Swiss Re launches Global insurance review 2012 and outlook 2013/14 report

January 2013 - Life and P&C premiums in Latin America are expected to post mixed performances in 2013, as they will likely grow by 11% and 7%, respectively, this year compared to 2012, Swiss Re's senior economist Oliver Futterknecht told BNamericas.

Both figures are in local currency and adjusted for inflation.

In the life insurance segment, premium growth in Latin America is expected to accelerate in 2013 supported by improving household confidence and income, according to the reinsurer's recent "Global insurance review 2012 and outlook 2013/14" report.

But profitability, especially in Brazil, will worsen as a result of low investment returns as the benchmark interest rate is at an all-time low of 7.25%. Swiss Re also warned that currently, the risk of inflation accelerating is high in that country.

For Latin American P&C insurers, premium growth is expected to decelerate in 2013 dragged by a deceleration in Chile and motor premiums in Brazil, which will no longer benefit from a transitory tax rebate on new vehicle sales.

In that segment, infrastructure-related insurance lines will benefit from the roll-out of major projects, while M&A activity is expected to continue as international insurers deploy capital in the region and local insurers increase their cross-border activities, Swiss Re said.

2012 Recap

Latin America was the fastest-growing market among emerging economies in terms of overall premium income in 2012, at 9% compared to 2.3% on average, according to the report.

Life insurance premiums posted solid growth rates in the region's two largest markets, Brazil and Mexico, as did Colombia and Chile. In Brazil, demand benefited from low unemployment and wage increases.

But the sector's growth slowed down in 2012 compared to the previous year as the Latin American economy grew at a more moderate pace, highlighting the ongoing impact of weakening external demand and risk aversion in the developed economies.

P&C premium expansion also decelerated modestly in 2012, with trade-related insurance lines, such as transport and credit, most affected by the economic slowdown.

On the other hand, Latin American insurers' underwriting results should be buoyed in 2012 thanks to a lack of major natural catastrophes, the report reads.

Outlook for Brazil and Mexico

Against a moderate economic expansion, Brazil's total insurance premiums expanded at double digit rates in the first nine months of 2012, while the industry grew 7.1% in Mexico in real terms compared to January-September 2011.

And while premium growth is expected to remain robust in these two countries, the insurance industry in Brazil and Mexico will face lower profit margins as competition will continue pressuring underwriting results.

Also in Brazil, the impact of the new state-run insurer Segurobras on pricing of lines such as surety remains to be seen, Swiss Re said.

On the investment side, lower government bond yields in both countries will exert pressure on investment returns as insurers hold the lion's share of their investments in domestic government bonds.

The lower investment returns will require that insurers fine-tune their underwriting, become more efficient and diversify into other, higher-yielding investments, the report reads.


Published: Wednesday, January 2, 2013
By Jorge Porter
Business News Americas
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