Global reinsurers’ limited appetite for Latin America business has created opportunities for domestic and regional reinsurers, according to a new AM Best report.
The Best’s Market Segment Report, “Fewer Major Cat Events Limit Claims Activity for Latin America Reinsurers,” is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo. Additional reports, including AM Best’s annual ranking of the Top 50 global reinsurance groups, are available at Best’s Research.
According to this report, global reinsurers have shifted their focus to areas less prone to catastrophes as Latin America or have targeted their capital in regions that justify price increases. In the past four years, large severe events in Latin America have been minimal and have not resulted in major insured losses. Most of the region’s large reinsurers also have ample available capital due to greater retention by cedents amid the hard market conditions in 2021 and 2022.
“Given this environment, domestic and regional reinsurers have increased their participation in lower layers of programs or have delegated underwriting authority to specialized parties like managing general agents,” said Eli Sanchez, director, analytics, AM Best. “As a result, we are seeing new names enter the reinsurance space.”
Claims activity has been favorable for reinsurers’ income, according to the report. To varying degrees, many rated reinsurers have reported more success translating inflationary pressures into better pricing. Nevertheless, many cedents remain reluctant, while underinsured markets continue to struggle against rising reinsurance costs.
In Brazil, domestic reinsurers with international catastrophe exposure are trimming their property catastrophe exposures in line with global trends. However, their actions have yet to translate into meaningful underwriting profits or capacity growth. However, admitted and occasional local reinsurers saw growth in ceded premium volume, reflecting the maturing insurance market and the growing need for risk dilution. The number of local reinsurers now stands at 13 as of year-end 2022, compared with nine in 2009.
“For Brazil’s domestic reinsurance industry, surplus growth and the retention of profitable business remain key,” said Ricardo Rodriguez, financial analyst, AM Best. “At the same time, in a year of presidential elections and persistent global instability, reinsurance groups will likely find it difficult to attract capital from investors and increase capacity.”
Political risks remain a significant factor for reinsurers domiciled in Latin American countries, which are pressured by investment requirements in sovereigns with deteriorating credit quality. Although there has not yet been a flight of companies to less risky domiciles, it is a constant consideration in companies’ internal risk assessments. Rising interest rates could help improve reinsurers’ net income if portfolio durations allow as well, depending on asset-liability management.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=335415.
A video discussion of this report also is available at http://www.ambest.com/v.asp?v=globalrelatam823english.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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