Latin America—Global

KEVIN HOLLANDAssistant Vice President

Account Manager816.960.9835

kholland@lockton.com

L O C K T O N C O M P A N I E S

Market Update April 2012

SM

The global and local insurance market for Latin American business has undergone a number of changes recently. Lockton Global partners have combined to provide an update on key changes affecting risk management strategies in the region. Our role as insurance broker and risk management consultant is instrumental in navigating our clients through the changing market to ensure that risk management programs maximize cost-efficiency, coverage, and compliance.

Property Insurance Rates on the Rise in Latin America

Latin American insurance rates are projected to remain generally flat for the 2012 term throughout the region, with the exception of the catastrophic property risks and select local lines of insurance.

According to Roland Haiser of Lockton U.K., leading Latin American property insurers have not been immune to the large worldwide losses in 2011. While clean, non-catastrophe-exposed accounts are seeing renewal terms of flat to plus 5 percent, those with CAT exposure (Caribbean risk, Chile, Colombia, Mexico, Ecuador, and Venezuela) are seeing rate increases from 7.5 percent to 10 percent. Property insurance prices are hardening, but the rate increases and general implications of significant losses have been restricted by continuing strong competition and protection of market share. The broker’s ability to successfully translate

Market Update, Latin America—Global Lockton

risk management initiatives to the market now has direct implications of mitigating an increasingly hostile market environment.

Eric Demmer with Lockton Global Colombian partner Correcol S.A. indicates that while the Property CAT rates in the local Colombian market are expected to increase during 2012, rates

on other lines of insurance, such as auto and commercial liability, should stay competitive due to the generally favorable loss ratios. The increased need for additional capacity resulting from aggressive infrastructure projects in Colombia may lead to new entrants in the market, which could put further downward pressure on already soft rates.

In Chile, which experienced significant property losses in 2011, Lilienfeld Corredores confirms that after the initial sharp increases in property rates following the 2011 earthquakes,

insurance rates have flattened. The same essentially flat and soft projections apply to a majority of non-CAT lines across Latin American markets, with few exceptions, due to increased capacity and good loss ratios.

The primary exception to softer non-CAT rates is the Mexican auto market. Jesus Levy of Lockton Mexico projects that Mexican vehicle insurance rates are increasing due to bad theft experience.

Reinsurance Regulatory Restrictions Increase

An increased level of reinsurance restriction in several major markets, namely Brazil and Argentina, has narrowed the reinsurance options for risks in Brazilian and Argentinian markets.

In Brazil, it is anticipated that the restrictive reinsurance environment will continue through the 2012 term. Brazilian regulations mandate that 40 percent of reinsurance remain local

and that all intracompany cessions are limited to 20 percent. These restrictions result in a more costly and time-consuming process to arrange local insurance placements as part of larger global programs. As a result, many companies are opting to place pure stand-alone insurance programs in Brazil, not tied directly to global insurance programs. While there may be additional costs to placing stand-alone cover in Brazil, local placements provide buyers with a secure insurance contract not tied to reinsurance restrictions from a global placement.

Timothy Maitland, of Lockton Global partner Makler Seguros, indicates that Argentina’s requirement that 15 percent of all risks remain in Argentina has led to rate increases on local placements

that are part of global programs. It is advisable to obtain local stand-alone market quotes in addition to coverage placed through a master program for Argentinian risk to ensure that master program rates are competitive with local market standards.

Market Update, Latin America—Global Lockton

© 2012 Lockton, Inc. All rights reserved.Images © 2012 Thinkstock. All rights reserved.

Firms operating in Brazil and Argentina require brokers with the proper licensing and experience to navigate the various local reinsurers. Brokers are essential to negotiating best pricing, reinsurance terms, and coverage conditions, whether cover is placed as part of a global or stand-alone program. Beginning negotiations with global and local insurers well in advance of expiration is essential to ensuring the coverage in place for Brazilian and Argentinian risk is compliant, comprehensive, and cost-efficient.

Compliance Issues Create Challenges

Due to increased enforcement of admitted insurance regulations in many Latin American countries, risk managers and insurance buyers must be aware of the compliance requirements and potential risks of relying upon global nonadmitted insurance in countries that do not permit such coverage. Lockton provides clients with admitted coverage options and accurate regulatory advice, putting buyers in position to comply with insurance rules and regulations. Lockton’s compliance consultation is essential for clients’ need to verify that insurance placements are compliant with legal regulations, business obligations to third parties, and internal corporate goals.

Latin America is an important region for many firms’ future growth, and Lockton Global is well-positioned to provide in-depth risk management consultation for companies already operating in the region and firms just entering the Latin America markets.

Lockton provides clients with admitted coverage options and accurate

regulatory advice in order to put buyers in a position to comply with insurance

rules and regulations.

Contributing Authors:

Roland Haiser

Lockton Companies

Executive Director

Timothy Maitland

Makler Seguros

International Division Director

Eric Demmer

Correcol S.A.

International Technical Director

Patrizia Mastrapasqua

Lockton Brasil Corretora de

Seguros Ltda.

Director

Jesus Levy

Lockton México Agente de

Seguros y de Fianzas

Executive Director

Renato Lilienfeld

Lilienfeld Corredores de Seguros

Ltda

Partner and CEO