For several years, European and US re/insurers have been turning their eyes from their almost saturated domestic markets to look for new business opportunities further afield. Frequently, the gaze has alighted on Latin America – a continent of plenty of potential, as multinational companies have invested in major expansion plans and domestic economies have ripened.
Recently, though, the plans have started to look a little shaky. To begin with, the economic crisis in Argentina has had a knock-on effect on Brazil, one of the more alluring of markets in the region.
And then there was the manana of the privatisation of Brazil's state-owned reinsurer, the IRB. This has been on the cards for many years now, and has come close to being sold off, but the government has not followed through with its promise. For some re/insurers, it was a sign that uncertainty was likely always to pervade the market. For others, however, it was part of the market growing, and despite the problems of the current time, they are willing to stick it through.
There are few doubts that life is getting tough at the moment. Fernando Gentile of Swiss Re comments, “one of the most serious challenges facing reinsurers in Latin America is a combination of consolidation among primary insurers along with the entry of non-Latin American insurers. This phenomenon continues to have an enormous impact on reinsurers, to the extent that many insurers may change reinsurers as they go from being locally-owned to being owned by a foreign entity.” At the same time, the markets are opening up, he points out – a move supported by Swiss Re.
Whether this liberalisation will change in the current business climate is unclear. Salvatore Orlando of PartnerRe comments, “on the one hand we have presently a very difficult social and economic environment, while on the other hand the pressure is increasing to adjust the local rates, covers and conditions to meet international market standards.” The factors behind the hardening market include the events of 11 September, says Mr Orlando, which will lead some reinsurers to reduce their available capacity, and could result in others completely withdrawing from the Latin American market. “Another important factor is volatility,” he adds. “I can well image that reinsurers will try to get more control over the volatility in their business and therefore will be trying to introduce event limits and cession limits for proportional treaties, as we had back in 1993. I can also imagine reinsurers will, of course, be looking for much higher margins than they have had in the past few years, which generally were difficult for reinsurers.”
Although those years were tough, Mr Orlando confirms PartnerRe's commitment to the Latin American market. “We will analyse the market very carefully and participate in those areas where we expect to achieve the best returns over the mid-term,” he says. “We will of course treat our existing clients with priority, but are still interested in acquiring new clients in anticipation of future opportunities.”
Those opportunities are identified in other sectors. Life reinsurance continues to interest international players, as nascent life markets start to develop, while the move towards privatised healthcare systems is lending new opportunities to health insurers.
It would be all too easy to sweep a broad brush across the continent, and Keith L. Shroyer avoids this approach by taking a country-by-country look at market conditions. Nevertheless, as generalisations, he notes the growth of life and life reinsurance business, mandatory auto coverage and the move towards dollarisation as changes likely to occur across the continent, and which, he says, will add to its stability.
With the current problems facing the global industry, the Latin American industry “has been through these kinds of cycles before and will experience them again,” he says. “It is the well-capitalised companies that will be best positioned to navigate through this global economic downturn.”