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Brazil Insurance Report Q2 2010
Business Monitor International, Feb 2010, Pages: 83
The Brazil Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil's insurance industry.
This report differs from its predecessors in several respects. In the analysis of competitive conditions, we provide a much more comprehensive ranking of insurance companies in the major segments from the point of view of the organisation that is providing the data (almost always the national insurance regulator or the national insurance trade association). In Brazil, for instance, the three largest auto insurance providers in the first eight months of 2009, terms of gross written premiums, were: Porto Seguro Cia de Seguros Gerais, Bradesco Auto/Re Companhia de Seguros, and Sul América Cia Nacional de Seguros, with 14.3%, 12.1% and 8.1% market shares respectively. Over time, we hope to derive insights from observing how market shares change. We emphasise though, that a decline in share of gross written premiums is not automatically a bad thing and is often the result of a deliberate corporate decision to focus on more profitable business lines.
Writing in January 2010, we have been able to ensure that the report includes actual data for 2008. The industry regulator, the Superintendency of Private Insurance Companies (Superintendência de Seguros Privados, SUSEP), identifies three life lines in its data: VGBL products, retirement savings schemes (of which PGBL products are an important subset) and capitalisation schemes. BMI data show life premiums rose to BRL40,808mn in 2008 from BRL35,966mn in 2007. The figures for non-life insurance include the consolidated insurance figures published by SUSEP, except for premiums for VGBL products, which are a subset of personal lines that belong to the life segment. The figures include health insurance premiums as disclosed by Agência Nacional de Saúde Suplementar (ANS). With this approach, we find that non-life premiums rose from BRL67,971mn in 2005 to BRL103,340mn in 2008. We have generally been able to use data published up to January 2010 to adjust the forecasts for the year as a whole. We forecast total premiums of for 2009 of BRL167,834mn, which includes non-life premiums of BRL127,062mn and life premiums of BRL40,772mn.We have extended forecasts to 2014, when the corresponding figures should be total premiums of BRL329,354mn, with non-life premiums of BRL239,498mn and life premiums of BRL89,857mn.
In terms of the key drivers that underpin the forecasts, the author expects for non-life penetration to rise from 4.21% in 2009 to 5.30% in 2014, and for life density to rise from US$102 per capita to US$262. BMI’s Insurance Business Environment Rating (IBER) for Brazil is 67.4. This quarter, the author includes a discussion of developments within regional markets, on the basis of results published by major cross-border companies in relation to Q209 or Q309 and the latest information provided by regulators and/or trade associations. The first nine months of 2009 were an excellent period for Spain’s MAPFRE, arguably the leading cross-border insurance group in Latin America. In October 2009, MAPFRE signed a memorandum of understanding with Banco do Brasil to establish a strategic alliance in the personal, property and motor lines in Brazil.
Brazil’s Insurance Sector In Q210 Brazil’s insurance sector is the beneficiary of several major trends. Perhaps the most important is the general improvement in investors’ perceptions of risks associated with the country. The overall tendency towards lower long-term interest rates and stronger currency helps in several ways. Greater economic stability is conducive to the development of non-life insurance, and greater availability of long-term local currency assets is helpful for the development of organised savings.
As investors, the insurance companies are helped by the substantial – if often underappreciated – improvements to Brazil’s financial infrastructure over the last two years. As reported by international securities services magazine Global Custodian in 2008, changes have included: the merger of the São Paulo Stock Exchange (Bovespa) with the Brazilian Mercantile Futures & Derivatives Exchange (BM&F) following the IPOs of both; the lifting of regulations that previously hindered foreign investment by Brazilians; and a project undertaken by the National Association of Investment Banks (Associação Nacional dos Bancos de Investimento, ANBID) to adopt the ISO 2022 standard in domestic securities transactions.
A key development in early 2009 was the purchase by Itaú Holding Financiera of the smaller União de Bancos Brasileiros (Unibanco) to form the largest bank in the southern hemisphere in terms of assets. Even before the Itaú/Unibanco merger, Brazil’s financial services sector was dominated by organisations that are – by global standards – easily large enough to achieve substantial economies of scale. This is one of the reasons why Brazil is one of the most exciting of any of the countries whose insurance sectors are profiled by BMI.
In terms of its timing, the merger roughly coincided with the sale by troubled US insurance group AIG of its stake in a joint venture with Unibanco back to the Brazilian bank. The deal is noteworthy because despite AIG’s need to raise cash to repay funds borrowed from the US Treasury, relatively few of its many insurance businesses have actually been sold. AIG’s Nan Shan operation in Taiwan is the other large insurer that has been disposed of.
The Itaú/Unibanco deal is also noteworthy because it combines the now fully owned insurance operations of Unibanco with those of Itaú within a huge financial services empire that has an extensive branch network across Brazil. Time will tell to what extent Unibanco and Itaú are able to achieve substantial rationalisation benefits within their insurance operations and whether these gains flow mainly to shareholders or customers.
Nevertheless, bancassurance is only one of several distribution options that are exploited by the major insurers. Bradesco’s insurance arm is, by some accounts, the largest insurer in Latin America. It distributes by way of its own branch network and 30,000 brokers.
Although some of the large Brazilian insurers are elements of the leading banking groups and others, such as Porto Seguro and SulAmérica, are independent insurers, what they all have in common is that they are essentially composite insurers. Through a variety of subsidiaries, they offer voluntary auto insurance (CASCO, but typically including roadside assistance as well), property insurance, life/savings products and capitalização savings bonds. Life/savings products include private pension (previdência aberta) plans as well as Vida Gerador de Beneficio Libre (VGBL) and Plano Gerador de Beneficio Libre (PGBL) products. The VGBL and PGBL products are flexible premium deferred annuity schemes that differ mainly in the way they are taxed. VGBL contributions are not tax deductable and the benefits are only partially deductable. PGBL contributions are, subject to limits, tax deductable but the benefits are fully taxable. Capitalização savings bonds are fixed income securities that, usually, have a maturity of one year. In addition, they enable the holder to participate in lotteries.
Unsurprisingly, many of the leading global insurance groups have a presence in Brazil. The links between the large local groups and the banking networks present a challenge to foreign players – but not an insurmountable one. ING’s minority holding in SulAmérica arguably gives it the strongest position among the foreign players and the broadest spread in terms of product lines. In a similar way, France’s CNP is a partner with Caixa Econômica Federal in Caixa Seguros. Several other foreign groups have focused on particular niches. AEGON’s partnership with Mongeral, for instance, reflects a common philosophy, as well as an orientation towards long-term savings products. Allianz’s latest results point to growth outside the major cities, and non-life lines in particular.
Issues To Watch:
- Resumption of growth in life segment: Figures released by SUSEP in mid-2009 showed a slowing of growth in product lines that we have included in the life segment. Previously, the life segment was growing at double digit rates. We forecast rapid growth to resume from 2012.
- Itaú’s strategy following the Unibanco merger: The combination of these two large financial services groups should provide substantial rationalisation benefits and improve the overall competitive advantage. Nevertheless, Itaú and Unibanco do not have complete domination of the segments of the insurance market in which they operate and together they represent an attractive potential distribution partner for other insurers.
- Macroeconomics: The superior long-term growth of what is already a large and fairly sophisticated insurance sector depends on a continuation of the virtuous circle of lower long-term interest rates and a stronger currency.
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