A profile of the leading primary non-life writers in some of Latin America's largest markets prepared by Alexander Lalot and Simon Marshall.
The Latin American insurance market cannot be analysed as a single entity, being composed of a diversity of countries which have followed differing paces towards market liberalisation and deregulation.
A few countries have kept a state-run insurance market. In Costa Rica, the insurance market remains a state monopoly, since only the Instituto Nacional de Seguros (National Insurance Institute) can provide insurance. In other countries such as Cuba and Nicaragua, the state's role and influence over the economy and the insurance markets, in particular, still hinders opportunities for private insurance companies, even if economic reforms have now made foreign and domestic private investment possible.
Uruguay, Paraguay, Ecuador, Bolivia, the Dominican Republic, El Salvador, Guatemala and Honduras are further advanced on the route to market liberalisation. Here, the authorities have initiated changes in insurance laws to remove state monopolies, privatise government insurance companies, introduce solvency requirements, allow freedom in brokerage and reinsurance, remove control over rates and policies and accept foreign investments. However, these markets remain relatively small (none exceeded US$300 million total premium written in 1996) and further legislative changes are being made to achieve higher growth and more competitiveness.
Some countries have completed their insurance reforms and achieved free insurance markets. They include Chile (which was the first to overhaul its legislation in the early 1980s), Argentina, Colombia, Mexico, Venezuela, Brazil (which has now completed its insurance reform by removing the state reinsurance monopoly), Panama and finally Peru. In 1996, the six largest markets (see graph on page 67) produced 94% of the US$32 billion total premium written in the region.
The unquestioned leader in the region is Brazil which accounts for almost 50% of Latin America's total premium written. In 1996, Brazil's total premium increased by 5.8% to R$16,448.6 million (US$15,969.5 million) from R$15,543.4 million (US$14,945.6 million) in 1995. The motor class remains the leading line with 30.5% of the total. Health and life business rank second and third with respective market shares of 20% and 19%.
In an increasingly concentrated market where companies have been merging with local counterparts and foreign insurers to increase competitiveness, a few players now dominate the industry. In 1996, out of 115 insurance companies operating in Brazil, 31 companies were owned by Brazil's top 10 insurance groups (see table on page 66). The latter accounted for 65.7% of total premium written. The Sul América group (composed of nine different entities) and the Bradesco group (which comprised five operating companies) dominate the market with respective total market shares of 17.6% and 13.1%. Most of the leading names including Sul América Seguros and Bradesco Seguros are associated with banking or financial groups.
Over the last couple of years, major foreign insurers significantly strengthened their positions in the Brazilian market. HSBC Holdings bought Bamerindus, Brazil's fifth largest insurer. AIG (which has two operating companies in Brazil) and Unibanco recently announced that they were going to combine interests. AGF has been in the Brazilian market for 10 years and ranks 12th largest insurer. Many other foreign insurers have made Brazil one of their priorities in Latin America. They include Allianz (which created a joint venture with Bradesco), Winterthur (which will take over its existing joint venture with Itaú), Liberty Mutual (which acquired Paulista - Brazil's eighth largest insurer - in late 1996), Cigna (which took over the management of Golden Cross) and others like Mapfre, ITT Hartford, Zurich, Generali, AXA-UAP, Sun Alliance and Chubb.
To face the growing foreign presence, local insurers have been merging to retain their positions in an increasingly open and competitive market. For instance, the Alianca da Bahia group (ranking 25th) is to merge with Banco do Brasil insurance arm Brasilseg (Seguradora do Brasil) and Bradesco has acquired a 40% share of Indiana Seguros, Brazil's 26th largest insurer.
As measured by total shareholders' funds, only two groups have a surplus exceeding US$1,000 million. In 1996, Bradesco came first with R$1,244.8 million (US$1,208.5 million ) total surplus while Itaú's total shareholders' funds stood at R$1,070.3 million (US$1,029.1 million). Only 23 insurance companies out of the total 115 have shareholders' funds over R$50 million (US$48 million) and only 14 have over R$100 million (US$96 million). The average Brazilian insurer has total equity between US$10 million and US$50 million.
In general, Latin American insurers' solvency, reserve and liquidity levels are significantly below Northern standards. For instance, in Brazil, a 350% solvency ratio (net premium written/total equity) would not be unusual. However, Brazil's biggest insurers, as well as foreign owned entities, usually display much better solvency levels than the market as a whole. Most Brazilian insurers are also poorly reserved compared with the standards of developed countries; technical reserves often only cover 35% to 40% of net premium written. Another illustration of the gap between Northern and Brazilian insurers' financial profile lies in liquidity levels; on average, a Brazilian insurer would be only half as liquid as its Northern counterparts.
On the other hand, the average profitability is excellent with only three companies among the top 20 losing money. All top 10 Brazilian insurers have been profitable in 1996, apart from Paulista which suffered from exceptional expenses due to the demands of its new controlling shareholder, Liberty Mutual. They benefited from high investment income due to very favourable local stock markets which offset underwriting losses. Indeed, almost 80% of Brazilian companies display underwriting losses, since rate competition is fierce and it is not often possible to increase market share without affecting underwriting profitability.
It is too early to have precise information on Brazilian insurers' financial performance in 1997 but the recent stock market crisis and the vulnerability of the real would leave us to expect significantly lower investment revenues and, consequently, a worsening in net profitability.
The second largest Latin American insurance market is Argentina. In 1996, total gross premium written amounted to US$4,875.4 million (US$5,085.6 million in 1995). Motor is by far the leading class of business with 44.7% of total premium written.
Unlike most Latin American insurance markets where the majority of premiums are accumulated by a handful of companies, Argentina's leading 10 insurers (see table on previous page) controlled only 35% of total premium written in 1996. The Argentinian market is composed of a multitude of small companies. Out of a total of 275 insurers incorporated in Argentina, there were 240 still operating at the beginning of 1997.
In respect of general insurance, as measured by net premiums written, Omega is the largest entity with US$259.9 million total premium written, followed by Caja de Seguros with US$208 million and San Cristobal (US$150.8 million). Only 13 companies achieved a total net premium over US$50 million and the vast majority, 205 insurers, had net premium income under US$20 million.
Foreign ownership has developed significantly in Argentina but to a lesser extent than in Brazil. Only two of the top Argentinian insurers are in foreign hands. However, as in Brazil, major European and US insurers have invested in the local industry. These include AGF, AIG, Generali, Chubb, Zurich, Cigna, Allianz and UNUM (which bought Boston, Argentina's 30th largest non-life insurer). All these foreign entities hold a relatively small share of the market.
As ranked by total shareholders' funds, San Cristobal is the biggest non-life insurer with US$59.3 million total surplus (just below a life insurer, Caja de Seguros de Vida with US$72.3 million surplus). Of the 240 companies still underwriting, 200 have total shareholders' funds below US$10 million.
Mexico is the third largest insurance market in Latin America. In1996, the Mexican market comprised 58 insurance companies (some of which are no longer underwriting), which together produced a total of M$31,133.4 million (US$3,956 million) gross premium written. That represents a 29.4% increase from the total M$24,052.4 million (US$3,056.2 million) premium written in 1995. In 1996, the largest lines of business were life (34.1%) and motor (25.2%).
The market is dominated by four major insurers which account for 60% of Mexico's total premium written (see table on previous page). In 1996, the leading company was Grupo Nacional Provincial which held a 19.3% market share on its own. However, following the merger of Seguros Comercial América and Asemex (Aseguradora Mexicana) on 31 December 1996, the combined entity will benefit from a market share exceeding 30%. Only two insurance companies are still in state hands, namely Agroasemex (M$354.2 million premium written and M$209 million total equity) and Aseguradora Hidalgo (97.6% life business). Five companies have total surplus over M$1,000 million (US$127million) and 30 have less than US$10 million total equity.
In 1996, there were 18 insurers associated with financial groups, 26 companies had foreign capital and 21 were 100% constituted of Mexican investments. Foreign insurance and banking groups such as Aetna, Mapfre (which owns Tepeyac), Banco Santander (Génesis) or Aegon hold substantial shares of the Mexican market through their subsidiaries. However, with the exception of US and Canadian investors, majority ownership of an insurer must remain in Mexican hands, a restriction due to be lifted by 2000.
Chile, Colombia and Venezuela
In 1996, the remaining three markets of the big six, Chile, Colombia and Venezuela, had a combined premium production of US$5,200 million. Chile accounted for US$2,335 million (Ch$991 billion) while Colombia and Venezuela respectively made up US$1,976 million (C$2,000.2 billion) and US$924 million (Bol440 billion).
Chile is the only Latin American country where life insurance premium is greater than non-life revenue, and life premium accounts for 66% of the total.
In both Venezuela and Chile, foreign insurers benefit from excellent positions. In Chile, eight of the top 10 non-life insurers are owned by foreign companies, while it is three out of the top five in Venezuela. Mapfre owns La Seguridad, Venezuela's leading insurer and Allianz and Liberty Mutual respectively acquired Adriática (fourth largest) and Caracas (third largest). On the other hand in Colombia, foreign investments remain limited. Only a few groups such as AIG, Chubb, Cigna, Generali, Mapfre or Commercial Union have made investments and these have been relatively small.
Notes: To make 1995 data comparable with 1996, all exchange rates are at 31/12/1996.
1996 Inflation rates were 0.4% in Argentina, 20% in Brazil, 7.7% in Chile, 20% in Colombia, 35.9% in Mexico and 100% in Venezuela.
Alexander Lalot specialises in the financial analysis of Latin American (re)insurance companies at The Sedgwick Information Exchange (SIX), London. Simon Marshall is the manager of operations at SIX which provides financial and other information on in excess of 3,000 (re)insurance companies around the globe and has the world's largest database of Latin American (re)insurers. Simon Marshall can be contacted on +44 (0) 171 377 3075 or via the SIX website: http://www.sedgwick-six.com