BB Seguridade rides waves of growth in Brazil

The potential for growth in Brazil’s insurance market is vividly illustrated by the rise of BB Seguridade, the insurance arm of one of the country’s largest banks, which in the space of two years has become not only a top insurance player, but also a star performer in equity markets.

BB Seguridade was created by the agglutination of the insurance business held by state-owned Banco do Brasil and went through an initial public offering (IPO) in May 2013.

The public offer was a success, and subsequent months showed that investors had good reason to be interested in the company. In two years, the stock more than doubled in value, and, although it took a hit in recent months, as Brazil got deeper into economic troubles, by mid-October it was still 60 percent up from the IPO levels.

“Investors like the reliability of the insurance business,” said Marcelo Augusto Dutra Labuto, the CEO of BB Seguridade. “And we are today the biggest issuer of premiums in Brazil.”

BB Seguridade is a relatively new company, but by no means a novice in the industry. Labuto noted that Banco do Brasil was already an important player in insurance, with more than 20 years of experience in the sector selling policies via its banking network.

The insurance operation was somewhat hidden within the group’s wide range of activities, which include retail banking, investment banking and asset management, among several others.

In the 2000s, as Brazil’s insurance market went through a consumer-driven boom, the group decided to gather its accumulated experience in the field under a single roof. The process culminated in what was the world’s largest IPO in 2013, when one third of BB Seguridade’s capital was grabbed by investors for R$11.5 billion ($5.7 billion at the time).

“It is natural that, when you give a sharper focus to your operation, you achieve better results,” Labuto said. “We began to put more emphasis on developing policies that match the demands of our clients, which resulted in a more assertive offer of products. We have implemented better loss controls and we have kept management expenses in check.”

The changes have brought results in the shape of higher profits. In 2012, BB Seguridade reported profits of R$1.8 billion. This year, BB Seguridade posted profits of R$2.2 billion in the first six months alone.

The pace of growth has reduced slightly of late, as the Brazilian economy became mired in recession. However, the company expects premium growth to reach 5 percent to 8 percent at the end of the year. In comparison, the Brazilian Central Bank expects the economy to shrink by 2.7 percent in 2015.

BB Seguridade’s main segments are mass-market products such as life insurance and pension plans. The company is also the biggest player in the agricultural insurance market, an important segment in a country where agribusiness accounts for more than 20 percent of GDP, and is a major force in car insurance, large risks and other areas.

The company’s performance is due to a large extent to factors such as the fast development of mass-market insurance products in the past 15 years, especially in segments such as life and pensions.

“Until the 2000s, Brazilians had little if any access to credit,” Labuto said. “Since 2003, however, credit has grown, and people have been able to buy more cars, homes and household goods. With ownership came the realisation that it is important to buy protection for one’s possessions.”

The strengths of Banco do Brasil have also been optimised to the benefit of the insurance unit. “We have provided training to staff in the bank’s network to better serve insurance clients,” Labuto said.

Reaching out to mass customers is not an easy task for insurers in Brazil’s vast territory, but Banco do Brasil has branches or agents in an estimated 99 percent of the country’s localities. Therefore the fact that BB Seguridade is able to work with the same distribution channels provides a significant competitive advantage to the company.

When it comes to the Brazilian insurance market, both local and foreign firms identify much potential for development, even though the sector has been going through a rough economic patch for a couple of years.

Labuto highlighted that insurance penetration remains much lower than in developed economies, and that is why companies such as BB Seguridade remain confident about the future.

“There is still much to be done in terms of raising awareness about insurance and other financial services in Brazil,” he  pointed out. “This is a challenge for the insurance market, but also an opportunity for us to keep on growing.”