EMERGING MARKETS PRIMER
Brazil Insurance Industry- Non Life
2013
Table of Contents 1. Macroeconomic Picture ................................................................................................... 3 2. Insurance Market in Brazil................................................................................................ 4 2.1 Non-Life Segment ............................................................................................................................ 5 2.2 Profitability ...................................................................................................................................... 5
3. Competitive Scenario ....................................................................................................... 6 3.1 Overall Market ................................................................................................................................. 6 3.2 Life Insurance ................................................................................................................................... 7 3.3 Non-Life Insurance ........................................................................................................................... 8
4. Distribution and Regulations ............................................................................................ 9
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1. Macroeconomic Picture
Source: IMF
Economic growth of Brazil, one of the fastest growing emerging countries plunged to 1.5% in 2012 from 7.5% in 2010. This sudden drop in the growth rate was largely the result of government policies to peg back domestic demand and stem inflationary pressure. Among others, a belt-tightening fiscal policy was brought in 2011 assuring a higher revenue trawl for the federal government and a tighter control over expenditure. As of 2012, Brazil is estimated to have a GDP of USD 2.4 Tn as of 2012 which is forecast to reach USD 3.25 Tn by 2017 - an average growth of c. 6.6% (at current prices). In 2012, end-of-year inflation stood at 5.2% little relief from the level of 6.6% of 2011. The food and beverages sector, even though rising less than in 2010, was the biggest cause of this inflation increase; fuel also exerted higher pressure. On the demand side there was a lower growth in household and government spending together with a slowdown in investment. Poor demand was due to lower employment growth, a higher credit cost and growing international uncertainty about domestic economic activity. On the supply side, economic activity stalled almost across the board due to a fall in growth rates of various productive sectors: the farming sector reeled under a slump in livestock farming, mining faced a fall in oil production and manufacturing bore the brunt of falling demand for consumer goods.
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2. Insurance Market in Brazil
Source: Mapfre Report, Reactions Report
Brazilian insurance market is by far the largest in terms of premium volume in Latin America, accounting for approximately 43% of the region’s premium volume. In 2012 it had a premium volume of USD72.2 Bn compared to USD57.8 Bn in 2011.The insurance market has been sustaining significant growth over recent years, but its penetration rate relative to the country’s GDP remains low at around 3.4%. This low penetration is mainly attributed to the following reasons: High degree of wealth disparity and concentration of wealth among the population Low utilization of commercial and personal property and liability insurance Tax incentives for retirement savings products Doubts among the population regarding the value of insurance protection
Infrastructure investment, increase in consumer spending and a change in attitude by insurance consumers, worried by the effects of longevity and interested in the benefits of life insurance, are the main reasons behind this consolidation of Brazil’s insurance market. Continued demand from a growing middle class, with increased sales of commodities and automobiles abundant natural resources and the country’s host role for the 2014 FIFA World Cup and 2016 Olympic Games are catalysts for continued public and private-sector investments, all of which point to a positive growth outlook for the insurance industry’s non-life segment.
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2.1 Non-Life Segment Brazil: Written Premium Trend ($ Bn)
Brazil: Non-Life Segmental Break Up ($ Bn)
Source: FUNDACIÓN MAPFRE Reports
A strong economic performance, easy access to credit and greater buying power among consumers are the major reasons for growth in the Brazilian insurance sector. The overall insurance market has grown to an estimated USD72.2 Bn in 2012 from USD35.7 Bn in 2008, at a CAGR of 19.3%. Non-life Premium has grown to an estimated USD29.4 Bn in 2011 from USD18.4 Bn in 2008, at a CAGR of 12.4%. Some non-life segments like other property damage and accidents have grown substantially, boosted by a considerable increase in infrastructure investment under the growth acceleration programme (Programa de Aceleración del Crecimiento: PAC) and the upcoming sporting events (2016 Olympic Games and 2014 World Cup). The segments that declined during the same period include the vehicle line which grew by 4.5% against 25.3% in 2010, reflecting a fall in car sales due to the economic downturn.
2.2 Profitability Combined Ratios
Source: FUNDACIÓN MAPFRE Reports and AM Best Report
The Combined Ratio is showing a declining trend, from 98% in 2007 to 90.3% in 2010 majorly due to a fall in claim ratio from 54% in 2006 to 46.3% in 2011. Expense ratio has remained almost flat in the last five years as insurers invested to expand their business and also because of the rise in sales expenses, which generally includes brokerage fees paid by insurance companies, and promotional campaigns. 5
3. Competitive Scenario 3.1 Overall Market Leading Insurance Providers 2009
2010
2011
Source: FUNDACIĂ“N MAPFRE Reports
As at December 2012, companies trading in the Brazilian market comprised 116 insurance companies, 26 private pension companies and 18 capitalization companies. The top 10 insurance groups or companies (excluding health) account for 81% of total issued premiums. Their relative ranking did not change from the previous year. Bradesco still tops the total ranking of groups and companies, followed by Itau/Unibanco and BB&MAPFRE (comprising two holding companies between MAPFRE and Banco de Brazil: BB&MAPFRE for life and agriculture insurance and MAPFRE&BB for vehicles and general insurance). Brasilprev, an investee of Banco do Brazil and the group Principal held on to the fourth place, thanks to the sustained growth of the VGBL (Vida Gerador de BenefĂcios Livres) product. Created in 2001,the VGBL is a life surrender benefit product that unites the outliving character of the annuity with the investmentoriented feature of the variable life insurance, which has been benefited from the stabilized economic outlook more conducive to longer-term savings.
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3.2 Life Insurance Leading Insurance Providers in Life Segment 2010
2011
Source: FUNDACIĂ“N MAPFRE Reports
Life insurance segment is very concentrated, with the top 10 players representing ~ 94% of gross premiums. These top 10 players are primarily made up of nearly all of the previdencia (private pensions) business at the largest bancassurers. Brazilian life insurance and previdencia (pensions) segment is dominated by bank-affiliated insurers (bancassurance), which control approximately 84% of total industry-wide premiums and deposits, & benefit from integrated product distribution with the parent company and sell predominantly through the banks Bradesco leads the Brazilian life insurance market with a ~29% share. With the market-leading position in the life segment and being one of the largest players in the Non-life Bradesco enjoys the numero uno position in the Brazilian insurance industry. Life insurers are largely concentrated in retirement annuity lines (mainly VGBL-Vida Gerador de Beneficio Livre & PGBL-Plano Gerador de Beneficio Livre products).
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3.3 Non-Life Insurance Leading Insurance Providers in Non-Life Segment 2010
2011
Source: FUNDACIĂ“N MAPFRE Reports
Non-life insurance market in Brazil is fragmented with top six companies accounting for ~62% of the market value in 2011 compared to the consolidated life insurance market in which top five companies control ~82% of the market. Porto Itau is the largest P&C insurer in Brazil with around 15.3% market share in 2011. Porto Itau, Bradesco and Sul-America have significance presence in the Non- Life segments, majorly due to their large motor portfolios As a result of mergers and acquisitions in recent years, insurance players Itau, Unibanco and Porto Seguro are now part of the same economic group.
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4. Distribution and Regulations Distribution From the perspective of distribution, the insurance market in Brazil is split into three main segments, each served by relatively independent distribution channels. First and the largest market is life insurance which is dominated by simple protection products such as credit life and term life sold mainly via large banks (60% bancassurance in 2010). Second is the non-life market which mainly relies on individual motor and home policies written via thousands of independent insurance brokers (70% of premiums in 2010). Third is the broker market which is extremely fragmented with the largest individual broker, Brazil Insurance, having only around 1.5% of the market share at present. Individual health insurance is also largely sold by independent brokers. Brazilian insurers are increasingly seeking incremental growth by extending their distribution reach and by turning to mass marketing - credit cards, utility companies, internet, telecommunication companies and others. To that end they have developed a new low-cost alternative channel leveraging widespread outlets, such as garages, petrol stations, pharmacies, department stores, supermarkets, and utility companies, and this has helped them to reach the lower-income population at low distribution cost. The use of such alternative channels should grow, with increasing purchasing power of the less affluent. Regulations 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. According to new resolutions (effective March 31, 2011) local insurers or reinsurers may not cede to their affiliated companies or members of the same financial conglomerate based abroad more than 20 % of the premium stipulated for each coverage granted. In addition, the new resolution mandates that the insurance company must contract with local reinsurers at least 40% of each reinsurance retrocession in treaty and facultative contracts. National Council of Private Insurance (CNSP) approved in December 2011 rules for regulating microinsurance. Under this resolution micro-insurance can be sold over media such as cell phones and the
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Internet. It also establishes the maximum limit for the insured sums. This will serve as a parameter for determining whether a particular product can be classified as micro-insurance. In June 2012 the Superintendencia de Seguros Privados (SUSEP) published new legislation on micro insurance, regulating the following features: terms and conditions for authorization and operation of micro insurance providers, the functions of the micro insurance broker, retail networks and the registry for the setting up of micro insurance companies. In this same month SUSEP also published a Circular on updating of the general civil liability insurance, extending coverage and abolishing the current provisions on prices. The new legislation includes diverse clauses on recently approved precepts, such as acceptance of proposals, contracting arrangements, renewal, deductibles, grace periods, etc. Some changes were also made in the insurance object, payment of premiums, limitation period, contract cancellation, claim settlement, loss of rights, excluded risks, proportional contribution or the concurrence of policies and jurisdiction.
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