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Captives slowly making Latin American inroads

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BOCA RATON, Fla. — Captives in the Latin America region are growing in popularity, but the market faces challenges from local insurance regulations and the need for Latin America corporations to develop more maturity in their risk management programs, said Latin America captive experts.

An improved economy and reduced trade barriers are benefiting the Latin America multinational corporations (also known as Multilatinas), and as these companies begin to mature, they are also starting to focus on developing their use of advanced business tools, such as risk management and captives, said Esperanza Mead, Miami-based president of Actuarial Factor L.L.C. while speaking Tuesday at the 26th annual World Captive Forum in Boca Raton, Florida

“Latin America corporations are getting more sophisticated when it comes to risk management,” she said, “but there is a need for insurers to continue that.” Insurers need to integrate risk management with product development and actuarial resources, she said. “The insurers must build solid risk management structures that prioritize data quality and data governance,” Ms. Mead said.

Enterprise risk management has also become an important factor to consider, she said, with an increasing focus coming from local ratings agencies. “You want to have an A+ rating.”

“The first country in Latin America to realize and accept the concept of forming captives was Mexico, and that was several years ago,” said Eduardo Fox, Hamilton, Bermuda-based corporate, private client and trusts and Latin America manager at Appleby Global Group Service Ltd. As captives continued to form, it was realized that “there was not enough insurance in the local markets, but companies interested in forming a captive were able to find that capacity in international reinsurance markets,” he said.

Latin America captives also face the challenge in the double fronting of captives, where regulations require a local carrier plus a reinsurer to be registered in the country of origin in order to place the risk into the captive. “This is an additional cost that needs to be considered,” Ms. Mead said.

“A captive has many benefits, but the captive is not a short-term investment, it must be seen as a long-term strategy,” Ms. Mead said. There is an opportunity now to better educate risk managers and shareholders of the benefits that captives provide, she said.