An interview with Aline Dalindo, Head of Financial Solutions Latin America, WTW
In Brazil, many companies collapsed during the pandemic. In some cases, there were bankruptcy chains, where defaults of customers bankrupted companies that were temporarily illiquid but otherwise had good financial prospects. That experience caused a lot of businesses to rethink their vulnerabilities. For most companies, protecting assets is a key concern. In Brazil, receivables are on average about 40 percent of assets, and yet in most cases, prior to the pandemic, were completely unprotected.
After the pandemic, demand for credit insurance surged in Latin America, because the value of the product had been made clear. That said, in Mexico and Colombia, the development of the market was hindered by the limited presence of carriers. In Brazil, there are seven insurance carriers operating in credit insurance, but in Mexico and Colombia only three or four.
In 2023, we had a huge claim in Brazil – a retail company collapsed with as much $8 billion owed to creditors. There was a $600 million claim in our markets. Of course, that was a further demonstration of the value of the product. However, with the market in its current early stages of development, that was also a shock. Most carriers are now completely closed on retail – even those carriers that are generally eager to write Brazil risks. Some carriers have become skittish on almost any Brazilian risk we quote.
We want our insureds to have cover across their portfolio, so we have worked to find solutions to cover the resulting gaps. We have developed a syndication structure to fill gaps, mostly for retail counterparties but also pharmaceuticals and sometimes agribusiness. It is the first time this approach has been used in Latin America. We are intending to expand the availability of this pioneering solution into Mexico, Colombia and Chile.
The economic and political situation in Latin America is often volatile. And the credit insurance market is in an emergent state. There are only about 4,000 policies in Latin America and 1,500 policies in Brazil. That is a tiny number of policies compared to Europe. But the market is growing fast.
Part of the challenge we have faced in Latin America is limited financial information. In Brazil, the information is getting better, and multinational companies almost always provide excellent financial data. But in Latin America in general, we have lots of small companies that are not audited and do not really have balance sheets. That makes obtaining cover on these kinds of counterparties a challenge.
However, this lack of information also increases the value of the product. A big advantage of the cover is to give a second pair of eyes. Insurance companies are obviously monitoring the financial health of counterparties 24 hours a day, and they spend a lot of effort obtaining information even when that information is hard to come by. So, when there is a lack of transparency, having this second pair of eyes on your credit decision-making can be even more valuable.
Many of us expected that rates for credit insurance would go down after the pandemic, but so far that has not been the case. In some particularly hard-hit sectors, such as construction, rates have improved a bit. Agribusiness has also been coming down. But in general, high demand for cover, and the big Brazil claim, have kept pressure on rates.
In general, we expect credit insurance markets in Latin America to continue their rapid growth. We see that carriers are committed to Brazil, and Latin America more broadly. In conversations with carriers who do not yet operate in the region, we are hearing a lot of interest, so we expect the level of competition in the market to increase, which will be great for our clients. That said, we do not expect anyone to write retail for at least the next year, so syndicated solutions will still be necessary.
A few months ago, the Brazilian central bank announced that capital relief would be available to banks that purchase credit insurance products, which should drive bank demand for the product. In Brazil, we are seeing big increases in demand from agribusiness. In Chile, Colombia and Mexico, demand from the construction sector is rising, along with food and beverage. And we expect more opportunities in the future because of the educational outreach we are undertaking.
