Captives have existed in Latin America for more than 50 years, but the market has become active only within the last decade. Last year, there were more than 30 captive owners in Mexico and 25 in Colombia, and a significant number in Peru and Chile.
As the region’s economies become more open, chief financial officers from larger corporations are increasingly investigating more sophisticated insurance solutions, says Pablo Jugovic, director at RAM Consulting in Chile.
“They are learning that captives can transfer risk, strengthen balance sheets and respond to emerging risks that may not be adequately provided for in the traditional insurance market.
“Major brokers are still far more focused on traditional insurance than on introducing companies to captives. But as data improves, tax and legal challenges subside and the number of independent captive administrators increases, the sector will open up.”
Kane Cayman has worked since 2012 to gain understanding of the Latin American insurance sector, including the needs of the corporate insurance consumer, added Linda Haddleton, its managing director.
“We have every confidence that the captive model will benefit many Latin American businesses, but we recognise that Latin America is different from North America, and it is important to understand the economic environment, corporate traditions and ways of doing business,” she said.
While many corporations are familiar with self-insurance, self-insuring through a captive is relatively new, and is approached with caution, she added. Property risks dominate, and these are not always as intuitive to put in a captive as liability risk.
“It is therefore important to explore the diverse benefits of captive ownership such as managing uninsurable risks, customising coverage, and increased negotiating power in the insurance purchasing process.”
Haddleton said that many Latin American regulatory regimes are relatively protective of insurers and brokers.
“Greater recognition of captives at a regulatory level is needed, and local carriers and brokers should partner with clients to help them strike the optimum balance between insurance and the various self-insurance mechanisms available to them.”
Haddleton perceives more opportunities than challenges in the Latin American market.
“Latin America is a significant food producer, a major exporter, and boasts several fast-growing economies. Certain regions are very peril-prone, and there is growing risk management awareness and discipline—leading to demand for responsive insurance solutions,” she said.
“Most of Latin America’s risks are ceded by local carriers to international reinsurance markets, mostly London and Bermuda. Big insurance buyers are beginning to understand that captives are excellent vehicles through which to access these markets directly at reduced cost.”
Pablo Jugovic, RAM Consulting, Latin America