The future growth of the insurance industry in Latin America

August 2012 - Future insurance sector growth in Latin America Published: Friday, August 10, 2012 Oliver Futterknecht senior economist Swiss Re By Jorge Porter Reporter BNamericas. According to the latest Sigma report from Swiss Re, life premiums in Latin America and the Caribbean expanded 9.5% last year to USD 65billion, while non-life premiums rose 10.7% to USD 89.billion.

The figures are considerably stronger than in other regions. Globally, non-life premiums rose 1.9% in 2011 and life premiums declined 2.7%.

The report, however, also forecasts that premium growth in Latin America will slow this year due to the impact of the crisis in Europe.

To learn more about the current insurance market in Latin America, its prospects for expansion and the factors that will generate premium growth in the coming years, BNamericas spoke with Oliver Futterknecht, senior economist at Swiss Re.

BNamericas: How is the adverse external economic environment affecting the insurance business in the region?

Futterknecht: Economic activity is closely linked to growth in premium volume and the crisis in Europe is beginning to have an impact on Latin American economies. The IMF recently cut economic growth forecasts to 3.4% in Latin America for 2012, considerably less than the 4.5% expansion recorded in the region in 2011.

For example, in times of economic downturn the industry reconsiders and prioritizes its investments, which has an impact on areas such as engineering. Less trade activity can affect the insurance of transport and credit. Another example is the case of families who rethink seeking a mortgage or a loan to buy a car. Many of these loans are conditioned on having or buying property or credit life insurance.

We must add the [Mexican state oil company] Pemex effect to all of this. The multi-line insurance policy was issued in 2011 and will only be renewed in 2013. This will have a further negative impact on premium growth in 2012.

BNamericas: How do you see the future growth of the insurance sector in the region?

Futterknecht: While we expect premium volume expansion to slow down in 2012, it is likely that the region will continue to experience strong growth rates greatly exceeding those reported worldwide.

BNamericas: Given the estimate growth for the region, how much could the participation of Latin America increase in the global insurance market?

Futterknecht: According to our statistics and forecasts, Latin America's share in the volume of global life premiums will increase from 2.5% in 2011 to 3.8% in 2021. In non-life, the jump will be from 4.5% in 2011 to 5.2% in 2021.

BNamericas: The study highlights the expected growth in credit life insurance and life saving products. Why is this?

Futterknecht: We believe that the income of the population in Latin America will continue to increase, thereby driving demand of not only consumer goods, but also saving alternatives.

On the other hand, financial depth in the region (measured in terms of loans as a percentage of gross domestic product)amounts to 70%. This is less than half the global average. Life products related to credit, both mortgage and consumer, are going to be favored by the reduction of this gap.

BNamericas: The study also notes that bancassurance is going to directly benefit from the continuing dynamic in these products.

Futterknecht: It is in these products where bancassurers are competitive because it is possible to leverage fixed costs and maximize synergies. The proliferation of bancassurance will also allow insurers to open segments of the market that otherwise would not be captured by traditional agents.

By Jorge Porter
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