Reinsurers operating in Latin America continue to see growth driven by the region’s expanding GDP, although the impacts of Hurricane Otis in 2023 underscore the ongoing need for additional reinsurance capacity, according to a new report from AM Best.

According to the report, reinsurers continued to support primary insurers in Latin America in the first half of 2024. Some global reinsurers operating in the region have adjusted their risk appetite, driven by global mandates or increased risk aversion.

Where gaps in contract placement have emerged, they have generally been filled by major international reinsurers or regional players, although in some cases programmes have not been fully in place.

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The reinsurance renewal experience across Latin America has been mixed, with a trend favoring primary insurers with more comprehensive ERM practices, noted Eli Sanchez, director of analytics at AM Best.

These insurers tend to have better experience handling claims and, as a result, are able to negotiate reinsurance contracts more effectively. Sanchez noted that recent major events in the region, such as flooding in Brazil and the aftermath of Hurricane Otis in Mexico, have impacted renewals.

The report also highlights the increasing use of MGAs as a strategy to provide capacity to the Latin American market or to allow regional reinsurers to take risks from abroad. The attractiveness of the region, amid low global interest rates, could increase demand for mandated underwriting entities (DUAEs).

Reinsurance in Brazil

In Brazil, local reinsurers exposed to international catastrophes are aligning their property catastrophe exposures with global trends by reducing them.

But these changes have not yet resulted in significant underwriting gains or capacity growth. Instead, local reinsurers are focusing on niche lines such as motor, transportation and agricultural risks, which they see as growth opportunities.

Ricardo Rodrigues Perez, a financial analyst at AM Best, noted that the increase in premiums granted to local reinsurers – with growth of 8.9% in 2023 – indicates the maturity of the Brazilian insurance market. He added that pricing remains favorable, supported by a challenging global reinsurance market.

Read more: Reinsurance capital allocated has increased, with no signs of slowing down.

The report identifies transportation, special risks and property reinsurance as the main lines contributing to annual growth in 2023. Although agricultural reinsurance is considered a natural catastrophe-like exposure, and has seen the implementation of innovative technologies to monitor climate risks, underwriting in this sector declined by 26%.

Despite these efforts, the agricultural line still faces underwriting losses, prompting reinsurers, especially third-party companies, to reduce their exposure to this sector to reduce overall risks.

The industry has seen significant shifts in premium ceding patterns, with local insurers and reinsurers in Brazil significantly increasing the proportion of premiums ceded to contingent reinsurers from 10% to 95% by the end of 2019.

This trend has continued, with the volume of premiums ceded to contingent reinsurers increasing rapidly due to increased premium ceding limits from local insurers and reinsurers. As a result, contingent reinsurers have witnessed a CAGR of 102.2% over the past three years, compared to 40.3% for recognised reinsurers and 17.5% for local players.

In 2023, approximately 51% of domestic reinsurance companies’ premiums were ceded to foreign reinsurers, compared to 47% in 2022.

The regulatory framework in Brazil continues to evolve towards a more open and less restrictive reinsurance market, allowing greater access to global contingent and admitted participants while maintaining strict regulatory measures to protect policyholders.

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