Reinsurers that have a history in the region are there for the long term, which has helped them measure their performance “and given them positive results which they expect to maintain for the foreseeable future,” she said.

Ms. Smith noted that companies like Swiss Re and Munich Re might periodically reassess their strategies, but remain committed to the region because of the growth opportunities they expect there.

Nevertheless, she said, the region has seen slowing of foreign investment by Fortune 1000 companies. Some companies have either shut down plants or are taking a wait-and-see attitude before committing further resources to operations in certain countries in the region, until they see some stabilization returning, she said.

Such a drop in investment is noticeable only because there was such a huge amount of investment during the 1990s, Ms. Smith said.

“It goes without saying that to do business in Latin America, one has to combine a pioneering spirit with a long-term perspective spanning decades, as well as giving consideration to the short- and medium-term benefits and risks,” said Stefan Mosel, executive manager, department Latin America-South, for Munich Re in Munich, Germany.

“While the 1980s were defined as an extremely critical phase for Latin Americas economy, the 1990s, conversely, demonstrated a strong tendency towards stability,” he said. “These days, it depends more than ever on how the largest Latin American economies, such as Mexico and Brazil, achieve their growth and inflation targets, and how their policies affect their neighbors.”

Munich Re, as one of the leading global players in the reinsurance business, sees itself maintaining a strong presence in the Latin American market, “even though we are fully aware that the region is known for its high [natural catastrophe] exposures, and, in some cases, extreme currency fluctuations,” he said.

“Our main priority, as observed in the last renewal period, is to focus on an adequate technical price level and transparency in our reinsurance treaties,” said Mr. Mosel.

“Recent turmoil, such as the Argentine economic crisis in 2001, forced through some important modifications in the local reinsurance market. And should such events occur again in the future, Munich Re certainly will be prepared,” he said.

Ms. Smith explained that some of the reinsurers have tightened up their coverage in certain markets.

In order to protect themselves against the economic and political volatility of the region, Ms. Smith said reinsurers that do business in the region are highly selective in choosing their partnersboth ceding companies and brokers.

“In addition, they perform regular audits of the ceding companies they reinsure,” she said. They also maintain local offices and/or local contacts and relationships, “which keep them very close to developing situations.”

Because of their proactive approach and use of their relationships, none of the markets she has spoken with “have been adversely affected by any of the political or economic developments that have transpired in the region lately, namely the Dominican Republic, Argentina and Venezuela.”

Regarding market trends, Ms. Smith noted insurance and reinsurance property risk transfers still account for the majority of business activity in Latin America.

The reinsurance treaties for cedents in the region are very much dependent on global reinsurance capacity, which can drive the original rates and pricing, she added.

In general, Ms. Smith said, 2003 prices for catastrophe reinsurance in the region have stabilized or have dropped slightly after the large reinsurance rate increases seen in 2001 and 2002.

Although some of this may be due to the new Bermuda capacity, she emphasized that reinsurers are highly dependent on catastrophe modeling. Once a certain trigger price is attained in the excess-of-loss area, capacity levels increase, she said.

Excess-of-loss capacity has significantly increased, and pricing and terms have come down in general, she continued.

However, in the area of property proportional reinsurance, Ms. Smith said capacity remained available, although terms remained tight.

“In many markets, the key focus of proportional renewal negotiations continues to be original rate levels,” she said. “Its a delicate balancing act. Ceding companies must remain competitive in their local markets, and at the same time, cover the cost of reinsurance.”

While reinsurance is dictated by global conditions, there are local considerations for ceding companies, she said.

Ms. Smith noted that reinsurers are requiring more information from ceding companies to underwrite a proportional account.

Further, she said, buyers of insurance and reinsurance in Latin America are a lot more conscious of security ratings than they were in the past.

Ms. Smith said that ceding company clients insist that a certain percentage of their placement is with a reinsurer of a specific rating. “We now get guidelines from them which they never would have given 10 years ago.”

Further, insurance brokers in the region and the risk managers of large companies are also a lot more involved in the whole risk transfer process than they were 10 years ago, she said.

“Risk managers will say, We want 70 percent of our business to be X type of security,” she said, although the requirements vary from company to company.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 1, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.