Evolution of the Brazilian insurance industry. Industry report partial free sample. Sao Paulo, April Copyright Falke Information

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1 Evolution of the Brazilian insurance industry Industry report partial free sample Sao Paulo, April 2018 Copyright Falke Information

2 Insurance companies assets in US dollars showed accelerated growth since 2001 but seem stagnated and premiums plateaued at lower levels Evolution of the Brazilian insurance sector 1) [US$ bn] Total assets and shareholders equity Insurance premiums and net margin 2) CAGR: 8.9% 24,0% 25,2% 22,6% 21,0% 20,6% 20,6% 21,2% 287,6 284,8 18,3% 17,0% 16,7% 244,7 237,3 234,8 255,2 250,6 196,5 212,0 146, E 1) health insurance not included; 2) net margin = net income / insurance premiums Source: SUSEP, FALKE Information analysis E Copyright Falke Information 2

3 The economic importance of the insurance sector dropped to 4.7% of the GDP in 2018 VGBL 1) consolidated its relevance among categories Product portfolio and economic relevance of the insurance sector Evolution of insurance premiums [% of GDP] Premium breakdown in categories 2) ,1% 4,8% 4,8% 4,6% 4,7% Transport and others VGBL 1) Property Transport and others VGBL 1) 4,0% 4,2% Property 3,4% 3,2% 3,5% 3,6% Personal 3,2% Personal Auto Auto E 1) VGBL = Vida Gerador de Benefício Livre (Free-Benefit Life Insurance); 2) health insurance not included Source: SUSEP, FENASEG, FALKE Information analysis Copyright Falke Information 3

4 The Brazilian coverage dropped from 115 to 108 companies in 2014 but rose t0 117 in 2017, and large banking groups seem to lead in premiums Overview of geographic coverage and of Brazilian insurance premiums in 2017 Companies geographic coverage Insurance premiums 1) [US$ mn] North Region 91 active companies (2.6%) Northeast Region 101 active companies (10.1%) Share Banco do Brasil 22% Bradesco 19% Itau-Unibanco 12% Caixa 8% Porto Seguro 5% Centre-West Region 98 active companies (8.4%) 117 active companies Southeast Region 112 active companies (62.7%) South Region 104 active companies (16.3%) Santander Mapfre Tokio Marine Sul América Liberty 5% 3% 2% 2% 1) figures from consolidated financial statements Source: Research and analysis on SUSEP figures, FALKE Information analysis Copyright Falke Information 4

5 These two operational models have quite distinct strengths and weaknesses, and are almost dichotomous to one another Comparison of main strengths and weaknesses among the models Strengths Weaknesses Examples Model A (banking group) Higher profitability levels - considerable participation in higher premiums insurance segments - the banking group enables high financial results to cover any operating loss Lower sales & acquisition expenses - the banking group's network serves as the primary sales channel Higher exposure to risk - risk of substantial value of claims emerging from higher premiums segments - however, the large banking groups improved their skills in risk management, resulting in lower claims indices Model B (independent insurance group) Lower exposure to risk (in general) - in the occurrence of major claims, costs tend to be distributed among more groups (coinsurance) Higher operating margins - profitability of insurance products tends to be higher due to differentiating factors from banking group products (potential for higher return) Lower profitability levels - premiums shared with other insurance groups to dilute very high claims risk (coinsurance) - relatively lower financial result is often insufficient to offset substantial negative operating results Higher sales expenses - higher distribution costs due to sales and acquisition initiatives Source: Sector reports, interviews, FALKE Information analysis Copyright Falke Information 5

6 However, there are considerable variations in the composition of the business portfolio of the groups in terms of their insurance categories Business portfolio for the top insurance groups in ,4% 2,1% 3,4% 7,9% 1,1% 15,7% 11,6% 3,0% 1,7% 10,2% 13,9% 16,2% 2,6% 2,4% 5,1% 7,1% 8,2% 5,4% 6,2% 41,8% 21,1% 17,2% 13,1% 12,3% 7,9% 4,5% 10,2% 5,9% 5,1% 5,9% 81,6% 70,0% 80,1% 65,0% 77,7% 24,0% 66,7% 77,4% 83,0% 45,7% 35,1% 2,8% 2,6% VGBL Auto Personal Property Transport and others 1) health insurance not included Source: FALKE Information analysis on SUSEP figures Copyright Falke Information 6

7 The business portfolios vary considerably among the participants in the reinsurance segment in the Brazilian market Business portfolio for the largest reinsurance groups in 2017 Property Transport Personal Auto Others RE Others Source: FALKE Information analysis on SUSEP figures Copyright Falke Information 7

8 DISCLAIMER The analysis and recommendations of Falke Information are supported by assumptions considered right and consistent based on the available information. Therefore, Falke Information will not be held responsible for the correctness of the resulting recommendations and analysis in this document. NOTE: Copying and handling over of this document is not allowed without prior written permission by Falke Information Copyright Falke Information 8