Roman Mesuraca, Head of Broking Latin America, discusses the market dynamics in Latin America from a capacity and coverage perspective.
Latin America insurance marketplace update
Hear from our experts and learn more about the latest
insurance marketplace trends
Transcript:
Latin America insurance marketplace update
0:03
Welcome to WTW's Global Marketplace Insights series, where our
experts bring you the latest risk and insurance perspectives.
0:20
Hello, my name is Roman Mesuraca and I'm the Latin American
broken leader for WTW.
0:27
While there is a sense that the market is in general less volatile
during the first half of 2023, in most Latin American markets we
are continuing to see rate increase. Feedback from the 1st July
Reinsurance Treaty Renewals was much more orderly than on January
1st.
0:45
However, increases were still significant even for Cat exposed
countries.
0:50
Although the headlines are less sensational than at a new year,
domestic insurance carriers are usually leading the markets in most
of the countries in the town in general represented by companies
that support their business strategy through solid financials,
reinsurance support and alliances, strong distribution channels and
balanced portfolio distribution.
1:15
Despite the restrictions in the terms and conditions assumed during
the last for the renewals, most of the carriers found a way to
dilute such additional cost and retention effects into the domestic
market.
1:28
The only main exception is for Cat exposed treaties, which capacity
has constraint, meaning that some carriers in several exposed
markets are controlling its deployment, particularly on new
business and less profitable accounts.
1:45
Insurance carriers are leveraging their underwriting and
commercialization strategy taking into consideration a competitive
environment for local and domestic products, the power of their
distribution channels, major retentions and restricted
occupancies.
2:01
Inflation scenarios have been reduced in many Latin American
markets and the macroeconomic environment start to be more stable
in order to let carries predict rising costs and claims.
2:14
With some exceptions like Argentina, Venezuela and Peru, we are
starting to see a difference in renewal results between pure
domestic and combined reinsurance placements.
2:25
While domestic renewals are more likely to achieve a single digit
increase or occasionally a small rate reduction, combined retail
plus facultative renewals continue to experience higher rate
increases.
2:38
Moreover, where there are large Cat exposures or risk challenges,
markets are taking advantage of the pure domestic capacity to
explore major participation of coinsurance instead of approaching
international reinsurance markets.
2:54
Facultative reinsurance markets are trying to leverage their
exposed portfolios with higher rate increases in order to cover the
additional expenses assumed globally originally for their
reinsurance or retrocession and Cat capacity purchase.
3:10
In that sense clients and brokers are trying to maximize the
capacity available in the local markets to achieve better renewal
results.
3:18
But they have to be cautious of the major expenses administrating a
major coinsurance even though when claims will arrive.
3:30
Talking about property for non catastrophe exposed risks with
minimal losses, we are seeing flat renewal or one digit rate
increases.
3:40
Occasional rate reductions may be achieved for the stress renewals
and challenge occupancies where there is a heavy Cat footprint or
the incumbent market are realigning their portfolio.
3:53
We are seeing rates increases starting at 5 to 20%.
3:57
Operational risk capacity remains a stable as there are no
newcomers in the Latin American market.
4:03
However, these will be driven by Cat footprint and
profitability.
4:08
We expect several markets to focus on risk, quality and
establishing long term profitable relationships as well at Cat
aggregates. New capacity is limited and replacing lost domestic
capacity often comes at an increased cost year over year.
4:26
Demonstrating progress on risk recommendations can be a
differentiator in the market.
4:31
ESG and reputation is increasingly part of the underwriting review
process and the areas in scope can be very broad.
4:39
Replacement cost valuations are still under scrutiny due to
significant increases in building material and transportation labor
costs, but more rating with new less inflation scenarios.
4:52
On casualty, there's a clear regional variation in rating with
Latin American liability renewals typically seeing rate increases
of between flat to 10% depending upon industry and loss
experience.
5:07
While these increases can be mitigated in geographies with the
strong lack local markets, there are more challenge occupancies or
frequency losses that are seeing rate increases between 10 to 20%
or maybe upwards.
5:21
While reinsurance treaty renewals with throw some short term
uncertainty in relation to the rating environment, it is unlikely
to create sustained upwards pressure.
5:32
Latin America market capacity remains stable and for some well
performing occupancies is increasing.
5:39
Though insurers continue to manage their participations through
ventilation or renewals.
5:45
Insurers are also looking to manage retentions to protect their
portfolios from future inflated claim costs. On financial lines in
general, the market in Latin America has softened in 2023.
5:59
Cyber policies are the ones that have benefited the most from this
softening as they have been substantial of improvements in terms
and conditions and even accounts that were not placeable a year ago
they could be placed with very good terms in 2023. Crime and
D&O have also benefited positively, but not to the same extent
as the cyber.
6:22
The London insurance markets have shown a lot of interest in the
region, increasing their appetite and proposing more aggressive
conditions than those of the regional reinsurance markets.
6:33
Most likely this trend will continue in the medium term since there
are great possibilities for growth in this line in the region.
6:41
At the regional level, we see new players in financial lines that
have deployed capacity and when seeking to build the portfolio,
they are being aggressive in the market.
6:51
We see interest from companies in cyber policies and much of this
driven by contractual obligations which specify having a cyber
policy to be able to work together.
7:01
Likewise, repeated cyber attacks in the region have let companies
to be more aware of this policy and perceive it as an obligation
within their risk program.
7:12
Finally, marine business and the writing discipline persists.
7:16
LATAM insurers remain focused on bottom line profitability with
continuous scrutiny of insuring terms, conditions and capacity
deployed.
7:25
There is plenty capacity in most of LATAM countries for marine
cargo and it's easier for buyers to resort to competition for
better renewal results being Mexico, the exception where the
capacity is being constrained due to very bad underwriting
results.
7:42
Other particular exceptions are buyers with frequency events, large
concentration of goods over single vessels or stocks on particular
occupancies sensitive to the theft and or damage such as
electronics food.
7:57
Between others there's restricted capacity for STP
programs.
8:02
The hard market cycle has engine premiums closer to the technical
pricing requirements and tighten coverage terms.
8:09
These actions have positively impacted underwriting results seeing
flat rates or even small rate reductions.
8:17
Thank you.
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