Latin America is the new frontier for captive insurance, according to Tim Faries, managing partner, Appleby.
Speaking on the Latin American captives panel at World Captive Forum 2019, Faries said the region represented “a significant opportunity, which has been a long time developing”.
He commented: “The gap in the Latin American market can also be viewed as an opportunity. There are hundreds of companies in the region whose risk financing and management could be improved through a captive.”
“We view this as a significant opportunity for the growth of captives. We think Latin America is the new frontier for the captive concept.”
The gap in the market was explained by another of the panellists, Javier Mirabal, enterprise risk management consultant at Javier Mirabal Risk Management.
Mirabal highlighted that there were 233 privately owned companies in the region with revenues above $1.25 billion in 2017, characteristics he suggested made then candidates to own a captive, but just approximately 115 Latin American captives.
According to Mirabal, the main cause of this gap is company governance issues rather than financial problems.
He explained: “The main issue is not financial problems, the numbers are there. The main barrier is company governance issues, such as how to connect captives to the domestic legal framework.”
“Or how to explain to the stakeholders that you are including a financial vehicle outside your country, just for optimising your risk financing process.”
“There is a lack of knowledge of how the captive works and how to use it. There may be people with that knowledge but they often don’t have the operational level in the company to enact change.”
Bartolome Massot, head of Latin America at Quest Management Services, highlighted the three biggest barriers to entry to captives in Latin America.
He explained: “The biggest barriers to entry for Latin America are the lack of alternative risk transfer knowledge, fronting, and the capital requirements.”
Massot also focussed on the close correlation between insurance premium growth and GDP growth in Latin America over the past 10 years.
He suggested that this close correlation suggested that as GDP growth is predicted to improve in 2019 and beyond, premium growth can be expected to see a similar increase.