Five year old Brazilian reinsurance company Austral Resseguradora has received authorization to operate in Colombia and Ecuador, the Rio de Janeiro firm has announced. The firm is a subsidiary of Austral Participações S.A.
Aside from operations in Brasil, Colombia and Ecuador, the reinsurer already operates in Peru and Panama, and is awaiting authorizations in Mexico, Argentina and Paraguay.
Austral Re’s decision to enter these new markets was based on the economic and geographic potential of Latin America, where reinsurance premiums reached $21 billion in 2014, with 84% of that total from outside Brasil. While other Latin American markets represent a growth opportunity, Brasil is struggling with a recessionary economy and pessimistic consumer sentiment.
Bruno Freire, CEO of Austral Re (pictured above) has stated that despite representing nearly 50% of insurance premiums in the region, Brasil has well capitalized insurers and little exposure to natural disasters: important factors to explain the low penetration of reinsurance in the country. “In many Latin American countries the ability to retain risk by insurers is not as large as in Brasil, generating demand for reinsurance, particularly facultative contracts,” he says.
According to Freire, the reinsurer’s investment in technology to develop new products, especially in agricultural risks, surety, life and health lines, should result in a competitive advantage with regard to winning market share in the countries it is entering. Freire expects 20% of revenues to come from outside of Brasil in the next three years, compared to 8% today.
Insurance ratings agency A.M. Best rates Austral Re’s financial strength at B++ (Good) and offers a credit issuer rating of bbb+ with a stable outlook. According to A.M. Best, the ratings reflect Austral Re’s more than adequate risk-adjusted capitalization, comprehensive retrocessional program and the successful implementation thus far of the company’s business plan. Additionally, in its first years of operations, Austral Re has produced positive overall earnings driven by a steady stream of investment income, as well as positive underwriting income, which has allowed the company to grow surplus through retained earnings.
Negative rating drivers cited by the ratings firm with regard to Austral Re include a significant decline in risk-adjusted capital, poor operating results when compared to its peers, large losses and significant deterioration of the Brazilian economy or a sovereign downgrade that could negatively impact the company’s investment portfolio, premium growth and ability to pay claims.