Event takes place in Rio, between September 24th and 26th, with around 1,500 participants from various parts of the world interested in negotiating insurance
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by Denise Bueno

Next week promises strong emotions in insurance. Fides Rio 2023 begins on Sunday, the 24th, with a golf tournament, and ends with a gala ball on the 26th. Among them, relevant debates on trends in the global industry, Latin America and Brazil. The largest insurance conference in Latin America draws the attention of the insurance world. Despite a certain political and economic instability in the region, Brazil shines in foreign eyes with the new PAC and its investments forecast at R$1.7 trillion and with an agribusiness GDP that could reach R$2.6 trillion this year.

It is no surprise that 60% of the 1,500 registrations are from foreigners, reported CNseg, one of the founders of the Inter-American Federation of Insurance Companies, a non-profit entity that currently brings together private insurance associations from 20 member countries, and responsible for organizing the 38th edition of the event, which takes place every two years.

From early on, participants, sponsors and speakers will be at official and parallel meetings. Yes, an event of this size has the potential to generate business. The first event on the official schedule is the traditional game of golf, which there was a lot of attempt to change to something more Brazilian like beach tennis. But it didn’t happen. Golf, according to some of the sector’s practitioners, activates the brain more during this period of renewal of the main reinsurance contracts, the main source of capital for insurance companies to fulfill their promises of double-digit growth even in an economy still on hold.

This is the period that precedes the main negotiations of reinsurance contracts in the world. In a scenario as complex as the one we are currently experiencing, detecting trends requires extremely sharp intuition. And this is the proposal of Fides Rio 2023, which takes place following the world’s main reinsurance event held in Monte Carlo from September 9th to 13th. A summary of the news from the debates in Monaco is that although market conditions are much calmer than the turbulence that erupted in the fourth quarter of 2022 until the January 2023 renewals, the balance of the reinsurance market is still vulnerable to any additional shock.

Therefore, the focus is on the dense exchange of information. There are two worlds. The public debate rooms at the Windsor Hotel and private meetings for a few guests. At the official events, debaters such as former Prime Minister of the United Kingdom, Tony Blair, Luis Alberto Moreno, former president of the Inter-American Development Bank (IDB), and Paul Krugman, Nobel Prize winner in economics (2008), in addition to all local spokespeople for governments, regulatory bodies, insurers, reinsurers, brokers, associations, lawyers, among others.

Private events will be held on rooftops and restaurants reserved in the best postcards of the city considered wonderful. The tone, however, is very “down to earth”, with frank conversations with business partners. Investors seek information on a variety of issues and long-term partnerships.

Among them: what are the risks of the new PAC works? What has the government done to ensure the transparency of this financing and completion of works within the deadlines and amounts agreed in contracts? Do interest rates really enter a falling cycle? What are the risks of inflation getting out of control in the next two years? How is Brazil preparing to face the effects of climate change? Are there new cases like Americanas? Are insurance contracts clear about what is covered and what is not? What is the outlook for the elections in 2024? And in 2026? How does legal security behave in this government? What are, in fact, the best businesses to maintain profitability? Does the new Susep holder have the resources to make the changes he wants in the regulatory framework?

The answers may or may not win over reinsurers. Good for you, as they are essential for the growth of the Brazilian insurance market. If there is no reinsurance capacity, insurers have three options: they take the risk without the support of reinsurance, they charge too much for insurance or they simply do not offer it. An example of this is cyber risk. Global reinsurers have restricted capacity and very few insurers sell cyber insurance, immersed in deep discussions about how to act on this risk with high demand without bankrupting companies.

The good news is that investments in technology have improved risk underwriting, loss management, reduced fraud and enhanced the capillarity of distribution channels. And the result of this combination is profit, exactly what everyone wants to guarantee. After almost five years of losses from the pandemic, war between Ukraine and Russia and natural catastrophes, reinsurers managed to recover results, but they still do not have sufficient reserves for new catastrophic losses as we have seen with the earthquake in Morocco and the floods in Libya.

And once again Brazil presents itself as an opportunity. Despite the devastation on the north coast in February and the tropical cyclone in the south this month, the country is still considered outside the natural disaster zone like other regions with relevant losses, such as the USA with hurricanes or Chile with earthquakes.

Throughout 2022, economic losses resulting from natural disasters in Latin America reached around US$18 billion. However, of this, approximately US$4.8 billion was covered by insurance, which continues to reinforce the importance of closing the protection gap across the region. Also in 2022, reinsurance ceded premiums in Latin America totaled US$19.2 billion, a solid 9.9% increase compared to US$17.4 billion in 2021. The three countries that recorded the largest increases in premiums ceded were Brazil, which registered an increase of 27.5%; Nicaragua, 12.5%; and Costa Rica 11.4%.

According to a Fitch study, Latin American reinsurers’ profits will be supported in the second half of 2023 and in 2024 by rising rates, financial gains and strong demand for reinsurance protection. The performance of the Latin American reinsurance sector was very strong in 2022, helped by lower pandemic-related losses and better global reinsurance prices.

According to the ratings agency, headwinds related to high inflation and interest rates should begin to abate, while the effects of climate change on natural catastrophe claims are expected to be adequately assessed. The bet is that reinsurers in Latin America will benefit from global reinsurance conditions, prioritizing prices, natural catastrophe risk management and organic premium growth.

The agency also estimates that the sector’s near-term return on capital will exceed 8% to 10% of its cost of capital. Additionally, the ratings of most Latin American reinsurers are likely to remain unchanged over the rating horizon due to the improving outlook for the global reinsurance sector.

According to Fitch, the base case for the next 12 to 18 months signals that the majority of Latin American reinsurers will maintain adequate capitalization and financial performance, despite known macroeconomic risks and increased losses from catastrophes fueled by climate change. As a result, the most optimistic scenario predicts that premiums ceded will continue to gain momentum over the next 12 to 18 months, considering the organic growth of Latin American insurance markets, the greater frequency of natural catastrophe events and growing consumer awareness of insurance.

Let the debates begin. I hope that re/insurance brokers can achieve good negotiations so that insurance continues at a double-digit growth rate and plays its social role in supporting Brazil’s economic growth.

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