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Mexico Insurance Report Q2 2010
Business Monitor International, Feb 2010, Pages: 78
The Mexico Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Mexico's insurance industry.
This report differs from its predecessors in several respects. In the analysis of competitive conditions, the author provides 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 Mexico, for instance, the three largest non-life companies in the first half of 2009, in terms of gross written premiums, were Seguros Inbursa, AXA Seguros SA de CV, and Grupo Nacional Provincial SAB, with market shares of 17.5%, 13.1% and 12.2% respectively. Motor insurance (all lines) represented 19.2% of the Mexican market, followed by fire and all risks (15.4%) and accidents and illness (13.6%). Over time, the author hopes to derive insights from observing how market shares change. The author emphasises, 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, the author has been able to ensure that the report includes actual data for 2008. Data from Mexico’s insurance regulator, Comisión Nacional de Seguros y Fianzas (CNSF), show that non-life premiums rose from MXN108,612mn in 2007 to MXN115,707mn in 2008. Life premiums rose from MXN 84,994mn in 2007 and MXN 94,288mn in 2008.
The author has generally been able to use data that was published in 2009 to adjust forecasts for the year as a whole. The author forecasts total premiums for 2009 of MXN246,137mn. This includes non-life premiums of MXN142,324mn and life premiums of MXN103,812mn. In 2014, the corresponding figures are forecast to be MXN369,887mn, MXN238,067mn and MXN131,821mn respectively. In terms of the key drivers that underpin forecasts, the author expects for non-life penetration to rise from 1.20% in 2009 to 1.50% in 2014, and for life density to rise from US$72 per capita to US$115. BMI’s Insurance Business Environment Rating for Mexico is 65.0.
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. Among the major insurance companies operating in Mexico, MetLife was the main contributor to the real growth of the life segment, while Inbursa was the main driver of the non-life segment. A surge in investment income – from MXN13,316mn to MXN16,027mn – was the main reason for the increase in the overall profits of the insurance sector. Mexico’s insurance sector in Q210
As BMI has said in previous years, Mexico’s insurance sector appears underdeveloped by many metrics. In 2008, for instance, total premiums were about a fifth of the size of those in Brazil, even though Mexico’s economy is about a third smaller and the population is only 45% smaller. This appears unlikely to change anytime soon. Many Mexicans who can afford to use financial services, provided by banks or insurance companies, are willing and able to work with providers in the US.
Partly because of the reconstruction of the banking industry following the financial crisis of the mid- 1990s, the life sector is dominated by major foreign groups – but sufficiently fragmented to allow substantial competition. According to the CNSF, the five largest players in the life segment accounted for 71% of premiums written in H109. The US insurance company MetLife was the largest, with a market share of 31%. It was followed by BBVA/Bancomer (15%), Monterrey New York Life (9%), Mexican group Grupo Nacional Provincial (GNP) (9%) and Citi/Banamex (7%). The non-life segment is more fragmented. According to the CNSF, the five largest players accounted for 54% of premiums. AXA’s operations in Mexico, enlarged by the purchase of ING Seguros in early 2008, were the largest foreign non-life insurer, with a market share of 13%. Spain’s MAPFRE, with a market share of 5%, was the only other foreign group in the top five. Other leaders included the Mexican groups Quálitas (6%), GNP (12%) and Inbursa (18%).
In other words, premium growth has almost certainly been constrained by brutal competition. Compared to their peers in other major Latin American countries such as Brazil or Chile, Mexican insurers have – at least potentially – been more directly exposed to the problems of the US economy in the wake of the global financial crisis.
Nevertheless, the latest numbers from the CNSF indicate that H109 was far from disastrous for the Mexican insurers. Total premiums for the period amounted to MXN123,040mn, which suggests real growth of 8.8% year-on-year (y-o-y). As of January 2010, we expect total premiums of MXN246,137mn for 2009 as a whole. Virtually all of H109’s growth was generated by property (ie: not autos) insurance. Compared to H108, premiums for credit insurance; earthquake cover; and marine, aviation & transport (MAT) rose by 20-25% in real terms. Fire insurance premiums surged by 222% in real terms. The life sector, by contrast, achieved real growth of 3.5%.
Among the various lines whose results are quantified by the CNSF, a conspicuous underperformer was autos insurance, for which premiums fell by 9.4% in real terms in H109. This was a challenge for Quálitas, which in its semi-annual report reported lower sales by financial institutions, lower policy fees and a slump in premiums relating to motorcycles because of the in-sourcing of business by a major client. Losses and claims and acquisition costs fell as well, so Quálitas’ investment income held up despite the volatility of global markets.
Across the industry, the technical result for H109 was, in real terms, only 4.9% y-o-y lower, at MXN3,171.6mn. Claims rose by 13.5%, to MXN57,665.1mn, but this was substantially offset by lower transfers to reserves. Thanks to the recovery in financial markets, investment earnings rose by over 14% in real terms to MXN16,087mn. As a result, overall profits were also up in real terms, by 16.6% to MXN8,543mn. Over the year ending June 30 2009, total assets of the insurance sector rose by 12% in real terms to MXN572,870mn.
Issues To Watch:
- Growth of life segment: Life insurance premiums are growing significantly more slowly than they were in 2006-2007. Given the competitive pressures in the segment, and the economic challenges still facing Mexico, we expect the segment to stagnate from 2011.
- Fire insurance and other non-life insurance lines (other than autos insurance): The CNSF’s H109 figures highlight how the non-life sector has been boosted by particular lines. At this stage, we suspect that the surge in fire insurance and other lines will not be sustained. Nevertheless, we forecast double digit growth in the non-life segment over 2010-2012.
- Mexican fixed income markets: At a time when premiums generally are slowing, continued favourable performance of the local bond markets will be crucial.
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