Global players face regional competition in LatAm

Global players are facing competition from regional reinsurers in Latin America, said S&P Global Ratings analyst Pedro Breviglieri.

“The expansion of regional reinsurers, particularly Brazilian ones, into other Latin American countries has been eased by regional cultural similarities and operations that are more nimble than those of the larger, global reinsurers,” he said.

Additionally, regional reinsurers that are looking for opportunities involving infrastructure development are tailoring offerings for regional insurers that can find global reinsurers “less responsive to their needs”.

But while reinsurers are still managing to find opportunities, Latin America’s gross domestic product (GDP) growth is expected to be only 1.4% in 2017, 2.3% in 2018 and 2.6% in 2019.

According to Breviglieri, this compares unfavourably with the average of all emerging markets, which are expected to present a GDP growth of 5.2% in 2017 and 2018 and 5.4% in 2019.

“As Brazil—the largest insurance market in Latin America—struggles to climb out of its severe recession, we expect to see lower-than-average premium growth there over the next two years,” he said.

But, Breviglieri went on to add that the rating agency expects insurance penetration to continue increasing in Brazil and in Latin America as a whole, despite the ongoing economic and political changes in the region.

The recent catastrophic events in Mexico and the Caribbean demonstrate how large the protection gap is in the region, said the analyst, adding that insurance losses stemming from the damage is expected to represent only a small fraction of total economic loss.

“In our view, the development of a stronger insurance culture in the region pushed by market participants and governments and supported by reinsurance capacity and technical expertise could lead to a faster premium growth and, thus, higher insurance penetration, helping businesses to continue running and protecting households from falling into poverty when severe catastrophic events take place.”

S&P expects growth in a variety of P&C lines as well as in surety in the years to come, driven by expected growth in infrastructure investments in Brazil and Colombia and the energy reform in Mexico.

Breviglieri added that insurers have been finding growth opportunities in the life insurance markets in Latin America, “which have been presenting a stable growth in premiums over the past three years”.

Oil and gas, and other engineering risks, have suffered a sharp contraction in Latin America since 2014, impacted by lower GDP growth, government investments and oil prices.
This should change soon. “Governments across the region have ambitious plans to expand infrastructure investments (public and private) to ignite economic growth, although this has come at a slower pace than expected,” Breviglieri concluded.

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