The accumulation of catastrophe losses across Latin America and the Caribbean could erode insurers’ retentions, earnings and capital, while prompting reinsurers to reassess pricing and capacity, according to Lucas Castagnino, CUO Latin America and the Caribbean at MS Reinsurance.
Speaking to Reinsurance News, Castagnino warned that multiple events affecting the same portfolios were testing reinsurance programmes and exposing weaknesses in catastrophe modelling, exposure data and protection against secondary perils.
“Even though an individual development may not dent an insurer’s results, the aggregation of these events will erode limits and reinstatements, eating into retentions and causing a potential for earnings and capital erosion,” Castagnino said.
He outlined the two risks he sees as most pressing, beginning with earthquakes and shifting weather patterns across the region.
“Exiting 2026 and approaching 2027, there are two parallel stories hitting, in some cases, the same balance sheets,” he said.
The first concerns major earthquakes across South and Central America and Mexico. Castagnino noted that four earthquakes of magnitude 7 or greater had occurred within three months, with their proximity to populated areas a particular concern.
“These again exposed the persistent protection gap and highlighted the disparity between the views of risk of the modelling agencies,” Castagnino added.
“Strong earthquakes happen all the time, but usually they are in low population areas. What really sets this year apart is that they happened closer to largely populated areas.”
The second is El Niño, whose effects vary considerably across Latin America and the Caribbean. Although the Atlantic hurricane season has been relatively quiet, weather-related risks are shifting.
He pointed to Hurricane Melissa last year, which caused an estimated $12 billion in losses in Jamaica, equivalent to more than 50% of the country’s gross domestic product. Meanwhile, Mexico and Central America have experienced drought, with Panama particularly affected by lower water levels in the Panama Canal.
“Less rain means water shortages, and less hydroelectric power across the region,” Castagnino said, adding that increased hurricane activity in the Pacific had brought further storms to Mexico.
Further south, an active storm season from late September has brought severe storms, hail and flooding from Ecuador and central Brazil to the southern part of the continent.
“Paraguay is regarded as a non-cat territory, but we saw a hailstorm with gusts of more than 100 kilometres an hour – which had not occurred in at least the last 25 years – with hailstones between 5 and 10 centimetres, shattering roofs and breaking windshields,” he explained.
Flooding around the Paraná and Uruguay Rivers also threatens communities and businesses in southern Brazil, Argentina and Uruguay. Castagnino said the Itaipu and Yacyretá dams had reached their maximum water levels in October and opened their spillway gates.
“Flooding risk not only affects property, but also continuity of business,” Castagnino added. “The highest risk is projected between December and February, so we are expecting to see more losses coming.”
“The north of the region is likely to be hit with a severe drought, meaning diminished agriculture output. It also means less dependable hydropower energy, trade disruption, and increase of cost of goods,” he said. “In the south, we are probably going to witness a continuum of flooding, hail losses, severe storms.”
“The challenge is that it will affect motor, residential, and commercial portfolios in well-populated and well-insured cities,” Castagnino added.
These overlapping events raise the question of how well existing reinsurance arrangements can cope when several losses strike in the same year. Many reinsurance arrangements have traditionally assumed only one catastrophe event during the year, Castagnino said, leaving insurers potentially exposed when multiple events affect their portfolios.
In established catastrophe markets such as Chile, Peru, Colombia, Mexico, Central America and the Caribbean, insurance, solvency and reserving regulation provides a framework for absorbing losses. Underinsurance, however, remains a significant weakness.
“Insured values have not kept up with inflation, and we are still not fully accounting secondary perils like landslide or fire,” Castagnino said.
The challenges are particularly pronounced in Brazil, Argentina, Paraguay and Uruguay, which have traditionally been considered lower natural catastrophe risk territories. Castagnino added: “Events became add-ons, but they were not the main purpose for reinsurance purchase.”
Growing hail and flash flood losses are increasing awareness, but limited granular exposure data hinders risk analysis and disaster scenario simulation. Castagnino also called for further development of weather-related catastrophe models for South America, where earthquake models are more widely available.
The strain on cedants, in turn, has consequences for how reinsurers price risk and deploy their capacity.
“What we are seeing are mainly reinsurance events and not retention events, but the aggregation of these events through the year could have an impact on the insurance companies’ retentions,” he said.
Material reinstatement premiums could add to capital pressure, particularly in markets moving towards risk-based solvency frameworks, where regulators and shareholders may scrutinise capital adequacy.
“Reinsurance capital remains abundant. Having said that, this year we are witnessing a series of events where the bulk of the loss burden is on the Ceded side, which cannot be ignored, and will influence pricing. These will be important data points, especially for adjusting modelling views of risk.”
“It will affect the availability of capacity, and some reinsurers will become more selective in the clients they want to work with,” he said.
Against this backdrop, the executive turned to what insurers and others can do to build resilience that extends beyond any single event. For Castagnino, resilience starts with ensuring insurers can withstand a severe catastrophe year, alongside efforts to extend cover to uninsured populations.
“The most important thing that companies can do is stay afloat after a catastrophe,” he said. “If an insurer cannot sustain their position after a single year of severe events, they are not fit for the long run.”
He suggested that aggregate excess of loss and spread loss covers could help insurers manage particularly intense catastrophe years, while reinstatement premium protection and surplus relief structures could provide additional support after an event.
Castagnino also called for better exposure data, more frequent reassessments of insured assets and pricing that reflects changing hazards.
“El Nino is an oscillating phenomenon, and as such, needs to be reflected in pricing accordingly,” he said. “Pricing should involve giving incentives and rebates to those that have the best risk prevention and mitigation measures.”
Parametric insurance could help narrow the protection gap, while long-term infrastructure investment could mitigate future losses. Insurers with long-duration liabilities, particularly life companies, could be natural investors in such projects, Castagnino said.
However, he stressed that the insurance industry could not address these challenges alone. “Governments need to change regulation around what are acceptable investments in an investment portfolio of an insurance company and take the lead in governance,” he said.
“They can also ensure their public budgets include financing for risk transfer mechanisms. Governments have a responsibility not only to write and to improve building codes, but also to enforce them.”
