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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