Facebook logo
Facebook logo
Facebook logo
Facebook logo

Latest Headlines

Captive Insurance Times home | Features | Latin America: Time for a captive boom?← You are here

[close]
Latest News
Atlas secures captive manager approval in Texas
28 March 2017 | Charlotte
Atlas Insurance Management has received approval from the Texas Department of Insurance to act as a manager for captive insurance businesses in the state Read more

TRA Stanford to acquire PHT Services
29 March 2017 | Columbia
The Risk Authority Stanford (TRA) is expected to acquire PHT Services (PHTS), following unanimous approval by both boards of directors, according to a statement from PHTS Read more

For more news visit our news section

Upcoming events
PARIMA MANILA 2017
Date: 28 March 2017
Location: SHANGRI LA at THE FORT Taguig, Metro Manila
Find out more

Captives & Corporate Insurance Strategies Summit
Date: 05 - 06 June 2017
Location: Canada
Find out more

For more events visit our event section
Industry recruitment
There are currently no jobs available
For more jobs visit our recruitment section
Captive Insurance Times
View the latest issues online now

Sister publications
Securities Lending Times
http://captiveinsurancetimes.com

Asset Servicing Times
www.assetservicingtimes.com

Real Estate Investment Times
www.realestateinvestmenttimes.com

Media pack [download]
Ad specs [download]
Latest features
Coming up captives
Feature: Disruption was the theme of the recent CICA International Conference in San Diego, where a new president was welcomed, the next generation of professionals was groomed and a regulatory shake up was previewed Read more

Cook Islands
Country profile: In an era of increasing uncertainty, Tamatoa Jonassen suggests that the Cook Islands can be a bridge to financial security in a captive Read more

Eduardo Fox :: Appleby
Interview: Appleby and Bermuda are optimistic about the future of Latin American captives. Eduardo Fox explains Read more

For more features visit our features section
Features
Latest news
Latin America: Time for a captive boom?
Regulatory reforms are sweeping Latin America and, according to Daniel Message and James Bulkowski of EY, they are changing the insurance industry in the process
Daniel Message
Risk manager
EY

James Bulkowski
Senior manager of insurance and actuarial advisory services
EY

Regulatory reforms in Latin America are changing the landscape of the insurance industry. Increased focus on global solvency standards, enhanced corporate governance and advancing risk management frameworks are indicative of a rapidly maturing market. In such a fluid environment, entities with interests in the region face challenges of how to stay ahead of the curve—or at least keep up with the latest developments—to maintain their competitive edge. Despite slowing regional GDP growth, the insurance outlook is promising and the market appears well positioned for a growth in captive insurance.

There are more than 7,000 captives worldwide, but less than 3 percent are from Latin America. While the captive concept has been widely embraced in the US and Europe, adoption has been somewhat slower in the region. A key driver of this has been a historical local lack of demand for insurance, compounded by challenging regulation and a limited appreciation of potential captive benefits. With the risk function becoming more established and the regulatory environment undergoing significant change, entities are now focusing more on risk management and the associated reduced cost of risk that may be accessed via captives.
Regulatory reforms

A steady progression of risk-based capital rules and regulatory frameworks modelled after Solvency II is currently underway. Mexico was the first Latin American country to adopt these measures. Effective 1 January last year, Brazil was granted a 10-year period of provisional Solvency II equivalence, and Chile is now following suit.

Having already approved the Own Risk and Solvency Assessment, effective next year, Chile is now seeking approval of its own framework, modelled after Solvency II.

Elsewhere in Latin America, close attention is being paid to these developments, possibly in anticipation of similar frameworks being implemented. Regulators in Argentina, for example, are tabling a number of initiatives to improve the regulatory environment, including risk-based capital.

Colombia, the Latin American country with the most captive momentum to date, is also moving towards a more risk-based and economic value-based approach, although without full adoption of a Solvency II regime thus far.

What does this mean?

With the greater regulatory oversight required as part of these reforms, more emphasis is being placed on risk management, particularly in the context of reporting and compliance. In some cases, a new risk manager’s role may be required to fulfill these new responsibilities, where it was previously the domain of a treasurer or CFO, or may not have existed at all.

As this culture of risk management proliferates, risk managers, or those managing their insurance programmes, will become more numerous and more sophisticated, developing in tandem with the broader insurance environment. At the same time, they will look for new ways to achieve their objectives, including improving coverage and reducing the overall cost of risk.

Having seen the value obtained from captives elsewhere, a subsequent increase in captive interest may seem a logical progression, particularly for those entities with a long-term commitment to a comprehensive risk management programme.

Enhanced transparency and some harmonisation with more widespread Solvency II-type regulations are also drawing the attention of interests from outside the region. Combined with growing premiums and large infrastructure projects, competition and foreign investment are picking up. Other changes are serving to further propel the industry, as well as increase capacity for firms with interests in the region.

For example, Colombia’s 2013 insurance laws liberalised the industry for foreign insurers and gave them the same rights and obligations as domestic insurers, further increasing the value proposition to foreign firms.

While this competition may drive rates down, the flexibility, control and potential cost savings afforded with captives will still provide a compelling value proposition to some. Coupled with an enhanced risk management culture—driven by natural market evolution and accelerated via greater integration with the risk culture of global entities investing in the region—conditions appear to be conducive to captive growth.

It is not only new captive interest that will be the product of these developments. Spurred by rapid growth in the region, merger and acquisition activity has seen more than 57 deals signed since 2011. Foreign entities investing in the region may already own a captive and subsequently look to bring their Latin American interests into their existing programmes. As such, it is not only the number of captives that looks poised to increase—so too could the scale of some pre-existing captives.

Potential challenges

Some key challenges exist, despite the largely positive captive outlook. For example, the rapid pace of regulatory change is leading to demand for more skilled personnel with appropriate technical and modeling capabilities. This is needed to comply with greater regulatory reporting requirements and the ability to design and implement new risk management frameworks, potentially with a captive element.

A US policy shift under the Trump administration could also have implications on the economic growth of the region, which would in turn impact the insurance and captive market. The Organisation for Economic Co-operation and Development’s base erosion and profit sharing project is another key challenge, including for captives, and one that will demand very careful strategic planning, review and execution for any captive strategy.

Outlook for the region

The Latin American insurance industry is on a path of rapid development, which looks set to continue as insurance demand increases and regulatory reforms proceed apace. This presents a complex blend of challenges that will perpetuate a need for up-skilling in key areas, including technical modelling, IT and risk management, and will require careful planning to successfully navigate.

The result has been—and will likely continue to be—an increase in insurance capacity, either via expansion in the traditional market or via increased use of alternative vehicles and captives.

This is a promising trajectory for Latin America as a whole, with better access to greater coverage helping to narrow the gap between economic and insured losses, supplemented with a corresponding surge in captive interest. CIT

Source: EY 2017 Latin American Insurance Outlook

Disclaimer: the views expressed in this article are those of the authors and do not necessarily reflect the views of any member firm of the global EY organisation.

To view the full issue in which this article appeared - Click Here



Atlas secures captive manager approval in Texas
Atlas Insurance Management has received approval from the Texas Department of Insurance to act as a Read more

TRA Stanford to acquire PHT Services
The Risk Authority Stanford (TRA) is expected to acquire PHT Services (PHTS), following unanimous ap Read more

UK finally triggers Brexit
The UK has officially pulled the trigger on Article 50 and commenced the two-year negotiation proces Read more

XL Catlin bolsters structured risk solutions team
XL Catlin has named Isa Ennadifi as senior underwriter of structured risk solutions, based in London Read more

Bespoke Software launches inTell Captive
Bermuda-based Bespoke Software has launched the new business intelligence software solution to help Read more

Captive Insurance Times site map
Home
Home

Sitemap

Issue archive
Back issues online
Recruitment
Recruitment
Events andtraining
Upcoming events

Upcoming training

Company info
About us

Contact us


Copyright (C) 2013 Black Knight Media Ltd. All rights reserved. No reproduction without prior authorization