Industry Landscape - Insurance in Latin America by Sutherland Global Services

Industry Landscape - Insurance in Latin America December 2012

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Industry Landscape - Insurance in Latin America Client • The client is a leading U.S. based Insurance provider, seeking a quick understanding of the Non-life insurance industry in Latin America, as a part of the global market diversification strategy

Project Scope • Key objectives of the study were to: o Understand the key trends and challenges in the insurance industry across Latin America, o Identify major markets in the insurance sector in Latin America, and o Get an overview of top players across the Latin American insurance industry

Sutherland’s Solution • SGS conducted extensive secondary research to understand the dynamics of the Latin America insurance industry  Segment-wise performance, key trends, strategic decisions, potential issues/road-blocks, possible solutions, etc. • The key geographies across Latin America were also identified through a quasi-ranking model based on parameters such as premiums, market share, percent contribution of non-life insurance, etc. • All databases to which SGS holds subscription, were extensively used to identify and collate relevant data points

• Benefits to the Client • The project provided significant and exclusive market intelligence to the client with regards to the major markets in the Latin America Non-life insurance market, which proved to be an instrumental building block in devising the market strategy for geography diversification and growth • This further led to additional engagements with the client (as a next step), to provide deeper analysis of a selected set of geographies in Latin America

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Highlights: Latin America Insurance Market •

The Latin American insurance sector, which accounts for 3% of world premiums, is estimated to be $143.1 Bn in 2011, a growth of 19% compared to 2010 – The growth rate for 2011 doubled as compared to 10% growth experienced in 2010. Premiums for all types of insurance in Latin America grew by double digits in 2011 – The insurance sector in Latin America is growing briskly, buoyed by an expansion of the middle class in several countries, economic stability and generally good prospects for continued economic growth throughout the region – Brazil, Mexico, Puerto Rico, Venezuela, Argentina and Chile are the most developed insurance market in Latin America – Insurance penetration in LATAM is ~2.8% with penetration of Life and Non-Life insurance 1.6% and 1.2% respectively

• •

The non-life market is estimated to be $ 89 Bn. A growth of 22% compared to 3% a year earlier Non-life growth is expected to slow temporarily in 2012 due to the weakening economic environment. However the mid-term outlook is expected to remain robust – Rising car ownership will contribute to motor insurance business – Accident and health insurers are expected to benefit from the projected rise in formal employment and ensuing employerprovided covers – Commercial insurance is also expected to grow solidly as governments roll out infrastructure projects – Credit and transport will benefit from increasing trade activity. As a result, insurance premiums are likely to grow faster than the underlying economy and penetration should increase

•

Growth on the life side was less impressive. Life premiums in the region are estimated to have grown at ~13% in 2011, to reach ~$55 Bn. However, this was down 23% compared to 2010 – In 2012, life premium growth is expected to slow due to the weakening economic environment, but should remain above 5% overall – In the medium term, products aimed at saving for retirement are likely to grow rapidly and outperform protection products – Credit life is also expected to expand quickly as financial markets mature and loan volume expands across the region – Bancassurers are expected to be the main beneficiaries of growth in credit life

Source: LatinoInsurance , Analyst reports

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LATAM insurance industry is currently in its nascent stage and is growing at a steady and consistent rate Global: Insurance Market by Premiums Volume, 2011 ($ Bn)

North America 28.8%

Asia 28.2%

Ocenia & Africa 3.9%

143.1 109.5

LATAM 3.1%

Global: Insurance Market by Type

91.7

2007

97.0

2008

42%

43%

57%

58%

57%

2009

2010

120.6

Life

2011(e) Non- Life

LATAM: Insurance Market by Type

Europe 35.9%

Global Premium Volume: ~$ 4.6 Trillion

43%

2009

2010 2011 (e)

64%

60%

62%

36%

40%

38%

2009

2010 Life

2011(e) Non- Life

Observations • The Latin American insurance market is small in comparison to the more mature, developed markets such as Europe and North America. In 2011 Latin America and the Caribbean made up ~3% of global premiums although it accounts for 9% of the world population • In 2011, Latin American countries recorded some of the highest premium growth rates in the world. In non-life, Latin America had the highest growth rate of any of the world regions, higher than the rest of the emerging market regions including South and East Asia • The insurance market split between Life and Non- Life has remained almost constant over the years both at Global and LATAM level • While globally the insurance market is dominated by Life segment (cornering about 57% of the overall business), in contrast the Non-life business is the major contributor to the overall insurance market of Latin America Source: Swiss Re, Mapfre, Latinoinsurance

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Latin America has the lowest level of insurance penetration in the world

4.4 3.1

3.0

1.6

1.2

4.1

3.5

4.3 2.5 1.2

3.6

2.8

5.8

5.9

7.1

Observations

7.9

Regional Insurance Penetration, 2011

Total business

Life business

Latin America and Caribbean

Africa

Asia

Non-life business

Oceania

Europe

North America

LATAM Insurance Penetration, 2011 Country Chile Venezuela Panama Brazil Puerto Rico Argentina Colombia Costa Rica Ecuador Mexico Uruguay Peru Dominican Republic Guatemala LATAM Total

Total Business

Life Business

Non-Life Business

4.1 3.4 3.4 3.2 16.5 2.9 2.3 2.0 2.0 1.9 1.8 1.5 1.3 1.2 2.8

2.4 0.1 0.8 1.7 1.3 0.6 0.7 0.2 0.3 0.9 0.4 0.7 0.2 0.2 1.2

1.8 3.3 2.6 1.5 15.2 2.3 1.6 1.8 1.6 1.1 1.4 0.8 1.1 1.0 1.6

• In the last decade, insurance penetration in Latin America increased more strongly than in advanced economies but less than in emerging markets in general

• In insurance penetration, Puerto Rico stands out at 16.5%, followed by Chile, Venezuela, Panama, Brazil and Argentina • In the remaining countries, Chile has a relatively high penetration of 4.1%, demonstrating the maturity of the market. Venezuela has high penetration because of reasons such as the development of the oil industry in Venezuela, which is a big buyer of property insurance • Though the Mexican and Brazilian markets are the largest market in Latin America, penetration rates in these countries have not reached maturity. This suggests there is still room to grow and that these two countries are likely to dominate the Latin American market for some time

Source: Swiss Re, RBC

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CAGR over the last five years for both Life and non life insurance stand equal at 13% LATAM: Non- Life Insurance Trend ($ Bn)

LATAM: Life Insurance Trend ($ Bn) 60

54.6

100 88.5

48.3

50 80

70.3 58.2

62.0

11.8 2.7 2.5 5.7

13.0 2.8 2.8 5.4

13.4

14.0

72.3 40

14.5

16.0

2.8 3.1 6.5

3.1 3.7 6.7

17.4

15.6

20 22.1

24.0

25.9

27.2

2007

2008

2009

2010

39.2

33.4 4.8

35.0

5.9

4.5

4.8

42.4 28.7

30.2

2007

2008

34.7

Automobile

Health

Fire and allied lines

Personal accident

Transport

2011(e) Others*

Individual and Group Plans

2009

2010

2011(e)

Private Pension Plans

*Others includes Third-party liability, Credit and / or Survey and workers compensation etc

Observations • In 2011, LATAM insurance market is estimated to be $ 143 Bn, a growth of ~19% over 2010. Growth in Non-Life is a significant 22% whereas in Life it is about 13% • In line with developed markets, Automobile and Health are the major contributors to the LATAM Non-Life market. Automobile is the largest contributor with about 38% share followed by Heath with 23% of the market • Over the years, growth in the Non-Life segment is equally spread between the sub-segments and hence contribution of sub-segments to the overall Non-Life business has remained almost constant Source: Mapfre

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Brazil and Mexico are the most prominent markets in Latin America Insurance industry. Brazil dominates with ~42% share Premiums per capita. (2010, $)

Latin America and Caribbean: Trend in Written Premium ($ Bn) Peru 2% Colombia 5% Chile 7%

Ecuador 1%

Others 4% Brazil 42%

Argentina 7% Venezuela 7% Puerto Rico 9%

Mexico 16%

Puerto Rico Chile Brazil Venezuela Panama Uruguay Argentina Mexico Costa Rica Colombia Peru Ecuador Dominican Republic El Salvador Honduras Guatemala Paraguay Bolivia Nicaragua

2,585 479 356 298 263 216 205 174 154 135 81 78 67 61 40 33 28 22 20 0

LATAM Premium Volume, 2010: $ 121 Bn

100

200

300

400

500

600 2,500 700 2,500 800 2,600 900

Observations • Latin America is a diverse region with countries at different stages of insurance sophistication and demand. The most sophisticated market in the region is Chile, however, the largest markets in terms of premiums volumes are Brazil and Mexico • While Brazil & Mexico combine accounted for 58% of the insurance premiums in Latin America for 2010, Puerto Rico has the highest penetration & density • Premium volume in Puerto Rico is driven by Health insurance for low-income people. Their premiums are managed by private insurers and paid by the government of Puerto Rico and hence high penetration rate Note: Since Puerto Rico is an unincorporated territory of US, there is inconsistency among analyst on its inclusion in LATAM. Since it a significant market with high penetration we have consider it to be part of LATAM for the study. Source: Swiss Re, Mapfre, Latinoinsurance

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Leaving out some exceptions, contribution from non-life segment is higher in the LATAM region Break-up of insurance premium by Insurance Segment, 2010 $ Bn

Brazil

46%

Mexico

51.3

54% 53%

19.1

47%

Puerto Rico

92%

Venezuela

98%

Argentina

84%

Chile

8.2

61%

Colombia

70%

Ecuador

10%

20%

30%

40%

1.1

17%

80% 0%

2.3

44% 83%

Others

6.4

30%

56%

4.8

20% 50%

Non Life Insurance

60%

70%

8.6 8.3

16%

39%

Peru

10.5

80%

90%

100%

$ 120.6 Bn

Life Insurance

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Both regional and MNCs have presence across the LATAM region. Regional players enjoy majority share LATAM: Top Insurance by Written Premium, 2011 ($ Mn) 2011 Total Written Premiums

Ranking 2011

Company (HQ)

% Change 2010 vs 2011

BRADESCO (Brazil)

20,703

30.5%

13.5%

ITAU (Brazil)

10,109

36.3%

6.6%

MAPFRE (Spain)

7,510

14.8%

4.9%

ZURICH-SANTAND (Spain)

6,631

8.2%

4.3%

PRINICIPAL (United States)

6,366

29.4%

4.1%

LATAM: Non-Life Market share by Group, 2010 10.5%

2011 Market Share

6.2% 4.7%

ING (Netherlands)

6,067

22%

3.9%

PORTO (Brazil)

5,117

14%

3.3%

MET LIFE (United States)

4,027

-12.3%

2.6%

LIBERTY (United States)

3,741

20.9%

2.4%

CNP (France)

3,547

22.6%

2.3%

GENERALI (Italy)

3,087

27%

2.0%

ALLIANZ (Germany)

2,804

23.3%

1.8%

SURAMERICANA (Colombia)

2,693

21.5%

1.8%

GNP (Mexico)

2,680

16.8%

1.7%

HSBC (England)

2,611

25.9%

1.7%

BBVA (Spain)

2,460

14.1%

1.6%

AXA (France)

2,279

10.1%

1.5%

TRIPL-S INC (D) (Puerto Rico)

1,998

0.00%

1.3%

INBURSA (Mexico)

1,761

57.1%

1.1%

BRASIL (Brazil)

1,739

23.1%

1.1%

4.2% 54.4%

3.4%

3.1% 2.6% 2.4% 2.2% 2.2% 2.1% 2.0%

Mapfre Porto Seguros Liberty Mutual Bradesco Itaú/Unibanco Holding Allianz AXA Sul América Grupo Nacional Provicial Zurich Generali AIG Others

Observations • Regional companies top the insurance rankings in Brazil, Peru, Uruguay, Bolivia, Colombia and Argentina • In Brazil, the two largest insurers are Bradesco Seguros and Itaú Seguros, which are both units of large financial groups • In the open Mexican market, America’s MetLife and France’s Axa have strong positions, but local firms play an aggressive role too, especially in the non-life market • International groups have tried to level the playing field by investing or purchasing local firms. Others have tried to find local partners – E.g. Zurich acquired Companhia de Seguros Minas Brazil in 2008, a leader in motor insurance – In 2010, Spain’s Mapfre signed with Banco do Brasil, to create a large Non-life insurance company

Source: LatinoInsurance, Mapfre, Reactions

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LATAM: Market Challenges and Opportunities

Challenges •

A central barrier for insurance in Latin America is the lack of trust in insurers and their products coupled with a high uncertainty about future economic developments. This makes it difficult for potential customers to engage in long-term insurance contracts which demand constant premium payments

•

The lack of awareness among potential customers is a further challenge for insurance in Latin America

•

Even if there were the necessary trust and awareness, the uptake of insurance would still be limited since it is unaffordable for a large fraction of the population of emerging markets and there is a lack of suitably tailored products for the poor

Opportunities •

Low insurance penetration and growing average income levels

•

As Latin America is not only getting richer but also more stable, the demand and supply of insurance products has increased and will further increase in the future

•

Continuous easing of regulatory restrictions

Source: Fitch, Analyst reports

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Selected Regulatory restrictions for insurance sector in major Latin American markets

•

Brazil: According to Brazilian law, Brazilian residents are in principle obliged to place insurance with a local insurer, i.e., an insurer established in Brazil and authorized by Brazilian authorities to carry on insurance business. A non-admitted foreign insurer may generally not provide cover in the context of a multinational insurance program and extend insurance coverage to include a Brazilian affiliate.

•

Mexico: No individuals or entities other than those duly licensed by the Ministry of Treasury to operate as insurance companies are permitted to carry on active insurance operations within Mexican territory. Consequently, non-admitted foreign insurers are thus generally prevented from covering risks in Mexico Non-life growth is expected to slow temporarily in 2012 due to the weakening economic environment. However the mid-term outlook is expected to remain robust.

•

Argentina: Until 1994, only Argentine insurers were permitted to insure all kind of goods being imported into or exported out of Argentina. Due to a change in law, non-admitted foreign insurers are formally permitted to provide such insurance cover.

Source: Zurich, Analyst reports

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Thank You.