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Construction Industry Update: Latin America

Climate shocks – including droughts, floods, fires, heatwaves, etc. – continue to be tumultuous to construction prospects in Latin America, resulting in stunted growth from 4.7% in 2023 to 1.2% in 2024. Floods continue to hamper Brazil’s residential market while rising sea levels highlighted infrastructure instability in the Panama Canal. In Argentina, Ecuador, and Cuba, droughts depleted hydropower, abetting energy shortages and blackouts.  

Moving forward, more conversative fiscal policies show promise for future Foreign Direct Investment (FDI) with public-sector agents exhibiting proactive commitments to combat inflation and stabilize exchange rates, albeit government spending into construction projects have consequently suffered.  

Pioneered by President Milie, Argentina, Brazil, and Mexico, have all announced budget cuts into FY 2025 – Latin America’s largest three economies. Hence, construction output is forecasted to marginally contract by 0.5% in 2025.  

Moreover, wider global efforts to reshore, power shore, and nearshore – and/or a combination of each – on behalf of US/Chinese-headquartered, multinational corporations (MNCs) could catalyze output towards 2030. However, long-term construction prospects hinge on steadfast government commitments to combat inflation and how contractors strategically navigate competing US-Chinese interests. 

Latin America

Product update

Rates for builder’s risk in LAC decreased in 2024. Capacity was plentiful in regional and international markets, which helped push prices down.

Rates for delay in start-up (DSU) were flat, with pricing depending on the type of project and the DSU calculation. There were no signs of hardening or softening in prices or conditions.        

Obtaining LEG 3 can be difficult and there only a few examples. It is possible to obtain with a submit depending on the technology used and information provided.

Overall, general liability rates decreased. Some accounts or high-exposure activities saw flat rates. However, the entry of new insurers drove prices down in several countries. This new capacity has heightened competition, allowing for better terms and conditions to be negotiated. Overall, the underwriting process remains disciplined, with underwriters requiring significant information to obtain quotes.

Where available, the worker’s compensation market remains relatively stable, with some countries experiencing minor increases or decreases of no more than 10%. Typically, worker’s compensation is included under third-party liability coverage, with Argentina being the only country that has a standalone worker’s compensation market.

In some countries, including Brazil, the Dominican Republic, Mexico, and Puerto Rico, there is no market for employers’ liability. In countries with an employers’ liability market, it is usually included under third-party liability coverage.

Auto liability varies across the region, but rates are generally flat. Inflation and claims frequency could have contributed to prices rising, but this was offset by high competition.

Environmental liability rates were flat. There is low demand for coverage in the region.

The reinsurance market in LAC prefers to write single projects to annual policies, with annual policies requiring high retention.

Single project professional indemnity prices remained stable, but rates can vary between markets for the same project. Generally, coverage for single project PI is more restricted in LAC compared to other regions with insurers including several exclusions in international wordings. There are restrictions for mining projects, underground activities, wet works, offshore exposure, and projects involving bridge structures. For these projects, capacity is generally low.

The region’s PI capacity has been mostly deployed by the regional reinsurance market, however there is some local capacity from traditional cedents in particular countries. Insurers tend to deploy between US$2 million and US$5 million per risk.

Surety markets in the region exhibit similarities and differences across the region. Overall, while some countries such as Argentina, the Dominican Republic, Mexico, Puerto Rico and Peru experienced stability or upward trends in rates, others such as face Brazil, Chile and Colombia faced challenges that led to varying dynamics in underwriting and market capacity.

Improved competition led to lower retentions, broader coverage, and competitive conditions. Flexibility is greater in reinsurance markets than in local markets. 

Some organizations took advantage of these favorable market conditions to increase their contracted limits.

There was a significant increase in claims notifications in the second half of 2024. Ransomware and extortion remain prevalent, along with large data breaches. Threat actors are becoming less selective and more opportunistic, primarily motivated by economic gain.

The evolution of data privacy regulations in the region is noteworthy. Enforcement is less stringent than in the US, Europe, UK, and Australia, although this may be changing. 

Global construction market update

We hope this update offers buyers a more encouraging picture about the direction of travel for rating in the construction insurance sector in the coming 12 months.                             

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