Focus on Reinsurance LatAm Insurance Review

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Focus on: Reinsurance
With the reinsurance market                                • Increased market penetration by larger and more
                                                             sophisticated reinsurance buyers, both multina-
undergoing a number of changes in                            tional groups with head offices outside the region
                                                             and also within the region;
the Latam region, LatAm Insurance                          • natural catastrophe events, such as the 2010 earth-
                                                             quake in Chile, encouraging the development of
Review talks to two industry experts                         more sophisticated analytical tools and processes

about the state of the market                                to manage catastrophe exposures;
                                                           • Changes in local reinsurance regulation, in particu-
                                                             lar Brazil and more recently Argentina, have pre-
                                                             sented challenges and also opportunities for com-
LatAm Insurance Review (LIR): How has the reinsur-           petitive differentiation through the reinsurance
ance market in Latam evolved over recent years?              purchase. This in turn has led to a clear opportunity
What have been the main drivers of its develop-              for the most technically sophisticated advisors to
ment?                                                        provide distinct value to their clients;
                                                           • Growth in the Latam market has triggered an in-
Drault Ernanny (DE): The reinsurance market in               creased deployment of dedicated resources, both
Latam is growing fast. Just looking at Brazil, which         reinsurance intermediaries and reinsurers, within
represents 42% of the Latam insurance market and             the region – a trend that was forecast by Aon
the largest economy, its reinsurance market grew             Benfield and reflects a consistent and increasing
41% in the first semester of 2011. some of the driv-         investment in the region over the past 10 years.
ers responsible for this are the growth of the Brazilian
economy, the rise of large infrastructure projects and     LIR: Is the region currently dominated by treaty or
massive investments throughout the country. Just           facultative reinsurance? How does this vary across
take the programa de Asceleração do Crescimento            Latam and do you expect this to change?
(pAC), which is the growth acceleration programme
that the Brazilian government has launched to com-         DE: some local direct insurance companies indeed
bine management initiative and public works. At the        have large treaty capacity for corporate and spe-
moment, pAC covers all large-scale projects taking         cialty business portfolios. nevertheless, facultative
place in Brazil, which is a further driver for demand in   reinsurance is still dominating where expertise and
the Latam reinsurance market. And with Brazil host-        capacity are required and where Allianz Global Cor-
ing the upcoming FIFA World Cup in 2014 and sum-           porate & speciality (AGCs) is focused. London is
mer olympic Games in 2016, continuation of further         still an important hub for brokers, but we will see
large-scale development is guaranteed.                     a transition to the Latam region as the market de-
                                                           velops and as new players are able to allocate local
Michael Hughes (MH): The reinsurance market has            resources and capital.
become more sophisticated and technical over recent
years. The drivers of this change include:                 MH: Facultative reinsurance still accounts for the ma-
• Consistent growth in the underlying economies            jority of the reinsurance premium cession, followed
  leading to an increased insured values and the con-      by proportional treaty reinsurance and then excess
  sequent growth in the size and complexity of the         of loss treaty reinsurance on an overall region-wide
  insurance and reinsurance purchase;                      basis. However, variations exist due to:
                                                                                                        REINSURANCE 33
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• Most facultative is purchased in countries such as                             cisions are also qualities firms should value. At AGCs,
  Brazil, Mexico and Chile where there are large and                             we actively listen to our clients and respond. We are
  complex single risk exposures from mining and en-                              an underwriting-driven organisation and we concen-
  ergy industries;                                                               trate as much on building solid customer relationships
• Large proportional treaty reinsurance cessions can                             as providing excellent underwriting service as well as
  provide greater solvency and reserving benefits                                claims handling.
  (according to local regulations) versus excess of
  loss, for example in Mexico and Chile;                                         MH: The trend for reinsurance business in Latam is
• Large treaty excess of loss cessions, on the other                             characterised by fewer and more sophisticated play-
                                                           Drault Ernanny
  hand, are prevalent where there is less difference                             ers. The key to attracting and retaining clients is the
                                                           is global regions
  (from a local regulatory perspective) between the                              delivery of a global level of service at the regional
                                                           and markets
  solvency and reserving benefit provided by the                                 and local level. The winners in this sense should be
                                                           director at Allianz
  treaty reinsurance product, such as in Colombia          Global Corporate &    those partners with the analytical tools and skills to
  and peru.                                                Speciality.           fully analyse the implications of different reinsur-
                                                                                 ance buying strategies and who are able to deliver
LIR: Which reinsurance lines are currently the most                              competitive advantage through distinct strategies.
profitable in the region, and why? Are there any par-                            Also, as highlighted throughout 2010 and 2011,
ticular lines that are growing in prominence?                                    claims recovery services are an increasingly impor-
                                                                                 tant requirement.
DE: We are facing soft rates in the insurance market
in general, but we have a positive experience in the                             LIR: Are you planning any new developments or in-
overall portfolio of large corporate and specialty lines                         novations with regards to your operations in the re-
from Latam. We can highlight liability and financial                             gion? How will these benefit your clients?
lines as good examples. AGCs has a close relation-
ship and a transparency approach with clients, which                             DE: since its foundation in 2006, AGCs has started
                                                           Michael Hughes
promotes understanding of different needs, helping         is CEO Aon Benfield   a number of initiatives to expand our global reach,
us to deliver optimal solutions to manage, control         Latin America,        putting AGCs expertise in core client markets. We
and reduce risks. We have an appetite for the most         COO Aon Benfield      need to be where our clients are and this is why AGCs
complex technical risks, with a truly risk-based under-    Facultative.          has expanded quite rapidly across the globe, com-
writing approach, supported by expert risk consulting                            plementing the Allianz network. In Latam we already
and claims teams.                                                                have an active local presence in Brazil, Argentina
                                                                                 and Colombia, and we intend to further invest and
MH: Currently reinsurance is very competitive price-                             grow considerably in the region to support our clients
wise in the region for all classes. Also, retentions are                         locally.
low and therefore margins on all lines are small. As
countries develop and the level of insurance penetra-                            MH: Aon Benfield has continuously invested in the
tion increases, all lines of business are growing but                            Latam region over the past 10 years, during which our
notably in agriculture, construction and energy.                                 network of nine local offices has been bolstered by
                                                                                 increased deployment of dedicated broking, analyt-
LIR: In terms of service, which key areas should re-                             ics and management resources in Miami, London and
insurance firms in the region focus on to attract and                            embedded within the region. This strategy will devel-
retain clients?                                                                  op further in response to the increasing sophisticated
                                                                                 challenges facing our clients. Aon Benfield helps our
DE: reinsurance firms should be ready to establish                               clients measure the efficiency of using reinsurance
long-term relationships with their Latam clients, as                             capital to support their ongoing business plans, ena-
well as have the financial strength to support the de-                           bling them to quantify the inherent risk of the portfo-
mand required to satisfy different needs from clients                            lios written, and to mitigate the volatility of earnings
and brokers. Timeliness when handling client requests                            to enhance shareholder value in the short, medium
and strong local teams with the authority to make de-                            and long term. n

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