Pastore: “There is a general trend showing a small surplus in supply”
Todo Riesgo TV welcomed Guillermo Pastore, Chairman of Special Division Reinsurance Brokers, to talk about national and international trends in the reinsurance sector and the present and future of the company.
“We are beginning to see that the reinsurance market is slowly starting to soften a bit,” the executive assured. “What would softening mean?” he continued. “In our jargon,” he explained, “it means that there is starting to be a little excess supply, so instead of prices increasing, they have stabilized and in some lines they are beginning to drop. There is a bit more capacity available for different markets to take advantage of that kind of protection.”
“And Argentina, although it is a small market in hard currency, non-catastrophic, and has never been an exceptional payer, is slowly beginning to enjoy a little of these new alternatives that the market is providing. And also, due to the hope generated by this new government, with lower inflation, lower country risk as well, rising securities prices, exchange rate stability, and a smaller and smaller gap,” he added.
Guillermo Pastore
Restrictions
“In everything related to flow, we can say that it has stabilized in a very important way. Stock is still lacking, and we hope that, over time and with measures that come out, it will start to get more regular. But there is definitely a very good trend pointing towards companies finally being fully in line with their requirements,” Pastore said regarding the restrictions that had been in place for foreign currency transactions abroad. Economic context “It’s favorable: when the economy works better, insurance works better, reinsurance works better, and everything works better. The outlook is very good. Now, what we need is a very thorough analysis of something we’ve been discussing, which is the market’s solvency,” Pastore said. “We see that there is a very significant number of companies, about 200, where the Gross Domestic Product is a third or less than that of Brazil, and there are fewer property & casualty companies there; here they are competing for a very small slice, basically on prices,” he added.
Commissions At this point, the executive elaborated: “On top of that, we have to add that the commissions that are paid, generally speaking, in risks with mandatory characteristics, are very significant, and companies, to avoid losing production, pay these types of commissions, which leads to a reduction in their own solvency because, clearly, a high marketing expense means it cannot remain within the company's capital.” “From that point of view, insurers who can enjoy reinsurance tomorrow, which would be the probability of a good sale of this type of business, we suppose that in the long run it will be lower. If they are larger companies, they will surely retain more of their business, and the amount of reinsurance they might buy will be smaller, but in a healthier market, which is appreciated by all of us,” he added. Are the brokerage commissions paid in Argentina higher than in other countries in the region? “In some cas“,” Pastore replied. “For example, in automobiles, definitely compared to the United States, yes. Some in the region are similar and others are higher.” Intermediation Regarding the issue of intermediation, Pastore said that “here you have a producer, you have an organizer, and there is a sum of intermediaries, which generate a significant commission expense, and sometimes, the insured doesn’t even know which insurance company is covering them because they think the insurance broker is the company.” He continued: “then they realize that when they have to claim the loss, sometimes that company is restricted in many cases, which happens and will continue to happen as long as certain solvency regulations aren’t changed, like, for example, a much larger increase in capital and in much faster times.” “But, for all that, I think some type of regulation has to accompany it that can help with everything related to acquisitions, mergers, portfolio acquisitions, so that it can accompany those companies that are truly solvent in acquiring portfolios and can even buy, in the future, structured runoff reinsurance, to somehow finance those outstanding liabilities in terms of claims that small companies will not be able to cover,” he concluded on the matter. Local reinsurance market “I think the economy will grow next year between 4 and 6%,” said Pastore. “The inflation rate will be around 28, 29, 27%, not the 19% stated in the budget. Which, for Argentina, is good news: there’s a downward trend. If we keep lowering the country risk, what happens is that not only will Argentina have to pay less interest, but there will also be the possibility for individuals to borrow abroad at a convenient rate and reinvest in the country. And that, by generating more business, will clearly generate improvements in both insurance and reinsurance,” he added. “There are sectors that are going to drive and be the ones generating leadership in all that growth, which will be agroindustry, technology, energy, mining—we are talking about large-scale projects that should be supported not only by retention and insurance but also by reinsurance. And that’s good news,” he concluded.
Trends
Asked about the trends he sees in the local market, Pastore reiterated that “there is a general trend showing a slight surplus in supply” and mentioned that “the results were reasonable, even though there were some natural disasters.”
How do those disasters, for example in Argentina, impact the cost of reinsurance?
And they start giving it to those who have better prices, more certainty of being paid, and higher-quality risks. As that happens, capacity gets used up. Although the capacity that Argentina needs isn’t very large, because in general it’s not catastrophic, we do see some risks that, depending on the timing, end up with fewer chances of being purchased,” he explained. Brazil To expand on this issue of capacity in the face of catastrophes, Pastore compared it to a Brazilian economic sector. “Agriculture is a pretty typical case, which generally puts us in the same bucket with Brazil, Paraguay, and Uruguay. Brazil, due to its climate characteristics, renews sooner. The volume they handle is much higher. And sometimes capacity starts being used for Brazil, and at a certain point there’s less capacity left from those reinsurers who are interested in being involved in this type of risk and this climate region, and it gets to
“In general terms, it’s like a reinsurance fund, with a volume of important reinsurers, some of whom are interested in having business and others not. They have the capacity to provide coverage to a number of countries. And They commented on their activity in the market. “We started in 1990 with a lot of strength. Very positive things were done. Then there was a setback in 2011 when some enlightened people came up with the idea of nationalizing reinsurance, which was absolutely useless and really showed a lack of understanding of the global reinsurance market. And then, slowly, deregulation began, although there is still a 25% toll in favor of very few local reinsurers,” he assured. Current situation and proposals “I don’t understand, given the characteristics of this deregulation government, why they maintain that 25% hunting ground for the same companies. We’re not saying they should disappear: they should continue to exist, but they should be able to compete. It’s not acceptable for someone to have a stronghold where only a few can compete. From that point of view, I don’t really agree,” Pastore considered. And he continued: “regarding reinsurance brokers, I think they are very important.
They commented on their activity in the market. “We started in 1990 with a lot of strength. Very positive things were done. Then there was a setback in 2011 when some enlightened people came up with the idea of nationalizing reinsurance, which was absolutely useless and really showed a lack of understanding of the global reinsurance market. And then, slowly, deregulation began, although there is still a 25% toll in favor of very few local reinsurers,” he assured. Current situation and proposals “I don’t understand, given the characteristics of this deregulation government, why they maintain that 25% hunting ground for the same companies. We’re not saying they should disappear: they should continue to exist, but they should be able to compete. It’s not acceptable for someone to have a stronghold where only a few can compete. From that point of view, I don’t really agree,” Pastore considered. And he continued: “regarding reinsurance brokers, I think they are very important.