Growing Use of MGAs Supports Reinsurance in Latin America

Reinsurance companies in Latin America continue to leverage the region's gross domestic product (GDP) growth, but the aftermath of 2023's Hurricane Otis underscores the pressing need for increased capacity, according to a recent A.M. Best report.

The report, titled "Latin American Reinsurers Benefitting from GDP Growth," is part of A.M. Best's broader examination of the global reinsurance industry.

In the first half of 2024, reinsurers have continued to support primary insurers across the region. However, some global reinsurers have altered their risk appetites, influenced by broader mandates or increased risk aversion. Despite these shifts, most coverage gaps in contracts have been filled by other large international or regional reinsurers, although some programs were not fully placed.

"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," said Eli Sanchez, director, analytics, A.M. Best. "Renewals are being affected by significant events in the region, including flooding in Brazil and the aftermath of Hurricane Otis in Mexico."

The report also highlights the growing use of managing general agents (MGAs) to provide capacity to the Latin American market or to manage risks for regional reinsurers. As global interest rates decline, the region's appeal may lead to increased demand for delegated underwriting authority enterprises.

In Brazil, domestic reinsurers are aligning with global trends by reducing their property catastrophe exposures, particularly in areas with international catastrophe risks. However, these adjustments have not yet resulted in significant underwriting profits or capacity growth. Instead, domestic reinsurers are focusing on specialty lines such as surety, auto, transport, and agriculture, which present opportunities for expansion.

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

A video discussion of this report is available here. (A Spanish version is available here.)

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