With an absence of high catastrophe insured losses in 2018, Fitch analysts say its rated reinsurers in Latin America registered an overall improvement in technical profitability.
Despite some claims from 2017 events still having been paid during 2018, the combined ratio for LatAm reinsurers was registered at 97.5% at YE 2018, down from 103% at YE 2017.
While the region’s insured losses of around $5.8 billion in 2018 represent an elevated sum, Fitch points out that it was far more manageable than the $36 billion seen the previous year.
However, pressure on overall profitability will continue to be influenced by investment portfolio performance, global pricing conditions, challenging macroeconomic environments and the periodic occurrence of natural catastrophes.
Fitch notes the LatAm reinsurance market is subject to global pricing conditions, given its small size in global terms.
Global reinsurance pricing turned decidedly positive at the midyear 2019 renewals, following the disappointing flat and generally stable rates at the January 2019 renewal.
Fitch expects competition to remain intense with pricing still below historical highs and believes reinsurance demand in LatAm will maintain adequate growth levels.
LatAm reinsurers’ capital quality remains strong, since retrocession is used to manage balance-sheet volatility and countries that have adopted Solvency II risk-based capital frameworks follow adequate reserving practices, where regulation also requires the inclusion of cat reserves.
Fitch expects most LatAm reinsurers’ ratings will remain stable, despite the challenges faced during 2018.
This assumes a base case scenario during the next 12-18 months where most LatAm reinsurers maintain adequate capitalization and profitability, despite global pricing trends.
