums that is the deciding factor when it comes to Latin America’s re/insurance prospects. There’s massive scope for growth, but players cannot ignore a history of political instability, says II panel.

At the start of our month-long focus on the LatAm market, Intelligent Insurer invited three experts on the region to discuss the short-term and long-term outlook: Andrea García-Beltrán, cyber head for Europe at managing general agent Nirvana; Miguel González Arrate, president of Miami-based Baalnak Reinsurance and Innovation, a Lloyd’s broker and coverholder serving the US and Latin American markets; and Carlos De la Torre, rating agency AM Best’s managing director for Latin America

All were united in their optimism for the market. Growth in the market is positive, if slower than in the immediate aftermath of the COVID-19 pandemic, falling to 1.9 percent last year and a forecast of 2.1 percent for 2024, from 3.9 percent in 2022, according to consultant Deloitte. Inflation—a long-term issue in many countries in the region and a particular problem recently—is expected to be more stable. 

Crucially, insurance penetration is low—little more than 2 percent in most countries, making it ripe for growth. “There is massive potential in the region,” said De la Torre.

As the panellists explained in a companion article, it’s a diverse region, and the opportunities for countries, sectors, and coverage vary widely. However, there was significantly more consensus regarding the factors that might stop that growth from being realised. Politics loomed large.

“There is a wariness in terms of the outlook for growth perspective when it comes to the political situation through the region,” noted García-Beltrán.

This, agreed De la Torre, “is uncertain, to say the least”. 

“The impact of climate change on risk profiles is going to be a key trend.” Miguel González Arrate, Baalnak Reinsurance

Hurdles ahead: elections loom

Politics is, of course, not the only challenge LatAm faces. Some of the issues are both common to other regions and obviously outside its control. Appetite from global reinsurers, for instance, has been limited by the shift in focus to less nat cat exposure due to climate change, noted De la Torre, and it poses a key risk for players in the region. 

“We need to have talent who understand the different circumstances throughout the region.” Andrea García-Beltrán, Nirvana

“The biggest challenge for us in the long term is that we need to think outside the box,” said Arrate. “The impact of climate change on risk profiles is going to be a key trend.”

Meeting such challenges will rely on having the right people on the ground. 

“We need to have talent who understand the different circumstances throughout the region,” explained García-Beltrán.

Politics remains perhaps the most notable risk to the region’s future because it impacts so many of the areas required for growth. 

“Throughout the region, there is a very divisive political environment,” said Arrate. “You are on one side or the other—there is no middle ground.”

This relates not simply to traditional political risks, with the prospect of sudden changes in power—although that, noted De la Torre, can never be ignored by either local or global players in the market. Rather, as Arrate explained, the divisiveness can lead to opposition for opposition’s sake, preventing necessary projects and reform to underpin growth. 

“The key areas of growth in the region are e-commerce, new energy, infrastructure development, and technology. All of those require a clear backing from local governments and clear regulations,” he pointed out.

Inside and out

Players in the market will have to wait to see how those risks play out, but they should get some indication very soon with the presidential election in Mexico—the second-biggest economy in the region, behind Brazil. 

Campaigning started formally at the beginning of March, and on June 2, millions of voters will turn out to the polls to choose their new leaders. However, how smoothly the vote goes and how readily the decision is accepted, following February protests against electoral reforms, may be as important as who wins.

“If things go well in Mexico with the elections and the transition of power, the chances are that the expectations for growth in the region can be met,” said Arrate. “The problem will be if that is not the case.”

It will not be the end of uncertainty and challenges in a region diverse enough always to guarantee the unexpected. Moreover, it won’t be just homegrown issues the market must contend with. Indeed, with the US presidential election later in the year, politics outside the region can be just as unpredictable—and will also have an impact, Arrate pointed out. 

However, it might improve clarity around how soon and how easily the undoubted promise of LatAm’s re/insurance market can be realised.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.