Latin America’s Latin America’s economic growth and low insurance penetration is providing plenty of opportunity for insurers and reinsurers to grow, but they must deal with a wide range of different regulatory regimes in the region, according to the report called Latin America Insurance Regulators Evolve with Growing, Changing Markets.
The rate of economic growth in the region has fallen in recent years, however. Latin America’s economic growth slumped to 1.8% in 2012, down from 4.0% in 2011 and 5.7% in 2011. Brazil’s GDP grew 0.9% in 2012, while other South American countries had growth ranging from Argentina’s 1.9% to Peru’s 6.3%, excluding Paraguay, where GDP fell. In Central America projected growth rates range between El Salvador’s 1.6% and Panama’s 10.7%.
The economic growth has reduced poverty in the region. According to the World Bank, the number of people living on less than $4 a day fell from 243m in 2002 to 179m in 2008, equivalent to about 30% of the total population.
In 2012, the region represented about 8.5% of world GDP, up from 5.2% in 2002.
Against this backdrop, Latin America’s insurance and reinsurance markets are also growing, attracting great interest from international insurance and reinsurance eager for growth opportunities.
Insurance penetration in Latin America remains low. Panama had the highest overall insurance penetration in 2011 with 2.87%. Bolivia and Guatemala had the joint lowest with 0.97%.
|Latin America insurance penetration rates|
|Source: AM Best|
Brazil accounted for 46% of Latin America’s premium in 2012, with Mexico accounting for 17%, and Venezuela, Argentina, Chile and Colombia rounding out the top six. These six represented 93% of the region’s total 2012 premium.
AM Best says there is ample capacity in Latin America’s insurance industry, with the primary impediment to increased coverage being constraints on pricing relative to the risk.
The rating agency says insurers have been attracted to the region by the lack of large catastrophes. The largest natural catastrophe event to hit Latin America in recent years was the Chilean earthquake in 2010, which caused $8.5bn of insured losses and $30bn of economic losses.
The region provides attractive diversification and growth for European and North American companies. But insurers writing business in Latin America also face a number of infrastructure weaknesses, including lax building and road safety standard, poor disaster preparedness, cumbersome legal systems and a lack of data about the risks. Corruption and other criminal activities can also affect losses.
“Despite the challenges, companies have shown a commitment to the region, and some have declared aggressive growth strategies,” noted AM Best. For example, Ace expects to double its premiums in the region over the next five years from the $1.2bn it reported in 2012, which accounted for 7% of its total premiums.
“Companies with a global strategy and the capital to expand their business will benefit from the growth in the Latin American market,” said AM Best.
The rating agency says reinsurance capacity is widely available because global reinsurers continue to be attracted to Latin America to diversify their portfolios and be involved in the early stage of a growth market. “Pricing has not been particularly strong, but considerable opportunities are seen,” the report notes.
The report provided details on the challenges and regulatory situation in each market. Click on the headlines below to read more:
Argentina’s tighter regulations squeeze insurers
“Measures and regulations introduced in recent years could take a toll on the insurance industry,” warns AM Best of Argentina's insurance market. More
Bolivia’s market highly competitive, but concentrated
With a high number of insurers and low level of overall premiums, Bolivia’s market remains very competitive More
Foreign reinsurers' concerns grow in Brazil
New reinsurance measures in Brazil in recent years drove foreign reinsurers to bring their concerns to the national government and local authorities. More
Chile’s growth potential among LatAm’s best
Chile’s overall insurance market grew 17% to $9.7bn in 2011 with life accounting for 63% and non-life 37% of total premium, according to Am Best. More
Colombia attracts foreign insurance competition
To ease capacity constraints related to the country’s infrastructure boom, the government has indicated that starting in July 2013 insurance buyers may get cover directly from international markets. More
Costa Rica’s insurance market small but growing fast
Costa Rica’ s insurance market grew 17% to $929m in 2012, compared with 2011, according to AM Best. More
Ecuador’s Solvency II law soon to be enacted
A draft of an insurance act is expected to be sent to the national assembly in 2013, which would require a strengthening of the required reserves of domestic insurers. More
El Salvador’s heavy bancassurance focus
El Salvador’s insurance market is completely deregulated and open, with most companies connected to a bank. More
Guatemala’s suppressed insurance growth
A new regulation in Guatemala requires that local insurers maintain low retentions, allowing reinsurers to take most of the risk in the country. More
Honduras serviced by reinsurers from afar
Honduras had 12 registered insurers at the end of 2012, with the top two – Interamericana and Atlantida – holding 44% of total premiums in 2012 and the top five having 75% of the market. More
Mexico gears up for Solvency II implementation
New legislation was signed in April this year that will incorporate the three pillars of Solvency II. Full implementation is expected in early 2014. More
Nicaragua – very small, very competitive
Non-life business accounts for 75% of Nicaragua’s premiums, and life and health the remaining quarter. More
Panama’s reinsurance regulations overhauled
In April last year a new law required foreign reinsurers and reinsurance brokers to register to do business. More
Paraguay poverty keeps insurance penetration low
Paraguay’s capital requirements are among the lowest in the region and haven’t changed since 1996 when they were introduced as part of the market’s deregulation. More
Peru gets insurance market update
The insurance market is also required to maintain a guarantee fund to cover risks from the technical and credit risks of normal operations, although the regulator has yet to finalize the norms for establishing and maintaining this fund. More
Uruguay breaks $1bn premium mark
Uruguay’s insurance market grew 23% in 2012 to $1.02bn, with non-life accounting for 72% of that and life 28%, according to AM Best. More
Venezuela’s insurance market remains problematic
Venezuela’s insurance market grew 31% to $14.2bn in 2012. Non-life business accounts for 51% of total premiums, making it the region's third-biggest non-life market. More