As Latin America’s middle classes rise and prosper and the continent’s rich natural resources are giving the regional economies a boost, what new opportunities do reinsurance senior executives see ahead for their markets?
What are the main challenges that your company faces in Latin America in the next five years?
Pedro de Macedo, president and chief executive at Mapfre Re:
Governments have legitimacy to decide whether policies must be more or less protectionist in their countries. But difficulties come when the rules of the game based on which we have elaborated our business plan are changed halfway into the match.
Bruno Freire, business director at Austral Re:
Increasing competition in the market and consequent lower rates make it harder for traditional reinsurance operations to remain profitable. It is necessary to engage in a search for innovation and differentiation in products and market niches.
Paulo Botti, chief executive of Terra Brasis Re:
The transformation of Brazil’s reinsurance sector in the past five years is a victory for all participants in the market. But other
achievements are needed. A specific challenge to insurers is to improve the quality of information provided.
Alejandro Padilla, head of Latin America North, Swiss Re:
Strong competition can be a challenge from an industry perspective. From a context perspective, rule changes could be challenging sometimes. Some markets must upgrade policy frameworks to smooth out terms-of-trade fluctuations on local economies.
Which sectors and markets present the most promising opportunities?
Pedro de Macedo:
Our policy is to have long-term relationships with our cedants and brokers. We work in most of Latin America and all business segments. The growth of the middle classes’ insurance needs and their developing businesses generate reinsurance needs that we are meeting.
The most promising sectors are non-traditional reinsurance - life, health and agricultural. Some casualty and financial lines also have good potential for sustainable growth. It also helps that insurance markets are growing faster than the region’s economies.
Brazil is undergoing a social and economic transformation that will challenge insurers and reinsurers. Agricultural insurance is far smaller than it ought to be. We have only a shallow understanding of Brazil’s exposure to catastrophes. The energy sector is also a challenge to confront.
Swiss Re sees tremendous potential in serving the protection needs of Latin America’s growing middle class, as well as the region’s massive infrastructure projects, extensive natural catastrophe exposure and increasing legal sophistication.
What action is your company developing to expand its Latin American presence?
Pedro de Macedo:
Our challenge is to deliver to clients the information, knowledge and tools in the life segment that will enable them to provide services in the region’s growing markets, and which will result in the kind of recognition, from Mapfre Re’s clients, that we already enjoy in the non-life sector.
Austral Re is focused on Brazil. Our presence is growing particularly via differentiated service and the search for innovative solutions. There is no deadline to expand into other markets. But we are looking for opportunities to enable the continuing growth of the company.
We believe a reinsurer is a service provider and a partner to insurers and brokers. We have developed a research department and are promoting reinsurance courses to the insurance community. A high degree of operational efficiency is also key to our growth.
We have offices dedicated to Latin American business in Mexico City, Sao Paulo, Miami and Bogotá, where we recently opened an office. Less than a year ago we obtained a local reinsurance registration in Brazil. We are committed to our plans in Latin America.
Which regulatory challenges does your company face today in your main markets, and what changes could be implemented to enhance the reinsurance business in the region?
Pedro de Macedo:
We worry about excessive regulation that has been taking hold in some markets. We reinsurers often joke about it, saying that we dedicate so much time to reporting that we almost have no time to service our clients. There should be an effort to simplify and harmonise regulation.
We always have to adapt ourselves to local rules, and today we are well adapted to the Brazilian law. When we look at other nations in the region, regulatory stability is one of the factors that we take into account when making a decision about an eventual investment.
What we need is regulatory stability. Another round of regulatory changes increases the legal risk of doing business in Brazil and is detrimental to all. Any changes to the current framework should be fully discussed before implementation, as was the original 2008 legislation.
Risk-based regulations are being discussed in several markets. With them insurers will be required to make use of their capital
management expertise. Reinsurance is indeed one of the most important tools for capital management. That is also an opportunity.
Does the recent slowing of Latin American economies worry you? Is your company adapting its strategy to an environment of slower growth?
Pedro de Macedo:
In Latin America, growth is and will be a reality. Even if at the moment the economy is growing at lower rates than in some recent years, I believe that the development process that has started in many Latin American countries is irreversible.
We believe that in the medium and long term, Latin American economies will continue to post good growth rates, and that the insurance and reinsurance markets in the region will grow much faster than the economy for at least 10 more years.
This recent change in global sentiment towards pessimism may have a partly beneficial effect on our market. With less wild optimism directed at emerging markets, Brazil in particular, more rational and sound behaviour may prevail.
Economists are unanimous that the growth for 2013 is expected to be in the region of 3% and possibly around 4% in 2014, so the outlook is quite bright. We have been committed to Latin America for more than 100 years and that will not change.