Regional economic view of Latin America

Transcription

1 Roberto Junguito, FASECOLDA Regional economic view of Latin America Insert your Company Logo here May 2013

2 Agenda 1. Insurance in Latin America 2. Insurance and Economics 3. Future Economic Challenges 4. Insurance Growth Opportunities 5. Final Remarks May 2013

3 Insurance in Latin America May 2013

4 Latin American Insurance Market Swiss Re Sigma Database 2011 World Premiums by region LATAM Premiums / World Premiums LATAM 3% Oceania 2% Africa 1% 3.5% 3.0% 2.9% Asia 27% Europe 37% 2.5% 2.0% 1.5% 1.0% 2.0% 1.4% 0.5% 0.9% 0.0% US 30%

5 Chile Venezuela Panamá Brasil Argentina Average Colombia Costa Rica Ecuador Mexico Uruguay Perú Rep. Dom Insurance Penetration (Premiums/GDP) Swiss Re 4.5% 4.0% 4.0% 3.5% 3.0% 2.5% 3.5% 3.4% 3.1% 2.8% 2.5% 2.4% 2.0% 1.9% 1.9% 2.0% 1.7% 1.6% 1.4% 1.5% 1.0% 0.5% 0.0% There are marked differences in insurance penetration among countries. Can be explained by differences in income per capita, social security schemes (public schemes) and/or compulsory insurance systems in some countries.

6 Chile Brasil Venezuela Panamá Argentina Uruguay Jamaica Average Mexico Costa Rica Colombia Salvador Ecuador Perú Rep. Dom Insurance Density (Per capita insurance expenditure) Swiss Re There are also differences between countries in per capita insurance expenditure.

7 USD Millions Life and non-life premiums in Latin America Swiss Re Sigma Database 180, , , , ,000 80,000 60,000 40,000 20,000 - Non-life Life 58% 57% 61% 61% 59% 60% 60% 42% 36% 37% 38% 38% 41% 40% 40% 41% 39% 39% 43% 64% 63% 62% 62% 59% During the last decade, life insurance growth was 12%, while non-life insurance grew 6%. Life insurance accounts for 42% of the total premiums, while they are near 70% in Asian and African markets.

8 Insurance Summary The Latin American share of the world insurance market is 3% Even though there has been great improvement in the last decade, insurance penetration in Latin America has only reached around 2.5% of GDP. It continues to be below that of Asia and significantly less than that of advanced countries. Non-life premiums represent 58% of the market. Nevertheless, life lines are growing at a faster rate than non-life lines. There are also large differences among Latin American countries. The development of social security schemes and life insurance penetration explain, to a large extent, these differences.

9 Insurance and Economics May 2013

10 The relationship between insurance and economics The economic literature has found a strong relationship between economic growth and insurance market development. With a panel data analysis for advanced and developing countries, Beenstock et al (1988) and Outreville (1990) found that the main driver of non-life insurance demand is economic growth and financial sector depth. Zhi Zhou (1998) found that for the Chinese case, per capita income and inflation explain the insurance sector development. World Bank: Insurance policies are normal goods since their demand increases with income (Lester, 2002). A recent paper for Latin America shows that insurance development contributes to economic growth by transferring risks (Concha, 2012).

11 Premiums / GDP Per capita GDP and insurance penetration Swiss Re S - Curve relationship between insurance penetration and per capita GDP in Latin America (Enz, 2000). 4.5% 4.0% CHL 3.5% PAN VEN 3.0% BRA 2.5% LAC COL ARG 2.0% CRI ECU MEX 1.5% PER DOM 1.0% 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 Per capita GDP US$(2010)

12 Premium growth and economic growth relationship País Elasticity Venezuela 4.0 México 2.9 Argentina 2.1 Brasil 2.0 Ecuador 1.8 Perú 1.7 Chile 1.7 Colombia 1.6 AVERAGE 2.2

13 Insurance and Economics Summary GDP growth is one of the main determinants of insurance demand in Latin America. Insurance premiums grow with the level of income per cápita. The S curve. The elasticity of response of insurance premiums to GDP growth is 2. This means that premiums increase about twice the rate of growth of the economy.

14 The Economic Outlook in Latin America May 2013

15 Share of world s GDP World Economic Outlook, IMF 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 's 90 s 00's Emerging economies Advanced economies The increasing share of emerging countries is bringing a change in the world s economic order.

16 Latin America s economic history: booms and busts World Economic Outlook, IMF. 8 6 Latin America Real GDP Growth High growth period Debt Crisis Asian/Russian Crisis Great Recession External financial crisis have always had an adverse impact in Latin America s economic performance.

17 LATAM Economic Perspectives World Economic Outlook, FMI. Author estimates. GDP Real Growth Premiums Real Growth * 2014* 2013* 2014* Latin America Argentina Brasil Chile Colombia Ecuador México Perú Venezuela

18 Insurance and Economics in Latin America The emerging countries have increased their weight in the world economy. Latin America has favorable growth perspectives, although it has always been strongly affected by the global economic cycles. The region has improved its macroeconomic stability and has been favored by high commodity prices. Some countries stand in front (Colombia, Perú, México, Chile). This favorable context brings a good environment for foreign investment and insurance growth. Nevertheless, there are downside risks: world economic instability, decline in commodity prices, continued exchange rate appreciation, misuse of fiscal resources, and inflationary pressures in some countries. May 2013

19 Insurance Growth Opportunities

20 Brasil Chile México Perú Colombia Uruguay Argentina Ecuador Rep. Dom Panama Venezuela Life insurance growth opportunities CNSF. Without Social Security and Health premiums. 100% Non-life (%) Life (%) 90% 80% 70% 60% 50% 48% 53% 54% 63% 73% 76% 83% 84% 86% 88% 96% 40% 30% 20% 10% 0% 52% 47% 46% 37% 27% 24% 17% 16% 14% 12% 4%

21 Insurance and Income Inequality: Microinsurance Swiss Re 14.00% 12.00% GBR Penetration & GINI 10.00% JPN FRA 8.00% 6.00% 4.00% 2.00% 0.00% DEU ESP CAN ITA AUS NZL RUS USA VEN MEX ARG GINI PER CHL ECU PAN BRA COL

22 Panama Chile Uruguay Brazil Mexico Argentina Costa Rica Colombia Peru Ecuador Bolivia Nicaragua Venezuela Paraguay Infrastructure quality: Surety Prospects World Economic Forum, Global Competitiveness Report Calificación (sobre 7) Ranking (sobre 142 países)

23 Natural Disasters Swiss Re Region Insured Losses (USD m) Economic Losses (USD m) Insured / Total Losses Losses (%GDP) US 15,348 20,551 75% 0.13% LATAM 8,977 53,378 17% 1.10% Australia 8,860 13,131 67% 0.95% Europe 6,303 35,204 18% 0.19% Asia 2,240 74,840 3% 0.28% Africa % 0.02%

24 Insurance Growth Opportunities The positive growth perspectives, better income distribution and improved economic management should translate into increse demand for insurance. Life insurance penetration should increase in most countries. The improvement in income distribution should increase demand of microinsurance products. Public and private investment in infrastructure should stimulate surety business lines. Urbanization and income growth should stimulate demand for natural disaster insurance protection.

25 Regulatory Environment May 2013

26 Regulation and surveillance of insurance companies is being strenghthened across the region Financial soundness of insurance companies Competition Information - Transparency Financial Education Consumer Protection

27 Regulation, surveillance and acheivement of international standards will also determine the path that the insurance industry will follow. Consumer protection will be the center of attention of regulators and supervisors. Consumer protection regulations, financial literacy obligations and more adequate information requirements will be in the order of the day. Insurance companies will face stricter solvency and reserves requirements. Several countries have adopted new insurance laws (Perú, Panamá, México and Brasil). May 2013

28 Final remarks May 2013

29 Big opportunities for the insurance and reinsurance sector in the region Without economic growth, there will not be a significant insurance sector development. The region s positive economic perspectives offer big opportunities for the insurance industry development. The insurance industry growth perspectives will also require significant reinsurance backing. The confidence in the region is based on the good macroeconomic fundamentals and on the investment opportunities in a volatile global economic context.

30 LATAM: An attractive site for foreign investment Doing Business 2012, IFC

31 Thank you May 2013

32 References Cárdenas, M., Levy-Yeyati, E. (2010). Latin America Economic Perspectives. Latin America Iniciativa, Brookings Institution. IMF, World Economic Outlook. Marshall, J. (2013). Economía y Seguros, una mirada a Latinoamérica. Los Seguros en La Era del Nuevo Consumidor, Chile. World Bank (2013). Global Economic Prospects 2013.