Juan Eduardo Ovalle provides a brief synopsis of the (re)insurance market in Chile.

For those readers who are not familiar with the development of our market, I need to go back to 1980. In those days, some colleagues said that the market was at the door of a real “revolution”, others referred later on to it as the year of the “Big Bang” for our industry. I leave it to you to decide which is most appropriate.In 1980, the authorities implemented a series of reforms which constituted the basis and the “engine” for the development of our economy. The changes gave our country a clear leadership in the region for a few years. I refer, among others, to their fierce adhesion to deregulation and to the opening up of the market to foreign investment.

To summarise, the main changes of 1980 adopted to liberalise the insurance market were as follows:
• Liberalisation of tariffs
The powers of the insurance supervisory authority relating to the setting of tariffs were abolished so that the insurer was free to sell its product at a price he decided, without any interference from the authority. Previously, the regulator contemplated sanctions to those companies or brokers who collected a premium lower than that set or accepted by the authority.

• Liberalisation of reinsurance
The deregulation of the insurance market put an end to the monopoly enjoyed by the reinsurance company, Caja Reaseguradora de Chile, and allowed cessions of risks to other reinsurers. Insurance companies were free to choose their reinsurers, and they were entitled to negotiate terms and conditions. Apart from having to pay a tax of 2% of the ceded premium, there was just one requirement companies had to comply with if they wished to buy reinsurance abroad: they had to deal with foreign reinsurance companies or brokers who had previously been registered with the supervisory authority.
In Chile, reinsurance can be sought from insurance companies or reinsurance companies registered in Chile.

• Foreign capital gains free access
All previous restrictions were abolished so that foreign capital could participate in the capital of national companies, be it for partial or total ownership of the capital of an insurance or reinsurance company.

• Freedom to contract insurance abroad
With the exception of obligatory cover for motor accidents and welfare benefits insurance, the new law allowed anyone to freely contract insurance abroad, subject to certain exchange norms and specific taxes (i.e. 22%). The latter restrictions are not applicable to cover for import/export transport, marine and aviation hulls and export credit insurance.

• Re-adjustment of insurance
In order to avoid any distortions generated in our activities by inflation, the law stipulated that the insured amounts, premiums and indemnities had to be expressed in indexed terms (UF or others). There were exceptions for contracts written in a foreign currency subject to the existing legal rules or under other indexed terms previously approved by the authorities.

• New rules for insurance intermediaries
Their activities were deregulated following proposals that any person who complied with the minimum requirements set by the new law could act as an intermediary, thereby boosting competition. In addition, intermediaries were allowed to place their business with any company and freely negotiate their commissions.

As you will understand, the extent of deregulation described earlier, along with the government's need to take care of insurers' solvency in respect of the public's trust in insurance, created the need to issue regulations designed for companies to retain their financial solvency.

Some of the measures taken initially for this purpose included: minimum capital requirements, the setting up of technical reserves, and the implementation of regulations concerning the eligibility and diversification of investments in order to control their liquidity and security.

The various market players adapted to the new rules which, in spite of the sacrifices involved, brought along substantial benefits. I do not believe I am wrong in saying that the most optimistic forecasts were exceeded. (See Chart 1.)

Our market today
There are currently 59 insurance companies operating in our country: 25 write general insurance business and 34 conduct life assurance business. The total 1997 premium income was just in excess of $2.5 billion, of which 59% related to life assurance.

In 1997, the Chilean insurance market grew by 6.4%. This marks a slowdown in comparison with the previous year, which showed a growth of nearly 10%. The premium per capita was around $182 or 3.46% of GDP.

Life assurance
In 1997, life assurance companies produced a premium income of around $1,757 million. With a growth rate of over 11%, the life sector was the most dynamic of our industry, even though prior years had shown higher growth figures, mainly due to development of life annuities.

At the end of 1997, the market's portfolio consisted of: life annuities 69%, disability and death linked to pension funds 7% and traditional life assurance 24%.Insurance companies retained 94% of premiums for their own account and produced losses of $48 million. The return on equity (ROE) was a loss of 4.8%.Five new companies entered the market in 1997:
• CGS, linked to AGF Group;
• Cardif, linked to another French group, Paribas;
• Vitalis, with US origins;
• Santiago and BCI-AXA Vida, both with origins linked to local banks.
During the first half of 1998, the premium income dropped by 1.4% compared with the same period of the previous year. The fall was due to lower sales of life annuities. The sector's result has not been satisfactory as losses reached around $62 million following lower than expected investment returns (5.1% against 7%) due to capital market behaviour, the Asian crisis, and an increase in acquisition costs.

The prospects for 1998 do not look very promising: as a result of the circumstances described above a negative growth rate is estimated (minus 2%).Key events included:
• The purchase of the remaining shares in Banrenta by North American insurer Principal Mutual Life and its merger with Roble, creating Principal Vida Chile. The merger positioned the company in the fourth place in the league table, with a market share of about 8%.

• Bancassurance which was recently introduced in our country; four companies are already using the system: Cardif, BCI-AXA, Bansander and Santiago Seguros de Vida.

General insurance
General insurance generated $788 million in premiums in 1997. This represents a drop of 3.6 points on the previous year. The lower sales were due to the reduction in tariffs following the fierce competition in the sector.

The 10 largest companies - out of a total of 25 - control about 80% of total premiums. At the end of 1997, general insurance business consisted of: fire and earthquake 26%, motor 40%, cargo and hull 12% and miscellaneous 22%. Net retained premiums of all property/casualty companies reached 53%.

Retained claims accounted for 67.3%, with the main insurance classes producing the following retained losses: fire 74%, earthquake 1.4%, motor 75%, transport 65% and miscellaneous 43%.

As a result of the increase in claims and administrative costs, return on equity has fallen over the last few years: in 1997 it reached 3.81%, in 1996 6.9% and in 1995 18%.

Two companies with French capital entered the market in 1997: Cardif and Coface.

Premiums for the first half of 1998 were about $360 million (nearly a 1% rise on the corresponding period of the previous year) but return on equity came to just 3.8%. This represents a drop in results of nearly 45% compared with 1997, which is primarily attributable to a fall in investment yields.
Key events included:

• The merger between Marsh & McLennan and J&H in our market will allow the new company to control nearly 25% of direct brokerage.
• The acquisition of Grupo Real de Brasil by ABN gives the latter control of a life assurance company and a general insurer in our market.
• The merger of Allianz with AGF will create a new company, called “Consorcio Allianz”, which will rank second in the league table.
Ceded reinsurance premiums by Chilean companies during 1997 were $475 million. Chart 2 shows their development since 1990.Just over 77% of total premiums for 1997 accounted for general insurance. The main classes included fire, with 45% of premiums ceded, motor with 6%, cargo and hull with 15%, and other classes with 34%. (Chart 3.)As for life assurance, life annuities accounted for 78% of total premiums, traditional life assurance for 20% and health insurance for 1%.Chart 4 shows the claims ratio ceded to the general reinsurance market by class in the last two years.
Local reinsurance companies
Various changes took place in the local market. During 1998, Caja Reaseguradora, endorsing an exercise previously carried out by American Re, converted its general reinsurance unit, Compania de Reaseguros Generales, into a representative office called Reaseguros Mapfre. In order to continue to operate in life annuities, for which reinsurance needs to be obtained by law from local companies, the life assurance company remained in existence.At the end of 1997, TIG Reinsurance started operations, covering the markets of the southern cone from Santiago.
At present, six reinsurers have local offices in Chile: American Re, Copenhagen Re, Mapfre, RGA, Soince Re and TIG Reinsurance.
Reinsurance brokers
A total of 77 reinsurance brokers were registered with the regulatory office, Superintendencia de Valores y Seguros, as at 31 December 1997.
The leading ones, in decreasing order by premium rank during 1997, are:
For general insurance: Willis, Bowring, Marsh & McLennan, Jardine and Nelson Hurst.
For life assurance: MDB, Willis, Alexander Howden Re, Aon and Carpenter.

Main foreign reinsurers
Based on their market participation at 31 December 1997, foreign reinsurance companies include:
For general insurance: American Re (21.9%), Mapfre (12%), Allianz (9%), Royal (8.82%) and New Hampshire (7.28%).
For life assurance: Lincoln (27%), American Life (18%), Kolnische (12%), Suiza (11%) and Scor Vie (4%).
1. Halt or decrease in support for certain classes of business on behalf of some reinsurers.
2. Focus on a greater specialisation and operation in niche markets.
Finally, I wish to point out that the figures in this article correspond with the companies classified under those of the first group (property/casualty) and those of the second group (life). In addition, there are other private institutions covering insurable risks which, although not regulated by the same laws and superintendence, are insurance entities.
According to figures published by the Superintendencia de Valores y Seguros, these companies, the so called Isapres (for health risks) and mutuals (for accidents at work), generate $1,330 million and $322 million respectively.
To summarise, the total coverage for health risks, accidents at work and insurance generated an income of $4,319 million. This corresponds with a premium per capita of $295 or 5.6% of GDP.
As mentioned earlier, I hope that this short review will allow you to evaluate the development of the insurance industry in Chile and pick a word to describe it appropriately.

Juan Eduardo Ovalle is general manager of TIG Reinsurance in Chile and regional manager for the southern cone markets. He was formerly the underwriting manager of American Reinsurance in Chile. Prior to that, he was general manager of Compania de Seguros Fenix Chilena SA, a primary insurance company.