Reinsurers operating in Latin America are continuing to benefit from the region’s GDP growth, however, according to ratings agency AM Best, the impact of 2023’s Hurricane Otis “highlights the need for additional capacity.”

In October, Otis made landfall near Acapulco, Mexico as a category-5 hurricane, and went on to become the strongest hurricane on record to hit Mexico’s Pacific coast.

In November, Moody’s RMS estimated that private market insured losses from Otis will be between $2.5 billion and $4.5 billion.

Going back to AM Best, in a new report, the agency notes that reinsurers in the first half of 2024 have continued to support primary insurers, with some global participants operating in Latin America shifting their risk appetites, due to global mandates or general risk aversion.

“Reinsurance renewal experience across Latin America has varied but has mostly favored primary insurers with more comprehensive enterprise risk management capabilities, which have better claim experience and are then able to negotiate reinsurance contracts more effectively. Renewals are being affected by significant events in the region, including flooding in Brazil and the aftermath of Hurricane Otis in Mexico,” commented Eli Sanchez, director, analytics, AM Best.

Furthermore, AM Best states that the use of managing general agents (MGAs), either to provider capacity across the Latin American market or to take risks by regional reinsurers from abroad, has gained popularity.

Nonetheless, as global interest rates continue to fall, the region’s attractiveness may generate more demand for delegated underwriting authority enterprises (DUAEs), according to AM Best.

The agency explained that in Brazil, domestic reinsurers with international catastrophe exposure are trimming their property catastrophe exposures in line with global trends.

But, AM Best notes, that their actions have yet to translate into “meaningful underwriting profits or capacity growth.”

As well as this, domestic reinsurers have reportedly been focusing on specialty lines such as surety, auto, transports and agricultural, as they represent further opportunities to grow.

“The increasing volume of ceded premiums – 8.9% growth in 2023 – to local reinsurers reflects the maturation of the insurance market. Pricing remains favorable, with the help of the hard global reinsurance market,” said Ricardo Rodriguez Perez, financial analyst, AM Best.

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