An Interview with Bruno Freire, CEO and Co-founder, Austral Re
By Reinsurance News
Reinsurance News, August 2024
With more than 24 years of experience in the reinsurance market, Bruno Freire is the CEO and co-founder of Austral Re, along with Vinci Partners, a private equity firm.
Austral Re is a Brazilian-based multiline reinsurer that writes business across Latin America. It has grown organically throughout the last 13 years, and had its credit rating upgraded to A- in 2023 by AM Best (it also has AAAbr from S&P). Before joining Austral, Bruno had been a reinsurance broker at Aon Re for more than 10 years, having witnessed the opening of the reinsurance market in Brazil. As will be seen in the following, he believes in a data driven analytic approach, client focused but with an underwriting mindset, as well as strong support from actuaries and technology as key instruments to run a reinsurance company successfully.
Reinsurance News (RN): Tell us a bit of the history from Austral Re?
Bruno Freire (BF): Austral Re was conceived in 2010, just a couple years after the ending of the reinsurance market monopoly in Brazil that lasted almost 70 years. With the opening of the market, international reinsurers were attracted to Brazil and Austral Re positioned itself as an alternative local multiline reinsurer offering both capacity, tailor-made solutions and services to the insurance companies that used to deal with only one monopolist reinsurer. Since then, the Brazilian reinsurance market has grown in a two digits base per year and Austral Re has expanded its operations, becoming one of the leading and major reinsurers in the country. Since 2015 we started our expansion throughout Latin America, acquired two companies (Terra Brasis in 2019 and the local operations from Markel Re in Brazil in 2021). It is currently writing over US$500 million of premium in P&C and life reinsurance risks across Latin America. We have offices in Rio, São Paulo, Bogotá and an underwriter in Buenos Aires. It has shown sustainable and profitable results, and, with local and technical knowledge and commitment to this market, we are keen to help cedents to develop their businesses in the region.
RN: Before becoming a reinsurer you were a reinsurance broker. How was the adaptation to this new role and what are the main differences?
BF: The roles, objectives, drivers and required skills for a broker and an underwriter are very different. You need a different mindset and for most people it is difficult to change. However, I have to say that for me it was a smooth transition. As a broker, I have always devoted time to the analytical side and used the consulting approach for clients. I like modelling, running detrended fluctuation analysis (DFA), and have always tried to understand the ceding company’s needs and views, as well as the reinsurer’s requirements and aspirations. So, when moving to a reinsurer, I knew my goals of targeting on underwriting profitability, but I could also understand the clients and broker’s needs and pains, which helped me bring this client driven approach mixed with underwriting discipline to my new position.
RN: Considering the past and long-term results from reinsurers and trends, do you regret the choice of moving from a broker to a reinsurer?
BF: If we are to analyze this matter in purely financial view, this is a very good question. Over the last 20 to 30 years, a big share of the margin of the (re)insurance industry is being kept by brokers and intermediaries. (Re)insurers, the risk takers, are keeping the volatility, are more regulated, are demanded for more capital, are facing the climate change and other emerging risks challenges in the underwriting side, and throughout the years the ability to bring more capital has made the market very competitive. We also must admit that brokers were smart and efficient to invest in analytics and in the consultive approach on behalf of clients (as opposed to being pure transaction brokers), which has brought more added value to their activity. When you compare both the market cap of the large brokers 25 years ago and today and the large reinsurers, it becomes clear that the capital market has seen much more increased value in brokers compared with reinsurers. However, after years of a soft market, with many difficult underwriting years for underwriters due to competition, climate change related losses, an unstable financial market, COVID, and other emerging issues, reinsurers finally seem to deliver returns above the cost of capital. We have also seen some companies standing out for the quality underwriting and analytical approach, efficient retro buying and cost control. New technologies are helping in the improvement of underwriting, modelling, distribution and efficiency to allow better results and a smarter risk return strategy. For all these reasons I believe it is a good moment to be an underwriter and a risk taker and we should be able to capture more value now and in the years to come.
RN: How would you describe the current scenario of the Latin America Reinsurance Market?
BF: The current scenario of the Latin America reinsurance market is very challenging, but it also brings good opportunities. In the last years we have seen some large climate related losses, such as Hurricane Otis in Acapulco, Mexico, severe drought causing large crop losses in Brazil and Argentina, the El Niño Costero losses in Peru, the severe floods in Rio Grande do Sul, Brazil, and we are now facing expectations of an above average hurricane season in the Caribbean and the Gulf of Mexico. Besides that, we have all the economic and political instability in the region, which are not new to Latin America, a harder reinsurance market globally, high interest rates coming from developed countries and geopolitical tensions in some regions. It is challenging to underwrite risks in this environment and to navigate these waters, so a well-balanced and diversified portfolio, data driven and modelled decision making, disciplined underwriting and knowledge of the local markets are very important. In this scenario, some reinsurers have decided to avoid or to reduce exposures in Latin America, bringing more opportunities to reinsurers committed to the region to gain space charging adequate prices and technical terms and conditions. We feel that Austral Re is one of the reinsurers well positioned to support our clients and to take advantage of this cycle of the market, although we must be very careful to control our exposures and to underwrite our risks well.
RN: And how about Brazil specifically? We have had recent unexpected events related to climate changes such as the floods in Rio Grande do Sul and severe drought in 21/22 causing a big loss in the crop market. How do you see the impact of these events in the (re)insurance market and what do you expect to change?
BF: As we can see, climate change impact is a reality everywhere. Brazil was considered to be a non-Nat Cat exposed country and, for this reason, a good diversification for reinsurers. But the floods in Rio Grande do Sul proved to all of us that we were wrong. It was a major event in which almost 80% of the municipalities of the state (with over 10 million people) were flooded for almost one month. It represented a very severe economic and social loss and an important insurance loss as well, totally unmodelled by (re)insurers. However, we were also able to see the small penetration of insurance specially for flood coverage available in the market, but very few people or small companies acquired this coverage for their homes or businesses. Most of the insurance losses came from motor and mortgage policies, and large risks. In general, those areas comprised all of the risk coverage. Most of the homeowners and small property businesses had not acquired flood coverage. To reduce this gap for future events of this nature, and at the same time keep the solvency and security of the insurance industry, the market must begin to look for a better control of the exposures and to model it. Basic things in mature cat markets such as geo-localization of every individual risk, type of construction, activity, value at risk, etc., must be addressed by the insurance companies and reported to reinsurers. We will need to build models to calculate PML’s and loss exceedance probabilities. This way we should be able to price these risks correctly and control exposures. I see it as a big challenge and a good opportunity for the months and years to come. For sure this event should allow the market to be more technical and to be able to offer better coverage to clients.
RN: How do you foresee the impact of Big Data and AI in the (re)insurance market?
BF: A successful (re)insurance company is above all an underwriting company. And good underwriting is done with good data and analytics. The new technologies and their democratization allow companies to capture more data and to extract more conclusion from it. Better models, pricing, portfolio management, control of exposures and volatility can be achieved. Besides the underwriting aspect, data and AI is allowing companies to improve services to clients, to gain efficiency and to reduce in median term the administrative costs. Austral Re is investing a lot in data and analytics, as we see it, not as an option, but as a need. A (re)insurer who does not follow this trend will be soon out of the market.
RN: What is your view on the future of the InsurTechs? Is Austral Re seeking them as target clients?
BF: InsurTechs have an important role in the industry transformation. On the servicing side, they are already helping the traditional insurers with several technology initiatives to improve loss adjustment, client experience, online sales, operational processes improved by AI, etc. We work with some of these companies who have been very helpful and disruptive. The InsurTechs who are really insurers are still trying to find their way. One thing I think is important and that they have to understand is that they have to be underwriting companies and not only tech companies. We have been talking with some start-ups that tell us about their client’s experience, sales and efficiency, but do not say anything about underwriting. We do not believe in this model. But the InsurTechs that understand the importance of good underwriting and who use technology to improve their analytical approach will do well and could be good clients for Austral Re.
RN: For Austral Re and the market, how important is the contribution of actuaries to the strategic thinking of a reinsurer?
BF: Actuaries are key to the strategic thinking of a reinsurer. A lot of the data and analytics approach that we have been talking about will come from the actuaries’ work and expertise. Apart from that, reinsurers need to be successful in good modelling. In Austral Re we count on several actuaries, not only the reserving team, but also in the underwriting, analytics, data and operational teams. They help us become a data driven decision-making company, which allows us to control volatility and underwriting profits.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.
Bruno Freire is the CEO and co-founder of Austral Re, a Brazilian-based multiline reinsurer. Bruno can be contacted at bfreire@australre.com.