Recent Developments in Insurance Markets Within the Region Puerto Rico Insurance Summit: Untapping New Opportunities Jaime Pineda Vice President, Swiss Re April 25 2012
Carlos Boelsterli | 25 Abril 2012
Agenda The Latin American & Caribbean insurance sector in the context of Emerging Markets Recent developments in the insurance industry in Latin America & the Caribbean Perspectives & challenges for the insurance sector
Jaime Pineda | April 25 2012
2
Premium volume in emerging markets grew on average by 11% per year during the last decade Premium volume in emerging markets (EM) and real growth rates (CAGR 2001-2010)
Contribution of each region to the growth of premiums in EM between 2002 and 2010 USD bn -
CEE: Europe: USD 88bn 6.4% LatAm: USD 128bn 6.9%
Source: sigma, Swiss Re
Africa: USD 67bn 4.3%
Asia: USD 336bn 18.0%
Middle East: USD 31bn 11.6%
100
Emerging markets
200
300
147
Emerging Asia
52
Latin America
23
Middle East
8
Africa
25
500
600
700
498
283
39
Eastern Europe
400
89
66
24
38
Puerto Rico* 55
Premiums in 2001 (in USD billion)
Additional premiums 2002-2010 (USD billion)
* According to sigma definition, premiums of Puerto Rico are included in the US and as such, not included in emerging markets. Premiums of Puerto Rico (incl health care plans) increased from USD 5bn in 2001 to USD 10bn in 2010
Latin America and the Caribbean was the second biggest contributor to new premiums generated in Jaime Pineda | April 25 2012 emerging markets.
However, insurance penetration and density still lag behind Insurance penetration and density in different regions Insurance penetration
Life insurance 2001 2010 5.5% 5.1% 0.8% 0.7% 1.1% 1.6% 1.4% 2.5% 0.7% 1.1% 1.1% 0.6% 3.2% 2.5% 0.1% 0.2%
Non-life insurance 2001 2010 3.5% 3.6% 6.4% 10.0% 1.0% 1.3% 0.7% 1.0% 1.2% 1.5% 1.6% 2.0% 1.1% 1.2% 0.7% 1.0%
Total 2001 9.0% 7.3% 2.1% 2.1% 1.9% 2.7% 4.3% 0.8%
2010 8.7% 10.7% 2.9% 3.5% 2.6% 2.6% 3.7% 1.2%
Life insurance 2001 2010 Industrial markets 1451 2069 Puerto Rico 151 191 Emerging markets 15 61 Emerging Asia 10 66 Latin America 26 93 Eastern Europe 26 60 Africa 23 42 Middle East 16 27 Source: sigma, Swiss Re Economic Research & Consulting
Non-life insurance 2001 2010 930 1453 1165 2568 13 49 5 28 48 126 41 211 8 20 35 80
Total 2001 2381 1316 28 16 74 68 31 51
2010 3522 2759 110 94 219 272 62 107
(premiums as % of GDP)
Industrial markets Puerto Rico Emerging markets Emerging Asia Latin America Eastern Europe Africa Middle East Premiums per capita (USD)
Jaime Pineda | April 25 2012
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Puerto Rico is more mature than Latin America in terms of insurance penetration and density
Size, CAGR and Penetration 2001-2010 25%
20% BRA PER
ECU
CAGR
15% CHI
VEN PAR GUA BOL
10%
NIC URU
PAN
HON CR MEX
C.A.
5%
COL
SAL
DOM
ARG PR
0% 0%
1%
2%
3%
4%
5%
6%
-5%
Premiums / GDPB Jaime Pineda | April 25 2012
5
7%
Agenda The Latin American & Caribbean insurance sector in the context of Emerging Markets Recent developments in the insurance industry in Latin America & the Caribbean Perspectives & challenges for the insurance sector
Jaime Pineda | April 25 2012
6
Impressive growth of insurance premiums in Latin America USD m
Total premiums in Latin America & the Caribbean, and Puerto Rico 160'000 140'000
120'000 100'000 80'000 60'000 40'000
20'000 2000
2001
2002
2003
2004
2005
Total premiums Puerto Rico (USD m)
2006
2007
2008
Total premiums Latin America (USD m)
Source: Swiss Re Economic Research & Consulting, sigma
Also in Puerto Rico premiums grew strongly – doubled in 10 years.
Jaime Pineda | April 25 2012
2009
2010
Factors which support premium growth
Economic growth
In recession times, insurance premiums decrease Some causes:
35.0%
12.0%
30.0%
10.0%
25.0%
8.0%
20.0% 6.0% 15.0% 4.0% 10.0%
2.0% 5.0% 0.0%
0.0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 -5.0%
-2.0%
-10.0%
-4.0%
Crecimiento real del volumen de primas (eje izq.) Crecimiento real del PBI (eje der.) Fuente: Swiss Re Economic Research & Consulting, sigma
Jaime Pineda | April 25 2012
Crecimiento de la economía (%)
Crecimiento del volumen de primas (%)
Variation of premium growth and GDP in Latin America
Reduction in demand of single life premium products and those related to mortgages. •
Transport and credit insurance reduces due to reduction in commerce; exposure reduced due to lower production; companies reduce budgets and optimize insurance purchase; families reduce purchase of goods, etc. •
2002 crisis was solely Argentina, while 2009 crisis was a worldwide one. •
Factors which support premium growth
Economic growth
Growth in purchase power has boosted auto sales in Latin America, with an important impact on motor insurance. Population is buying new cars
Motor insurance premiums
(New vehicles sales per year, index 2000=100)
(Motor insurance premiums, in LC, index 2000=100)
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
-
0 2000
2001
Argentina
2002
2003
2004
Brazil
Chile
2005
2006
2007
Colombia
Source: Swiss Re Economic Research & Consulting
2008
2009
Mexico
2000
2001
Argentina
2002
2003
Brazil
2004 Chile
2005
2006
2007
Colombia
2008
2009
Mexico
Source: Swiss Re Economic Research & Consulting
Purchase power growth has also increased purchase of real estate as well as appliances. Its impact in insurance is witnessed in EQ insurance and extended warrantee insurance products. Jaime Pineda | April 25 2012
However, insurers are diversifying away from motor business Motor insurance premiums as a percentage of non-life premiums
CAGR
Puerto Rico
CAGR
Colombia
CAGR
Chile 2010 2005
Mexico Brazil
CAGR CAGR
CAGR
Argentina 0%
20%
40%
60%
Source: Swiss Re Economic Research & Consulting, sigma Jaime Pineda | April 25 2012
10
Factors which support premium growth
Privatization of the pension systems Country
Year
Insurance premiums linked* to pensions as a % of Life Premiums
Chile
1981
53%
Perú
1993
63%
Colombia
1994
46%
* Seguros de Invalidez y Sobrevivencia, así como Rentas Vitalicias Source: Swiss Re Economic Research & Consulting
Jaime Pineda | April 25 2012
Factors which support premium growth
Tax Benefits
Primas (USDm)
Life Premiums in Brazil and VGBL (USDm)
The introduction of savings products (VGBL) with tax incentives, boosted growth of the life market in Brazil since 2002.
35 30
25 20 15
10 5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Otros productos de vida y pensiones (USDm) Fuente: SUSEP y Swiss Re Economic Research & Consulting
Jaime Pineda | April 25 2012
VGBL (in USDm)
In 2010, VGBL accounted for 63% of the life business in Brazil, and 38% of the life business in the region.
Alternative distribution channels, and in particular bancassurance are now established in the region. Use of Alternative Distribution Channels: bancassurance, direct marketing (telemarketing, mailing), retail stores
USDm
Bancassurance generates 28% of the volume of individual life premiums in Mexico.
1600
35%
1400
30%
69% of life premiums are intermediated through alternative distribution channels in Chile. 80%
70% 60%
1 20 0
25 %
1000
40%
15%
30%
10%
20%
800 600 400
50%
20 %
20 0
5%
0
0%
10% 0%
20 0 2
20 0 3
20 0 4
20 0 5
20 0 6
20 0 7
20 0 8
20 0 9
20 1 0
Primas de vida individual generada mediante banacaseguro (USD m) Participación de bancaseguro en el volumen de vida individual (%, eje derecho)
Fuente: Asociación Mexicana de Instituciones de Seguros
Jaime Pineda | April 25 2012
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Participación de casas comerciales en las primas de vida intermediadas Participación de bancaseguros en las primas de vida intermediadas
Fuente: Asociación de Aseguradores de Chile
Local insurance companies are successfully competing with multinational companies Non-life Insurance in Latin America & Caribbean: Market share of the top 25 insurance companies (local and multinational) 70% 60% 50%
21%
24%
40% 30% 20%
42%
37%
10% 0% 2003
2010
Market share of LatAm insurers in regional top 25
Between 2003 and 2010 the market share of the 25 largest insurance companies in the market has reduced. Higher competition will benefit insureds with new products, competitive prices, and service improvements. Local companies have been succesful in competing with international companies in the regional market. Local insurance companies among the Top 25, have been able to increase their market share while international companies have reduced it.
Market share of multinationals in regional top 25 Fuente: Mapfre, Ranking de grupos aseguradores en América Latina, 2003 y 2010
Jaime Pineda | April 25 2012
14
Agenda
The Latin American & Caribbean insurance sector in the context of Emerging Markets Recent developments in the insurance industry in Latin America & the Caribbean Perspectives & challenges for the insurance sector
Jaime Pineda | April 25 2012
15
Despite strong growth, there is still much potential to be exploited in Latin America Insurance premiums in Latin America and the Caribbean** in 2010, by country (USD millions) 48'711
50'000
Insurance penetration in 2010, by country (premiums as% of GDP) World
4.0%
45'000
3.5%
40'000
3.0%
35'000
Latin America & the Caribbean
2.5%
30'000
2.0%
25'000 17'373
20'000
1.5% 12'832
15'000
7'999
10'000 5'000
6'179
8'220
10'342
5'278
1.0% 0.5%
1'724 0.0%
-
* Using an exchange rate of VEF 2.15 per USD. In 2011, however, the fixed exchange rate became VEF 4.3 for USD, negatively affecting the premium volume in USD terms. ** According to sigma definition, Puerto Rico is not included in Latin America & the Caribbean but in the US. Premiums include USD 5.4 billion from health care plans. Source: Swiss Re Economic Research & Consulting, sigma
Jaime Pineda | April 25 2012
Source: Swiss Re Economic Research & Consulting, sigma
It is expected that premiums will continue growing strongly in the region Life and Non-life insurance premium growth by region 2011 - 2021
Private consumption will benefit personal lines (life, motor, property and health) •
Credit and transport will benefit from increase in international commerce. •
•Engineering will Fuente: Swiss Re Economic Research & Consulting, sigma
Jaime Pineda | April 25 2012
be benefiting from infrastructure investments.
It is expected that premiums will continue growing strongly in the region Economic
Infrastructure
growth contributing to advancement of infrastructure projects. investment in the region is estimated to be greater than $1 Trillion over the next 5 years . Existing infrastructure uninsured/ underinsured as evidenced by recent flood losses in Brazil and Colombia. Infrastructure
Latin America is a net food exporter and accounts for 10% of global agricultural exports. Investment in the agro-industrial sector representing opportunity in select markets Exposure to catastrophic events and the volatility of commodity prices pose risks
Agriculture
Steadily
increasing middle class with rising home and vehicle ownership rates. demand and purchasing power from the middle class for insurance products such as health insurance and home insurance. Massive lower class with needs that can be met through microinsurance. HNW individuals growth demanding large sum insurance products as well as income protection covers. Greater
Demographics
Jaime Pineda | April 25 2012
It is expected that premiums will continue growing strongly in the region Financing Growth
Trade
Third Party growing exposures
Jaime Pineda | April 25 2012
Increased
demand from growing middle class and business activity will require additional capital. Changes in regulation also requiring additional capital
Increased intraregional and international trade Free trade agreements will boost exports from the region Increased global demand for oil and other raw materials from Latin America will be a key driver for international trade
Increased third party exposures as Latin America further integrates with the US Impact of FTA, in regards to covers such as Product Liability High Net Worth individuals seeking protection of income (liability umbrellas)
19
Challenges: 2011 was almost the most expensive year for the industry Insured nat cat losses 1970–2011 USD billion, at 2011 prices 140 Earthquakes
Weather-related Nat Cats
2005: Hurricanes Katrina, Rita, Wilma
120
2011: Japan , NZ EQs
100 80 60
1992: Hurricane Andrew
40
1994: Northridg e EQ
20
2004: Hurricanes Ivan, Charley, Frances 1999: Winter storm Lothar
2008: Hurricanes Ike, Gustav
2010: EQs Chile, New Zealand
0 1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: Swiss Re sigma No1/2011
In 1Q2011, the reinsurance industry reported an average combined ratio of 154% Jaime Pineda | April 25 2012
20
However, insurance companies have several challenges (1/2) For example, increase in insurance rates 1Q11 cat losses reduced capital by 6%.
Capital and solvency of non-life reinsurance 1999-2015, USD 150
•
300%
Solvency (Capital / P&C Premiums) (eje derecho, %) Shareholder equity (en USD billion, eje izquierdo)
125
250%
100
200%
75
150%
Capital base, though strong, is likely to be overstated due to: Interest rates rising from current low levels will lead to mark-to-market losses on bonds. A 1% point increase is estimated to decrease the capital base by approx 10%. •
Reserve adequacy having eroded as reserves for redundant underwriting years mature and are replaced by less sufficiently reserved years. •
50
100%
25
50%
0
0% 1999
2001
2003
2005
Fuente: Swiss Re Economic Research & Consulting
2007
2009
2011
Capital requirements having risen since 2007 as a result of the financial crisis (i.e. internal models and rating agencies). •
In general , property cat rates have increased in Q1 renewals, whicl property per risk and Casualty have maintained flat. In Latin America & the Caribbean property cat rates have increased between 3% and 15%.
Jaime Pineda | April 25 2012
Low interest rate environment requires improvements in CR Impact of low interest rates: Need to have a lower combined ratio to compensate for lower yields 18%
Return on Equity
16% 14% Investment yield
12% 10% 8%
5.3%
6%
4.3%
4%
3.3%
2% 0% 95%
100%
105%
Combined Ratio 110%
1 percentage point lower investment yield requires about a 3 percentage point decline in combined ratio to maintain a return on equity of 4.8% The interest rate shock is far more significant than the 2010-2011 natural cat losses
Jaime Pineda | April 25 2012
22
Sources: A.M. Best, estimates by Economic Research & Consulting based on 10-year average for the US market.
However, insurance companies have several challenges (1/2)
Review business model to increase productivity and improve underwriting
Increased supervision and reporting
Administration of increased exposures due to growth (i.e. EQ and TCNA aggregates, life accumulations in transportation, pandemics)
Service to low income segment of the population ("bottom-up" measures) – Develop simple and accesible products
– Use alternative distribution methods to penetrate this segment of the population at a low cost.
Work with govenments to provide solutions to manage its risks (i.e. uninsured infrastructure, massive segments of the population which are uninsured – "top down" measures).
Promote an insurance culture among our organizations
Capital management
Jaime Pineda | April 25 2012
Muchas gracias.
Carlos Boelsterli | 25 Abril 2012
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