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Bermuda:Re+ILS Spring 2016

Spring 2016 24 Bermuda:Re/insurance+ILS The rise in customer expectations accompanies an increasing focus on digital technologies within the Latin American market—and it’s expected that this digital disruption of the market will prompt a re-think of existing business models. “The rise of financial technology, or fintech, companies is causing insurers, particularly in the consumer insurance sector, to reconsider their business models and increase their investment in new digital technologies,” says EY. “Despite a desire to avoid conflicts with legacy models, insurers realise that flexibility, efficiency and innovation are critical for success in a more demanding marketplace.” Global warnings As well as navigating the complex and often fluid LatAm landscape, reinsurers also need to weigh up the risks that the global economic slowdown may pose for the region. Shrinking demand for natural resources, such as oil, one of the region’s main exports, threatens the economic health of the region and its insurance markets. Reduced demand from China, one of the main export markets for LatAm, is already impacting the region, and if the Chinese slowdown intensifies it would jeopardise the embryonic middle class that has slowly been expanding in the region, and which has been a key factor in its economic growth. Wobbly inflation rates are another worrying part of the mix, as local inflation and ensuing currency devaluations have reduced insurer profitability. The EY handbook says that although LatAm has made huge strides in stabilising inflation across the region, there is still wide variation between countries—with Venezuela (18 percent) and Argentina (17 percent) at one end of the spectrum, and Mexico, Chile and Peru at the other end, with rates below 5 percent. Brazil, the region’s largest economy, has experienced a worrying rise in inflation to close to 9 percent for 2015. Huge untapped potential marks Latin America out as a region of great opportunity for the Bermudan reinsurance market, and global investors are already making headway here, but it’s far from easy. �� Markel Latin America. “That’s good for companies like ours, with a clear, long-term commitment to the region.” The increased freedom to operate in LatAm opens up a wealth of opportunity but Caputo points out that investors need to select their markets with care, as generalisations about the region can be misleading. “Argentina, with its recently elected President Mauricio Macri, has announced a number of initiatives to enable the country to return to normality with the international community,” says Caputo. “The most notable has been the renegotiation of the external debt with holdout foreign investors, the success of which will mean renewed access to financial markets and a boost in investment in infrastructure projects in the next three to four years. There will be great opportunities, particularly for Markel, with our surety portfolio.” Other states Brazil, which has been plagued by endemic corruption and a series of toppled government figures, remains unstable, and its continuing protectionist stance is a source of frustration to investors. “Brazil is faced with political turmoil and is caught in a difficult economic cycle,” says Caputo. “Given the current political uncertainty, it is possible a new government may be in place before the end of 2016. It is a volatile situation which we need to follow closely because the country’s prospects will be very dependent on the party or coalition elected to power. “However, the devaluation of the Brazilian real and the economic uncertainties offer good opportunities for companies with US dollar resources.” Meanwhile, Colombia is inching closer to a long-awaited peace agreement between the government and FARC (the country’s wealthy guerrilla army, which terrorised Columbia’s oil industry last year). “It is expected Colombia will emerge as a new country following this, with an increase in infrastructure investment particularly in the sectors not previously fully controlled by the government,” says Caputo. The opening up of the LatAm reinsurance market comes while commercial customers are pressing for more sophisticated insurance solutions, including coverage for business interruption, cybersecurity, civil unrest, and errors and omissions. “Latin American consumers, many of whom are young, cosmopolitan and tech-savvy, will continue to push for new insurance channels and services that fit with their lifestyle,” states EY. “To respond, insurers will need to simplify and adapt products for millennials, and sharpen their focus on mobile and social media interactions. Evolving customer needs throughout the region are compelling insurance companies to rethink their strategies, processes and services.” “The devaluation of the Brazilian real and the economic uncertainties offer good opportunities for companies with US dollar resources.” Carlos Caputo, Markel Latin America


Bermuda:Re+ILS Spring 2016
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