A new report by AM Best, titled “Fewer Major Cat Events Limit Claims Activity for Latin America Reinsurers,” reveals that the global reinsurance landscape is experiencing a shift, with limited interest from global reinsurers in Latin American markets.
This shift has created opportunities for domestic and regional reinsurers in the region. Over the past few years, global reinsurers have redirected their attention to areas less susceptible to catastrophic events or focused on regions where pricing justifies their capital investments.
Latin America has seen relatively few significant catastrophic events during this period, resulting in minimal insured losses.
Additionally, many of the region’s major reinsurers have substantial available capital due to increased retention by cedents during the challenging market conditions of 2021 and 2022.
As a result of this environment, domestic and regional reinsurers in Latin America have seized the opportunity by increasing their participation in lower layers of insurance programs or by delegating underwriting authority to specialised entities such as managing general agents. This shift has introduced new players to the reinsurance sector.
The report highlights that claims activity has been favourable for reinsurers, allowing them to generate income. Many rated reinsurers have successfully translated inflationary pressures into improved pricing strategies.
However, some cedents remain cautious, and underinsured markets continue to grapple with rising reinsurance costs.
In Brazil, domestic reinsurers with international catastrophe exposure are aligning their property catastrophe exposures with global trends.
Yet, this has not yet translated into significant underwriting profits or capacity growth, the report noted. On the other hand, admitted and occasional local reinsurers have experienced growth in ceded premium volume, reflecting the maturation of the insurance market and the increasing need for risk diversification.
Notably, the number of local reinsurers in Brazil has grown to 13 as of the end of 2022, compared to just nine in 2009.
Ricardo Rodriguez, a financial analyst at AM Best, emphasised the importance of surplus growth and retaining profitable business for Brazil’s domestic reinsurance industry.
However, in a year marked by presidential elections and ongoing global instability, attracting capital from investors and expanding capacity may prove challenging for reinsurance groups.
Political risks remain a significant concern for reinsurers based in Latin American countries. These companies are under pressure due to investment requirements in sovereigns with deteriorating credit quality.
While there hasn’t been a mass exodus to less risky domiciles, it remains a constant consideration in companies’ internal risk assessments. Rising interest rates could potentially boost reinsurers’ net income, depending on their asset-liability management and portfolio durations.
