A Hardening Market

Considering the LATAM region is home to some of the world’s most significant natural catastrophe events it is unsurprising that, as an economist by training, her natural appreciation for analysing significant data sets and the region would underly her expert knowledge of the market. As cat events increase in frequency and intensity in the coming years, this knowledge is essential for prudent risk management.

Based out of the company’s hub in Miami, April is the Orchid Regional Development Manager for Latin America, which means she has responsibility for developing the treaty and facultative reinsurance portfolio across the region. She has overseen reinsurance operations, underwritten key risks and managed the hub in Miami since autumn 2020, when she joined from AXA XL. During her tenure the team’s gross written premium has tripled in three years.

Of course, growth has been enabled by the hardened market, but with nearly 25 years of experience in international reinsurance focussed on Latin America and the Caribbean, April’s knowledge and understanding of the region is deep, which supports strong underwriting, risk selection and portfolio management.

According to April, the (re)insurance market in Latin America has been on a learning curve in recent years, as increasing catastrophe losses and a hardened market have exposed the level of unknowns within portfolios.

Treaty reinsurance, particularly in less developed markets, has traditionally used estimates of exposure by region rather than more detailed locales. In a soft market such as we have experienced in the last 20-30 years, this is a practical solution to underwriting the nebulous nature of underlying portfolios. The hardening of the market coinciding with recent increases in catastrophe losses, have revealed weaknesses with this methodology.

With the cost of facultative reinsurance having increased in recent years, April says, cedants have tended to purchase less facultative cover for key risks in their property books such as large hotels, and instead, some have retained or co-insured key risks from their property books such as large resort hotels, increasing the exposure under their treaties. Significant natural catastrophe events such as Hurricane Otis in particular, impacting Acapulco in Mexico in Autumn 2023, revealed the extent of this shift; unexpected, deeper losses for reinsurers due to a greater level of opacity in treaties than previously.

This lack of clarity around portfolios will likely result in a tightening of the information requirements from all reinsurers in the coming years. With natural catastrophes, climate change weather events and associated losses on the rise however, precision is needed more than ever. It will take a concerted effort in the market to improve clarity, whilst acknowledging that limitations will remain in some areas.

This year’s 1st April Latin American renewals have cemented another year of a hard market with many clients receiving stable renewal terms or slight increases, with significant rises and stricter terms, only for specifically cases to address these sort of issues. This ability for reinsurers to be choosier about what they wish to write and how they wish to write it may feel challenging for cedants, but in the longer term it drives improved transparency and fairer pricing in underdeveloped markets.

These past few years represent quite a change for April. Having experienced twenty years of a soft market with brokers pushing for ever-improved terms and conditions, she now has a significant role to play in client management. April spends much of her time travelling the region explaining why these market forces are shifting, outlining any change in information requirements, and educating local brokers.

As a reinsurer in a region prone to suffering catastrophic losses from tropical storms, another key role is ensuring claims processes run smoothly because in widespread emergencies, cedants need funds quickly. She recalls Hurricanes Maria and Otis being particularly acute as so many clients in southern north America, the Caribbean and Mexico suffered substantial property and infrastructure damage. When tragedies like these hit, all eyes are understandably on the human cost as well as the financial damage to local economies, and working for a reinsurance company in a regional hub can become very intense to ensure solutions are delivered quickly. All of which April calmly describes as “just my job”.

Although the portfolio has grown a lot in recent years through organic and rate growth, and the market will likely shift to a softening trend within the next few years, April sees that there is still much more opportunity available in the region. “Capacity is still tight and with so many [climate change related] events around the world, I don’t think there is going to be a reset any time soon”. With (re)insurance penetration in all Latin American countries except Puerto Rico at well under 10 per cent, and with other lines such as energy, casualty or marine available to her due to Chaucer’s experience in these classes, there is a raft of opportunity ahead of her which she and her team are well positioned to seize.