LatinFinance - September/October 2013 - 71

Potential for growth and consolidation in this market were among
the expectations reflected in responses to the Bradesco Seguros
Investor Perception Survey on the 2014 outlook for the Brazilian
life insurance sector, prepared by Management & Excellence in
cooperation with LatinFinance. The survey drew participation from
64 investors, analysts and senior executives from Europe, Latin
America and the US. Complete responses were submitted by 28.
Regulations bite
Of three major trends, respondents gave particularly strong marks
— indicating a higher likelihood — to continued consolidation in
the life insurance industry. With an average score of 7.4 out of 10,
respondents marked it ahead of a tendency for banks to outperform
insurance companies — which received 6.8 — and a trend for locals to
outcompete foreign providers, 5.5.
Tougher regulations, tighter margins and higher capital adequacy
requirements for financial institutions mean consolidation is likely
for the more than 200 insurers in Brazil. Already, the top 10 control
about 80% of the market. Higher costs, such as IT expenses, will also
squeeze the smaller players.
With such concentration, secondary players may find it
increasingly difficult to produce acceptable margins. Recent
regulations reducing life insurance fees levied by insurers have put
further pressure on net gains.
Domestic banks dominate
Given the advantages in distribution, big banks are expected to
continue their dominance, according to the survey respondents.
This will also come at the expense of foreign players, even those
attached to large groups.
“The bancassurance business is more profitable,” says
Francisco Kops, equity analyst at J. Safra Corretora. “There is lower
competition and higher entry barriers. You also have products with
lower penetration, so you should have products that should grow
more than products commercialized by brokers.”
Banks’ branches give them direct points of sales, in addition to
networks of agents and distribution companies. Customers that
bank with an institution might be more likely to buy other products
from it. Banks are more dominant in life and pension products,
while brokers tend to specialize in health and auto insurance.
The insurance business at Bradesco is generating increasing
income. While Bradesco’s banking services income grew by a 26.7%
between 2010 and 2012, the bank’s insurance business increased
by 69.7%. The insurance business at Bradesco has gone from being
52% as large as the banking business in terms of gross revenue, to
58.7% in 2012.

Consolidation ahead
Responses to: Which other major developments in the Brazilian life
insurance sector do you expect for 2014?
National companies
outperform foreign
companies

6.2

Banks outperform
insurers

6.8
7.4

More
consolidation
5.5

6.5

“ALL ELSE BEING EQUAL, LARGE
BANKS ENJOY THE ADVANTAGE
OF A NATIONAL PRESENCE,
DISTRIBUTION CHANNELS,
PROFESSIONALISM, AND
EFFICIENCY. THE ASSETS ARE
STACKED IN THEIR FAVOR”

Score

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

“All else being equal, large banks enjoy the advantage of a national
presence, distribution channels, professionalism, and efficiency,”
says William Cox, chief executive of Management & Excellence. “The
assets are stacked in their favor.”
The barriers also extend to foreign companies, who find it difficult
to enter areas such as life insurance. One area in which foreigners
did have a toehold was in reinsurance, where it was initially easier
for them to offer expertise in a market with little local know-how.
This is changing, as the government has made it more difficult for
foreigners.
Last year, Brazil adopted regulations that limit the degree to
which foreign companies can reinsure Brazilian risks. Under
the regulations, which took effect in March, 40% of reinsurance
business must be placed with local firms. Reinsurers are prohibited
from ceding more than 20% of premiums to affiliated, intragroup
reinsurers located abroad.
This approach assures that IRB-Brasil Re, the state-controlled
reinsurer that formerly had a monopoly, can survive and adapt to
the new environment, Standard & Poor’s says in a report warning
about elusive profitability in Brazil’s reinsurance market.
Low penetration
Brazil’s insurance penetration of about 3% is paltry compared to
the global leaders, which have as much as 18%. About 70% of the
country’s employed population is uninsured, according to Research
Country funds for exposure
Responses to: Rate your preference for each investment instrument for
the Brazilian life insurance sector in 2014
Equity: reinsurers

4.8

Equity: life insurers

WILLIAM COX, M&E

7.5

5.6

Bonds: life insurers

5.7

Sector funds

5.8

Equity: Financial inst.

5.9
6.4

Bonds: Financial inst.

6.6

Country funds
0

7
Score

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

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