Latin America reinsurance on the uptick, but additional capacity will be necessary

Latin America reinsurance on the uptick, but additional capacity will be necessary – AM Best | Insurance Business Australia

Reinsurance

Latin America reinsurance on the uptick, but additional capacity will be necessary – AM Best

GDP growth in the region contributing to segment’s continued rise

Reinsurance

By
Kenneth Araullo

Reinsurance companies operating in Latin America continue to experience growth driven by the region’s expanding GDP, though the effects of Hurricane Otis in 2023 underscore the ongoing need for additional reinsurance capacity, according to a new report from AM Best.

According to the report, in the first half of 2024, reinsurers have continued to support primary insurers in Latin America. Some global reinsurers operating in the region have adjusted their risk appetites, driven by global mandates or increased risk aversion.

Where gaps in placing contracts have emerged, they have generally been filled by other large international reinsurers or regional players, though in a few cases, programs were not fully placed.

Eli Sanchez, director of analytics at AM Best, noted that the experience of reinsurance renewals across Latin America has varied, with a trend favoring primary insurers that have more comprehensive enterprise risk management practices.

These insurers tend to have better claims experiences and, as a result, are able to negotiate reinsurance contracts more effectively. Sanchez pointed out that recent significant events in the region, such as flooding in Brazil and the aftermath of Hurricane Otis in Mexico, have influenced renewals.

The report also highlights the increasing use of managing general agents (MGAs) as a strategy to provide capacity to the Latin American market or to allow regional reinsurers to assume risks from abroad. The region’s attractiveness, amid declining global interest rates, may drive more demand for delegated underwriting authority enterprises (DUAEs).

Reinsurance in Brazil

In Brazil, domestic reinsurers with exposure to international catastrophes are aligning their property catastrophe exposures with global trends by reducing them.

However, these adjustments have not yet resulted in significant underwriting profits or capacity growth. Instead, domestic reinsurers are focusing on specialty lines such as surety, auto, transport, and agricultural risks, which they see as growth opportunities.

Ricardo Rodriguez Perez, a financial analyst at AM Best, noted that the increase in ceded premiums—8.9% growth in 2023—to local reinsurers is indicative of the maturing insurance market in Brazil. He added that pricing remains favorable, supported by the hard global reinsurance market.

The report identifies transport, special risks, and property reinsurance as the key lines contributing to the annual growth in 2023. Agricultural reinsurance, although considered a natural catastrophe-like exposure, has seen innovative techniques implemented to monitor climate risks, yet underwriting in this segment has declined by 26%.

Despite these efforts, the agricultural line continues to face underwriting losses, leading reinsurance companies, particularly offshore players, to reduce their exposures in this segment to minimize overall risk.

The industry has seen significant shifts in premium cession patterns, with insurers and domestic reinsurers in Brazil dramatically increasing the proportion of premiums ceded to occasional reinsurers from 10% to 95% by the end of 2019.

This trend has continued, with the volume of premiums ceded to occasional reinsurers growing rapidly due to the increased limits for ceding premiums from local insurers and reinsurers. As a result, occasional reinsurers have experienced a compound annual growth rate of 102.2% over the past three years, compared with 40.3% for admitted reinsurers and 17.5% for domestic players.

In 2023, approximately 51% of premiums from local reinsurance companies were ceded to offshore reinsurers, up from 47% in 2022.

Brazil’s regulatory framework continues to evolve toward a more open and less restrictive reinsurance market, allowing occasional and admitted global participants greater access while maintaining strict regulatory measures to protect policyholders.

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