LatinFinance - May/June 2014 - 27

Value Drivers
Responses to: Which factors within non- life insurance companies will
drive their performance in 2014?
6.5

6.5

6.5

6.4

6.4

Score 1-10
6.2

6

6

6

5.9

5.8

Innovation

6.6

M&A

6.8

Client relat'ns

7

Risk man'ment

WITH SUCH CONCENTRATION
SECONDARY PLAYERS MAY FIND
IT INCREASINGLY DIFFICULT TO
PRODUCE ACCEPTABLE MARGINS

5
4

Earnings, investments in question
the industry may be expanding at a steady clip, but insurers still face
difficulties boosting their profits. a period of low interest rates has
made it tougher for Brazilian insurers to grow their return on assets
(Roa).
fitch calculates that Roa at Brazilian insurers, excluding health
coverage, came in at 1.8% last year, a drop from the 2.5% it had
averaged in the four previous years. it attributes the fall to the central
bank's dramatic series of interest rate cuts from late 2012 to april
2013, which cut insurance companies' earnings from investments.
as a result, insurance companies are looking at their full range
of options when it comes to investing the premiums that they hold,
says cox.
"there is a trend for insurers to go into private equity or hedge
funds," he says. "the overall strategy is to increase returns."
meanwhile, for investors in bonds and stocks, taking advantage
of the likely growth in the sector is proving difficult. access to

3
2
1

Research

Pricing

IT

Training

Cost control

Marketing

y

0

Distribution

Survey respondents gave it an average 7.4 ranking. alexandre
Saraiva, chief executive of Brazilian insurer Vida maxima, says that
given the country's infrastructure drive, coverage of those risks can
be expected to grow.
coverage for health and credit as well as microinsurance placed
second, each scoring 6.6. Just 13 Brazilian insurers specialize in
health, and the area is already expanding rapidly, more than
doubling in size between 2006 and 2012, according to m&e.
Ricardo nishimura, who has 15 years experience in insurance
operations in Brazil, says microinsurance covering life,
unemployment and personal accidents is likely to be a growth area
thanks to recent regulatory changes. a new framework introduced
a year ago covers cheap insurance to lower-income Brazilians, and
allows sales through channels "usually considered unusual, like
newsstands, lottery houses, micro financial institutions or even
schools," he says.
in the survey, private unemployment insurance is ranked least
likely to grow, with a score of 5.2. Respondents were also less keen
on marine insurance (5.6) and business, rural, and liability insurance
(5.9 each).
insurers already find it difficult to cover Brazilians outside the
main urban areas. Data from the regulator indicates that two-thirds
of the country's insurance policies are to the country's south east -
which includes São Paulo, Rio de Janeiro, and Belo Horizonte. close
to half - 47% - of premiums are for risks in São Paulo state alone.
as well as the problems that come with distributing the product
to a more dispersed population, outside the south east, insurers
have more trouble calculating the risks. there is less historic data for
coverage in rural areas, making it tougher to charge the right price.
this is particularly challenging for international firms.

Source: Bradesco Seguros Investor Survey on the 2014 Outlook for the Brazilian
Non-Life Insurance Sector

instruments sold by non-life insurance firms are particularly scarce.
Respondents ranked shares of large life insurers as the most
preferred investment vehicle for non-life insurance, awarding that
instrument an average score of 6.7 out of 10. Bonds and stocks sold
by the broader category of Brazilian financial institutions were next
best - respondents gave this a score of 6.5.
managed country funds and shares of reinsurers were the least
popular, scoring 5.5 each, with regulatory risk a possible factor in
reinsurance.
the industry may be tough to access for real money accounts
and portfolio managers, but other forms of investment are likely:
particularly mergers and acquisitions.
Respondents ranked m&a low among value drivers in the
industry - giving it a score of 5.9, ahead of just one other likely value
driver: product innovation, which scored 5.8. Yet, consolidation
is likely, says m&e. around 240 insurers, including life insurers,
operated in Brazil in 2012 - but 10 of them accounted for around
80% of the industry. "With such concentration, secondary players
may find it increasingly difficult to produce acceptable margins," the
survey findings say.
Vida maxima's Saraiva expects to see a number of transactions
involving bigger brokers buying smaller rivals. He gives the example
of Brasil insurance, which has spent 470 million reais on a stream
of acquisitions of smaller brokerages since it listed in 2011. its most
recent was fidelle, which sells around 40 million reais in annual
insurance premiums, and which it bought for 17 million reais in cash
and stock in its fifth acquisition of 2013. LF

latinfinance Investor Perception Studies are underwritten by sponsors. The editors
retain editorial control over the magazine articles to ensure their objectivity and
independence.

May/June 2014 - l atinfina nce.com 27
http://www.latinfinance.com
LatinFinance - May/June 2014

Table of Contents for the Digital Edition of LatinFinance - May/June 2014
