Pricing in a competitive environment

Following the entrance of several insurance groups into the Latin American market after the liberalization in Brazil and an increased push by governments to develop the region's infrastructure, pressure has been evident on rates across different lines of business.

To talk about the pricing of insurance in what is an increasingly competitive environment and to gain a better understanding of developments, BNamericas spoke with Matthias Marwege, Munich Re's senior executive manager for Latin America, Spain, the Caribbean and Portugal.

BNamericas: How have rates held up in 2012 across different lines?

Marwege: In Brazil, rates are under pressure in all lines of business due to very strong competition. In this situation, we have to take a close look at the profitability of the business we write. And we even have to refrain from participating in reinsurance programs where we feel that prices, terms and conditions are not risk-commensurate anymore.

Especially in the engineering business, rates are declining, contract conditions are widening and there is ample capacity. The reason behind this is that many players entered the market in anticipation of the numerous infrastructure projects. But some infrastructure projects haven't been fully realized and, as a consequence, the associated insurance and reinsurance demand hasn't developed as expected.

In liability lines and D&O, we're seeing a steep decline in the primary insurance rates. So we're writing this business only very selectively.

The premium volume of the Brazilian surety market has decreased not only because of competition but also because many public and private investments have been postponed. Furthermore, the market has seen some bigger losses driving the combined ratio up. Nevertheless, surety business remains one of the lines within the focus of Munich Re Brazil; we write it with our continued conservative approach.

In spite of all the challenges in the Brazilian market right now, we still consider it to be very attractive in the long run.

BNamericas: Where else do you see good potential for growth?

Marwege: Other markets where we see good business perspectives are Colombia and Peru. In the non-life reinsurance market, we expect growth in all lines of business related to infrastructure, such as fire, engineering and bond business. A growing middle class and strong economic growth are driving life and motor insurance. As insurance penetration increases in a growing economy, the insurance market may grow faster than GDP, and the same is true for the reinsurance market.

In both countries, insurance rates are under pressure due to fierce competition in the insurance market. At the same time, given the growth of the market, it will be more and more difficult for large insurance companies to buy the necessary cat reinsurance capacity at the current cost. For insurance companies, it's of great relevance that more and more people in Peru and Colombia have access to the internet via smartphones, tablets and computers, and transact business online. Insurance companies need to be able to master on and offline distribution channels and need to understand how consumers want to use these new possibilities to interact with insurers. Munich Re is already accompanying selected companies in this transition, and adapting its products and services accordingly.

BNamericas: How do you decide on an underwriting policy given the competitive environment and growth potential?

Marwege: Generally Munich Re's underwriting policy is driven by the overarching target of profitability. We don't want to compete on prices, but write business only if prices, terms and conditions are risk-adequate. In the given situation, we see our unique selling point predominantly, though not exclusively, in service and know-how-intensive niches, where we offer much more than only capacity.