Changing perils reshape LatAm’s reinsurance market

“Latin America’s reinsurance landscape is transforming, driven by recent catastrophic events, economic uncertainty and evolving data needs, and AXA XL Reinsurance is in a strong position to act. “said Alfredo Salcedo, head of Latin American Reinsurance at AXA XL. 

“We need to adapt by keeping our pricing discipline and looking for better data to make more informed decisions,” Salcedo added. 

“It’s important for us as an industry to develop a more granular understanding of our regional and local risks and integrate more climate-related data into our models to improve our ability to understand risk.”

Salcedo pointed to the drivers for higher rates as being a response to inflationary pressures and the increase in nat cat activity in the region; in 2023, Hurricane Otis hit Mexico, causing estimated insured losses of between $2.5 and $4.5 billion. 

Then in April 2024, severe flooding in Rio Grande do Sul, Brazil caused $1 billion in damages.

"This was surprising, especially for Brazil, which was never considered a cat market,” Salcedo recalled.

Salcedo pointed to growing alternative capital penetration: “Insurance-linked securities are gaining traction, and more traditional capacity is returning from the London markets, but there is still room for growth”

And, he noted that additional capacity did not automatically lead to a softening market. 

Data and tech: the new power players

“One of the biggest challenges is the market’s hunger for more sophisticated data,” Salcedo commented. 

“Latin America is behind the more mature markets, but that presents an opportunity.”

During the Rio Grande do Sul floods industry-wide there was a lack of geolocation data for insured values, and Salcedo believes it was in part due to a reliance on legacy systems and the lack of investment in data infrastructure.

“The most pressing need is to improve model sophistication and integrate more exposure data into risk assessment.” Salcedo asserted, “and AI presents a huge opportunity in this area as well as many others.”  

“If you don’t embrace these technologies, you’ll fall behind.”

However, Salcedo cautioned: “Reinsurance is built on relationships. AI is a tool for augmentation, not a replacement for human expertise and judgment.”

Secondary and non-peak perils, political and economic uncertainty and emerging risk

All natural catastrophe events are becoming more relevant including events that were previously thought to be less impactful “even Argentina, traditionally not considered a cat market, is now being scrutinised more closely” in pricing and modelling analyses.

“There is no ‘one-size-fits-all’ strategy. Each country requires a unique approach.”

“Climate change is one of the major factors driving a change in severe weather events, this together with changes in exposures is impacting underwriting and claims,” Salcedo noted.

Political risks are also escalating: “We’re seeing more social inequity, populist governments, and post-pandemic economic upheaval leading to unrest, creating a challenging environment for insurers.”

“This volatility also complicates pricing due to currency fluctuations, inflation and regulatory uncertainty. 

“But if we remain flexible and take a tailored approach to each market, we can navigate these challenges.”

Salcedo understands there is no “one-size-fits-all” strategy and explained: “Each country requires a unique approach, and we mitigate volatility by diversifying our portfolio across multiple countries.”

Salcedo’s third area to watch is cyber. 

“Cyber threats are growing, particularly in the financial and energy sectors. However, cyber threats are still overlooked in the region, with limited product development and client awareness.”

Looking ahead, Salcedo expects continued emphasis on pricing discipline, data-driven decision-making and improved catastrophe modelling, especially for secondary and non peak perils.

“Latin America is an emerging market with low insurance penetration – there’s significant room for growth. 

“By investing in technology, talent, and innovative risk solutions, we are positioning ourselves to capitalise on these opportunities.

Despite the challenges, Salcedo remains optimistic, concluding: “I’m genuinely excited about Latin America. 

“With the right approach, we can protect people and assets more effectively.”

Alfredo Salcedo is head of Latin American Reinsurance, AXA XL. He can be contacted at alfredo.salcedo@axaxl.com.

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