Insurance in Latin America
No. 2/2002
Insurance in Latin America: growth opportunities and the challenge to increase profitability
In 2001, the insurance industry in Latin America generated premiums estimated at just under USD 40 billion. Swiss Re's latest sigma study shows some key factors impacting the Latin American insurance market.
Insurance premiums increased by 6% in 2001
As a case in point, Argentina has shown what a strong dependency the development of the insurance industry has on the overall economy. Premium volume declined dramatically in the first few months of 2001 as the economic crisis deepened. In general terms, however, growth in the Latin American insurance industry far outstripped the economy, registering in 2001 a robust rise of 6 percent in insurance premiums. Compared with previous years, property and casualty premiums in the region registered stronger growth than life premiums, due in particular to price increases in international property insurance.
Pension reforms source of new growth potential
Robust growth in the region's life insurance sector stems in particular from pension insurance reforms which have created promising growth potential for the insurance industry.
Foreign investors attracted by untapped market potential
In the property and casualty sector, declining rates between 1995 and 2000 indicate that premiums only grew as fast as the gross domestic product (GDP). However, this sector's potential remains untapped. In fact, while in Latin America spending on non-life insurance corresponds to only 1.3 percent of GDP, the global average stands at 3 percent. For life insurance, spending in Latin America is 0.7 percent, compared to a global average of 4.9 percent. International investors have taken note of this fact. Foreign insurers, for example, have upped their investments in the region over the past ten years and now enjoy a significant market share.
Insurance growth will continue to surpass general economic growth
Expressed in US dollars, premium volume in the region for 2002 will be lower than in the previous year due primarily to currency devaluations in Argentina and Venezuela. Nevertheless, measured in local currency, inflation-adjusted growth in the region's major markets should be positive, with the exception of Argentina, and should clearly outstrip that of the economy.
Falling investment returns require better technical results
Despite stiff competition from foreign providers, Latin American insurers' expense ratios are largely much higher than those in Europe. In Argentina, for example, they are 50 percent. On the international stage, increasingly poor investment returns show the difficulty of propping up excessive expense ratios in the long term. Falling inflation and interest rates require insurers to write better technical results in order to remain profitable.
Diversity of distribution channels as a new factor of competition
Changes are also affecting distribution channels. Latin American markets, traditionally dominated by agents and brokers, are experimenting with new distribution channels targeted at low- and medium-wage earners. These channels include chain stores, car dealers, petrol stations and employers. Whilst these tryouts are still in their infancy with regard to premium volume – as is Internet distribution – success can already been seen in the area of distribution through banks.
This publication can be downloaded in English, German, Spanish, French and Italian.
Download "Insurance in Latin America: growth opportunities and the challenge to increase profitability"
Download "Versicherung in Lateinamerika: Wachstum als Chance, Verbesserung der Profitabilität als Herausforderung"
Download "El seguro en América Latina: ante la oportunidad de crecimiento y el reto de mejorar la rentabilidad"
Download "L'assurance en Amérique latine : l'opportunité de la croissance, le défi d'une meilleure rentabilité"
Download "L'assicurazione in America Latina: Crescita e miglioramento della redditività - un'opportunità e una sfida"
For further questions and copies of Chinese or Japanese versions, please contact sigma@swissre.com.
