Entering the Latin American market requires close attention to the particular nuances of the region says Simon Owen, principal of Folio Insurance Management and Hyperion Risk Solutions, likening the market to a rose – “incredibly alluring, yet alarmingly thorny”.
The ‘thorniness’ for Owen relates to “overly-elaborate licensing requirements and excessively complicated taxation systems”, that together make LatAm a tough region for captives to break into. Nevertheless, the region is very much “on the radar” of reinsurers and offshore captives, who have traditionally been active in the nearby Caribbean and view the region as an attractive neighbouring prospect.
Owen cites the Brazilian market as a case in point – a country that accounts for 40 percent of regional non-life premium, but which was nevertheless the worst performer when it comes to the ‘burden of government regulation’ according to a recent report by the World Economic Forum.
For captives looking to operate in Brazil, admitted paper is a pre-requisite to operations, making fronting carriers a requirement. Requirements to cede 40 percent of reinsurance to ‘local reinsurers’ and limits on locally represented and overseas reinsurers help to further muddy the waters. Limits on levels of cession to a single reinsurer of 50 percent, help to add another layer of complexity, as does a stipulation that “approved reinsurers cannot retrocede more than 20 percent out to affiliated entities.”
As Owen explained, “because captives are not generally licensed by the local regulators (SUSEP), they are unable to directly assume a Brazilian retrocession, effectively meaning that captive involvement in Brazilian risks is only possible when the related risks have been fronted at both the insurance and reinsurance level.”
Similar restrictions are a feature of other LatAM jurisdictions, complicating the case for captives looking to develop operations or provide coverage in the region.