News


ew solvency regulations coming into force in many Latin American countries will drive


appetite for reinsurance, but the challenges of soft rates, slow GDP growth and economic volatility remain, Ingrid Carlou, chief executive of Patria Re, told Monte Carlo Today. “Although the insurance sector in the most


13.09.15 SUNDAY


New regulations drive appetite in LatAm N


advanced economies of Latin America (Mexico, Chile, Colombia and Peru) has grown at higher rates than GDP, growth in the reinsurance markets will remain modest,” Carlou said. “The soft reinsurance cycle tends to linger in


2016, but solvency regulation in these countries will tend to favour reinsurance as a cost-effective form of additional capital.” This is against a backdrop of multiple challenges,


Ingrid Carlou


however. Carlou expects that the volatile economic environment will continue well into 2016. “US monetary policy will continue to generate volatility across asset


classes to the extent that the US economic recovery is not confirmed, Europe’s problems with Greece and the general economy are not solved, oil prices will remain low, and the Chinese economic slowdown keeps going,” she said. She added that, in Mexico, oil prices and the slow pace of public


investment will likely have an impact on fiscal balance in 2016. Meanwhile, the Chinese crisis is increasing risk aversion for emerging risks which is reducing capital flows towards Latin America and other emerging markets, she believes. “Our expectation is that being a closed economy, the way out of


recession for China is not straightforward. The compounded effect on the external and internal context for Mexico is generating further obstacles in the implementation of the public infrastructure investment programme,” she said. “The one concern is that investment was supposed to promote economic growth, which has not happened so far, with expected GDP increase for 2015 at circa 2 percent. Without economic growth, discontent over legal reforms that disrupted the status quo will simmer.” Despite these challenges, the penetration of foreign capital into Latin America continues to increase steadily, she said. This is against a backdrop of a reduction in the number of reinsurers used by foreign companies and an increase in security requirements. “Market softness has harmed premium rates and relaxed conditions,


increasing the covers being offered,” she said. Although it may drive demand for reinsurance, Carlou also has concerns


over the implications of the introduction of new solvency requirements. “In Mexico, the implementation of Solvency II will pose tremendous


challenges for the regulator which, if not met, could translate into an enormous risk for the market,” she said. She also noted that Solvency II-type regulation is being considered by


other countries in Latin America, particularly Colombia, Peru and Chile. Overall, she is optimistic about the Latin American market but she


stressed that it is taking longer than some expected to truly mature. “Until very recently Latin America was the land of opportunity, and


www.intelligentinsurer.com | www.bermudareinsurancemagazine.com DAY 1: Sunday September 13 2015 | MONTE CARLO TODAY | 19


we believe it still is, but as usual ‘mañana’ will take a little longer to come than expected, and when it comes it may or may not fulfil our expectations.


“Brazil is falling into a recession coupled


with political and fiscal crises. Mexico is healthier, but the drivers of growth remain unclear, and it is highly exposed to external shocks.”


In Monte Carlo this year she believes the


Tianjin explosions in August will be a big talking point as she believes the final impact has not been fully understood yet. She thinks the Chinese crisis will also interest many people. “I also believe that the recent wave of


M&A activity in the sector will be a subject of discussion, particularly because it is expected


to continue into 2016 if challenging market conditions prevail. “Last but not least, I’m sure many people will be discussing whether rates can fall lower or have we hit the bottom?” n


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