Latin American reinsurance market influenced by global reinsurance pricing

The Latin American (LatAm) reinsurance sector is highly influenced by global reinsurance pricing conditions, given its smaller size relative to the global market, and is prone to benefit from the current hard market conditions with better pricing and more favorable terms, according to a Fitch Ratings report.

International reinsurance pricing remained high throughout the various 2023 reinsurance renewal dates and prices are expected to peak in 2024.

Miguel Martinez, Director at Fitch Ratings Centroamerica

Reinsurers have pushed up rates steadily in recent years in response to various circumstances, including the COVID-19 pandemic, war in Ukraine, inflation and climate change-related natural catastrophes, which support their financial performance.

Miguel Martinez, Director at Fitch Ratings Centroamerica

More favorable terms and conditions have helped to lower the natural catastrophe burden underwritten by reinsurers as cedents have had to increase the retention of these risks themselves.

Fitch expects LatAm reinsurers to benefit from global reinsurance conditions by prioritizing pricing, natural catastrophe risk management and organic premium growth, but may also be challenged by inflation on claims costs, sovereign-related constraints or economic slowdowns from developing markets.

LatAm experienced catastrophe losses of around $18 bn in 2022, significantly below 2017’s record losses of nearly $150 bn, but higher than 2021’s losses of around $12.5 bn.

Insured losses in 2022 of $4.8 bn were manageable relative to insured losses from 2017 of more than $36 bn. However, the substantial difference between economic and insured losses in LatAm continues to highlight the importance of narrowing the protection gap.

According to AM Best, reveals that the global reinsurance landscape is experiencing a shift, with limited interest from global reinsurers in Latin American markets.

Latin America

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.

In Brazil, domestic reinsurers with international catastrophe exposure are aligning their property catastrophe exposures with global trends.

Ricardo Rodriguez, financial analyst at AM Best

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.

Ricardo Rodriguez, financial analyst at AM Best

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.

Nataly Kramer   by Nataly Kramer