If anything, operating conditions in Latin America have toughened in the last twelve months. In this special report last year, contributors pointed to the region's unsettled social and economic environment, the challenges of industry consolidation and the prospect of stiffer competition as foreign re/insurers entered the market looking for new opportunities.
The story, as the region heads into 2003, is one of harsher economic conditions, some consolidation in certain countries and a market as competitive as ever. Yet this is not because the multinationals have strengthened their presence in the area - the global uncertainty has left them more focused on surviving their investment losses than on grabbing market share in exotic lost continents. Perhaps only China, with its fast growing - and potentially gigantic - middle class is the exception to this rule globally.
For a region comprised of emerging markets, above average economic growth is a prerequisite for substantial long-term investment. That growth offers profit opportunities that can outweigh domestic drawbacks such as unusually high terrorism and kidnap risks, and questionable legal practices (see Keith Shroyer's comments on Mexico on page 40).
However, global events and internal problems - such as the Argentinian financial crisis and political uncertainty in Brazil - have combined to restrict growth opportunities in Latin America in 2002. If economic growth is slow or falling, it is unlikely that per capita income is rising. This restricts the amount of money that people have to spend on relatively sophisticated products like life insurance.
Indeed, it was life insurance that drove the growth in Latin American re/insurance markets for large parts of the 1990s. Alan Watts (page 18) points out that the demographics of the region still offer a potentially huge market for life insurance products, but he concedes that most of the potential is yet to be realised because of socio-economic obstacles.
Interestingly, premium volume in the region has been growing, with reinsurance premium growth outpacing direct premium growth, particularly in the non-life sector. Jutta Bopp (page 35) explains that this - one result of the hard market - is likely to be a short-term phenomenon. She says sustained premium growth will only be possible if there is a rise in demand for insurance. That requires economic growth and political stability.
Although there has been some foreign insurer expansion into Latin America this year, it has hardly been overwhelming. Activity in Argentina appears to have been limited, while Brazil lost several major reinsurers, according to Ms Bopp, because of uncertainty over the privatisation of IRB-Brazil Re, the state monopoly reinsurer. However, ING bought a 49% stake in the largest direct insurer, Sul América.
Mexico was the market which captured most of the attention: Citigroup upped its presence; Prudential Financial entered the market; and the state life insurer, Hidalgo, was sold to MetLife for almost $1bn.
In terms of local companies, Salvatore Orlando takes a closer look at the situation in each of the major economies, assessing the market share of the local players - as well as their foreign competitors. In terms of consolidation, it seems that Venezuela saw the most activity, with two significant mergers this year.
The same rules
For all the events of the past 12 months - and the problems that are specific to the region - Latin America is still bound by the same rules as other insurance markets. Luc Albert and Thomas Holzheu (page 14) reiterate the need for re/insurers to avoid relying on investment returns, to go `back to basics' and to maintain underwriting discipline as the path to profitability. They also call for greater operating efficiency and careful selection of long-term reinsurance partners that are financially sound.
They, like the other contributors to this special report, also remain firmly optimistic about the long-term potential and possibilities for the re/insurance industry in Latin America. Opportunities clearly do exist for companies that can manage their underwriting and expenses effectively, but they need to keep their ambitions realistic given the challenges and frustrations that are inevitable in an emerging market environment.
By Dermott White
Dermott White is assistant editor on Global Reinsurance.