January 31st, 2012

January 2012 Reinsurance Renewal: Latin America and Caribbean

Posted at 1:00 AM ET

Reinsurance rates were flat to up slightly at the January 1, 2012, renewal in Latin America and the Caribbean. Protection and indemnity rates were up 5 percent across the board, along with Caribbean property. Latin American property treaty and facultative (not including the Caribbean) were flat to up 5 percent, and marine facultative ranged from flat to up 30 percent based on loss experience.

The underlying drivers were:

  • The perceived inadequacy of original rates
  • A hunger for growth business masking a latent desire to push rates higher
  • Large catastrophe losses elsewhere in the world
  • Reinsurer concern about flood and wind

Multinationals are interested in entering the region through M&A, but price-to-earnings ratios remain high. For 2012, the outlook is positive, but malaise and large catastrophes outside the region add some uncertainty.

In the region’s reinsurance market, the Thailand floods have prompted insurers to focus on contingent business interruption coverage, as well as flood cover and exposure. The events of the year have resulted in significant subject base exposure growth relative to premium, but this measure is likely flat in the Caribbean.

Regulation has become a challenge in the region, including somewhat protectionist policies being implemented in Brazil. Loss-free catastrophe excess of loss program pricing was flat to up 5 percent at the January 1, 2012, reinsurance renewal, with some Chilean programs experiencing slight reductions (down no more than 5 percent). While there was no impact from catastrophic events, the release of RMS v11 has had an impact on buying requirements and reinsurance rates in the Caribbean (less so in Latin America). Retentions were consistent year over year, although some multinationals are starting to appear more aggressive in their retention strategies. From a capacity standpoint, worldwide interest in new Latin American ventures is tapering off, with the exception of Brazil.

Pricing for per risk excess of loss working layers was flat to up 15 percent, depending on loss experience, while high risk excess layers were flat year over year.

For proportional treaty, there was a greater focus on flood exposures - and a widespread interest in imposing limits. Simply put: The floods in Thailand have been a “wake-up call” for the Latin America/Caribbean region.

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