According to the study, ‘REINSURANCE IN CHILE, KEY TRENDS AND OPPORTUNITIES TO 2021’ Caja Reaseguradora de Chile SA is the major player in reinsurance market in Chile with major market in its hood.
One of the major role played in Chilean insurance industry has been by reinsurance industry, especially for covering catastrophe lead losses as domestic insurers lack funds to fully mitigate these risks. The reinsurance segment in the country is majorly dominated by foreign players as there are very few players in the domestic reinsurance market. The largest proportion of premium to reinsurers has been provided to Non-Life insurers while the leading reinsurance category is facultative reinsurance.
Insurance take-up in Chile is one of the highest in Latin America. In Chile, substantial number of industrial and commercial operations buy fire and earthquake cover, while coverage is less comprehensive for small medium sized companies with. On the residential side, the Chilean Insurance Association states that only a small proportion of the country’s homes have earthquake insurance. The vast majority of these properties are mortgaged. Reinsurance terms and conditions, and pricing, are a key driver for the primary pricing of calamity cover in Chile. Before the Maule earthquake the market was softening for both insurance and reinsurance. For the last four to five years, rates had been declining year on year for both commercial and residential properties and with little change in terms and conditions.
In Chile, insurance and reinsurance companies, local insurance and reinsurance brokers, and loss adjusters are mainly regulated by the Securities and Insurance Superintendence (SVS). The lack of guidance in the regulations prior to the New Insurance Law over reinsurance contracts had created uncertainty for the London market. The new provisions stating that ‘international standard practice’ will be relevant to interpreting reinsurance contracts may herald an improvement, although there will inevitably be disagreements as to what practice should be followed. Nevertheless, if a reinsurance policy is placed by brokers in London and uses standard London wording, reinsurers will be able to cite the New Insurance Law to argue that evidence of London market practice will be key to resolving disputes at the reinsurance level.
Chile has been one of the most earthquake prone countries in the world owing to its close location to the Pacific Ring of Fire which is an area characterized by high number of earthquakes and intense volcanic activity. Estimates suggest that Maule earthquake caused huge ultimate loss figure probably in billions. Majority of this loss fell to reinsurers. For a comparable US event only half the loss would be ceded to the reinsurers. However, despite the size of the loss, the Maule earthquake has only provided a respite in sliding rates for earthquake cover across Latin America and has not affected global rates. After the Maule earthquake Reinsurers have met their obligations, particularly for a loss that is mostly ceded to the international market
The high participation of reinsurers is projected to continue over the forecast period due to the high catastrophic risk underlying the country. The increasing awareness of insurers is further expected to support the segment’s growth.
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Ankur Gupta, Head Marketing & Communications