China Re to propel Chaucer’s LatAm growth

Backed by China Re, the world’s eighth largest reinsurer, Chaucer has set its sights upon significant expansion across the Latin American region.

“Chaucer has been underweight in the Latin American region for a number of years, in terms of classes of business written and line sizes deployed,” says Uwe Fischer, general manager of Chaucer Miami, speaking to FIDES Today. But that has changed with China Re’s acquisition of the business—in December last year, China Re bought Chaucer for $950 million.

Fischer expects new classes to be introduced, largely written from Chaucer’s Miami office, and for the company to lead a greater number of programmes. Chaucer originally opened an office in Argentina in 2010, but moved to Miami five years later to take advantage of a stronger economic and political environment.

Ed Lines, active underwriter for Chaucer’s Syndicate 1084, says: “We will be looking to expand our existing relationships with brokers and cedants across Latin America. Our facultative property team continues to provide a high level of service to cedants and brokers, and we will be looking to expand further into the Treaty market over the next 24 months.”

Outside Latin America, work is ongoing to ascertain how Chaucer can assist its parent company with China’s Belt and Road Initiative, a global development strategy adopted by the Chinese government, and other initiatives.

The acquisition forms part of China Re’s “One Core, Three Breakthroughs and Five Crossovers” 2016 strategy as it seeks to expand its global footprint.

Industry dynamics

“After the July treaty renewals, in which rates were flat and similar terms and conditions expired in loss-free accounts, we expect that discussions around current and future rate levels in the region will continue,” says Fischer.

He adds that increasing natural catastrophe events, large fire losses and other necessary technical adjustments have the potential to pull rates up, but there is still enough capacity and a low interest environment to reduce margins.

According to Lines, after a long period of soft markets, reinsurers are now pushing harder for rate increases, but also improved terms and conditions.

“Lloyd’s efforts to reposition portfolios (in terms of rates, conditions and capacity) will also continue, but this may cause more direct placement of Latin American business with reinsurers with a presence in the region,” he warns.

More widely, political and economic changes are influencing Latin American markets, as shown recently in the two largest economies, Mexico and Brazil.

Economic activity in Brazil fell slightly (0.13 percent) in the three months to June, according to the country’s economic activity index. This was preceded by a 0.68 percent fall in the first quarter, indicating that the economy may have slipped into a recession.

The falling activity comes amid a slowdown in the global economy and protests against the policies of new Brazilian President Jair Bolsonaro, including federal cuts in education spending and changes to healthcare for indigenous people.

Meanwhile in Mexico, Latin America’s second biggest economy, gross domestic product grew minimally (0.1 percent), according to reports from the country’s national statistics agency.

Although it will take time to build economic and political stability in the region, says Lines, natural resources and manufacturing industries will continue to attract foreign investments. Consequently, this will have a positive impact on the insurance market and its growth potential, he adds.

Fischer notes: “Advances in technological innovation in Latin America will also influence industry dynamics. Insurers will have to use technology to reinvent their processes, products and business models.”