Not homogeneous: grasping LatAm’s diversity of risk is key: Hannover Re

Latin America is an incredibly diverse place, comprising many countries and regions with their own nuances when it comes to insurance, as well as unique exposures to different natural catastrophes. It is key for international players to realise this if they are to succeed in doing business in the region.

That is the view of Martin Heinz, managing director with responsibility for Latin America, Hannover Re. He said the opportunities there are great, but it is crucial to understand the individual dynamics of each market. As a reinsurer that has been invested in the region for many decades, he believes Hannover Re does this well.

“Latin America consists of many different countries and regions and is not a very homogeneous market,” he said. “We have highly concentrated as well as highly fragmented markets. Most of them still have some catching up to do when it comes to insurance penetration. 

“But I know that our partners in the region are eager to help close the current protection gap, and our role is to help them accomplish these goals. This makes it an area where we see continuous top line growth in the aggregate, though we never know beforehand from which region and sector this growth is coming from. As it depends on the political and economic developments in each country.”

Long-time partner

He stresses that Hannover Re has partners all over Latin America and the Caribbean, and few reinsurers can boast a track record in the region for as long. “Very few reinsurers have been present in all Latin American markets as we have – even in difficult times. That differentiates us from many other reinsurers and our partners are aware of this fact. It is also an enormous help in negotiations, since our clients know they can count on us.  

“I feel that Hannover Re is a valued long-term partner, that can offer security, capacity and services to companies large and small across all lines of business.”

He emphasizes the extent to which Latin America is not one homogeneous market and drivers and trends will vary from country to country. This also includes the way in which insurers and reinsurers must work together to offer protection against natural catastrophes, which play a large role risk wise in Latin America. 

“This results in extremely volatile results for the local insurers, but international reinsurers can diversify globally and can therefore offer large capacities and specific underwriting know-how,” he said. 

“With the natural resources available in many countries, the mining and energy sectors have been consistent areas of growth too. What is lacking however is a prevalent use of third-party liability to protect victims of accidents. This would allow for more stability in societies.”

Climate change

But this high exposure to natural catastrophes also presents challenges, especially as many are also exacerbated by the consequences from climate change. He said this was demonstrated in events like hurricane Otis or the severe floodings in the South of Brazil. 

“These phenomena are not atypical, but their severity is. At the same time, capitalization and therefore retentions for these perils are very low in Latin America. Catastrophic events in Latin America will probably be paid 95% by reinsurers, whereas for instance the wildfires in California in January will be distributed more evenly between primary insurers and the reinsurance market.”

He believes that insurance companies in Latin America need to assume more responsibility on these events that affect their policyholders. “For this, we need positive development in capitalizations as well as regulation. There also needs to be a sea change in the way that insurers see their role as risk takers and not just as intermediators for catastrophic events,” he stated.

Commenting on Miami Reinsurance Week, he said he believes technology and innovation will be a growing theme. He said he sees the reinsurer’s role as supporting clients in leveraging technology to its full effect.

“Hannover Re is a pure-play reinsurer, and we do not pretend to know more about the use of technology in insurance than our customers. However, reinsurers too need to adapt to the data-driven future. 

“We see our role in accumulating and processing data from around the world, in order to provide better insights for our customers. Many of our clients are also investing more to obtain better data, e.g. on a policy-level basis about location, coverages and perils. And we would happily partner with them to improve our insights and know-how. This would help us to achieve better solutions and for instance reduce costs and therefore help us to be more competitive.”

Understanding needs

In terms of Hannover Re’s strategy in Latin America, he said the aim is to be a long-term partner and a reinsurer of choice.

“One of Hannover Re's forever-propositions is that we want to be your preferred reinsurer. If you have a problem and need a solution, you can call us. For that, we need to be able to understand your needs, your problems, your language. 

“This is also true for Latin America. That starts with having team members that are from the region – in management, in underwriting, accounting and claims. We also have both the know-how and the flexibility to help you grow in any area where you develop. 

“Our strategy therefore is being at the side of our partners and help them grow. We are probably the most flexible reinsurer when it comes to supporting our clients in treaty and facultative, proportional and non-proportional, P&C or life & health, be they local or multinational companies. As long as there is a mutual understanding of what each side needs, we want to help our clients grow across a wide range of products.”

 He added that this ethos must also apply in both good times and bad – and it must take into account the different needs of clients in different parts of the region.

“At Hannover Re we see ourselves as a long-term partner since we like to offer economical stability to our partners in good and hard times. 

“In order to accomplish our strategy of being the preferred reinsurer, we are constantly studying the region and actively approaching our clients to stay ahead of their needs. The latter combined with our undogmatic approach on solving problems become our strength when we support our partners in this unpredictable world. 

“As an example, we are studying the impact of SRCC [strike riots civil commotion] events in the region and we are already working with our clients to find the best solutions on the topic. We are also observing the impacts of climate change, with unprecedented floodings, extraordinary hurricanes and extreme droughts. This will affect our clients and their policyholders, and we need to make sure that we provide adequate cover.”

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