Tipped for growth: Brazil’s insurance markets
As the Inter-American Federation of Insurance Companies (FIDES) lands in Rio de Janeiro for its annual event, Intelligent Insurer examines the country’s insurance markets.
As well as being the largest economy in Latin America, Brazil also has the largest insurance markets. In 2022, Brazil was the 17th largest insurance market globally—and it accounted for 41% of Latin America’s insurance revenue.
“Insurers are some of Brazil’s largest institutional investors.”Insurance premiums last year were R$619.3 billion ($127 billion), equivalent to 6.3% of Brazil’s gross domestic product (GDP), while claims amounted to R$452.1 billion. Last year, revenues increased 11.8%.
The Brazilian insurance market is heading for strong growth, however. This is partly because it is relatively small in relation to the size of the economy and partly because of plans developed by various representative bodies to grow the market.
The latest projection by the National Confederation of Insurers (CNseg) indicates that the Brazilian insurance market will grow again in the double digits in 2023. The most recent estimate is for growth of 11.1%, up from the previous projection of 10.9% (not including mandatory vehicle insurance and health insurance).
Casualty insurance (not including mandatory vehicle insurance) is forecast to grow 18.1% in 2023. Two other areas likely to see strong growth are auto, which is expected to grow 23.3%; and agricultural, which is projected to grow 20.1%.
These bullish growth forecasts are reflected in other analyses, although the figures differ due to differences in methodology. Fitch Ratings suggests that Brazilian insurance sector’s premiums increased by 7.7% compared with 1H22. All segments reported premium increases in 1H23, led by auto (18%) and property/casualty (P/C; 11%), which had 14% combined growth compared with 1H22.
Eduardo Recinos (pictured), senior director, regional group head LatAm–insurance, Fitch Ratings, said: “Fitch considers the Brazilian insurance market to be technically sophisticated, with highly diversified and deep product offerings. The agency also believes that Brazilian insurers have a solid business profile, resilient financial performance and adequate leverage ratios, in addition to a well-developed regulatory environment compared to other Latin American countries.
“However, the sector is exposed to the sovereign rating, due to the industry’s significant exposure to Brazilian government bonds and the concentration of operations in the region.”
Ambitious plans
Insurance bodies in Brazil have ambitious plans which are designed to make it more attractive by 2030. The Insurance Market Development Plan, drawn up by CNseg, FenSeg (which represents casualty insurers), FenaPrevi (pensions and life), FenaSaúde (health), FenaCap (lottery bonds) and Fenacor (insurance brokers), as well as the sector’s companies, have set a target of insurance premiums reaching 10% of Brazil’s GDP within eight years.
The plan will achieve this goal through a number of pillars. It wants to increase the visibility of insurance, demystify the idea that insurance is expensive, simplify insurance operations, and make the industry’s technical jargon more understandable.
It wants to also better explain the role of the insurance market when it comes to environmental, social and corporate governance (ESG) issues, demonstrating the sector’s commitment to the sustainability agenda.
The plan notes that insurers are some of Brazil’s largest institutional investors. This means they can help shape sustainable growth and drive ESG by selecting certain investments. In addition, on the underwriting side, they can choose to deselect certain risks, while promoting decarbonisation initiatives.
Inflation matters
One additional boost for the industry has been an improvement in inflation this year, which reduces pressure on insurers’ loss ratio. Fitch Ratings cites this as a positive thing but also a potential economic slowdown.
“Fitch incorporates in its outlook the positive trends in collections in recent periods for the insurance sector. The maintenance of premium growth partly reflects adjustments in pricing resulting from the increase in vehicle prices and the increase in economic activity, among other factors,” the rating agency said.
“The inflation scenario also showed a significant improvement, with the Broad Consumer Price Index (IPCA) accumulated up to June at 2.95%—a drop compared to 2022 and 2021, when it was 5.8% and 10.1 %, respectively.
“The improvement in the inflationary scenario, in turn, also partially reduces the pressure on the loss ratio. On the other hand, Fitch expects economic activity to slow down in the coming periods, as a result of tighter domestic monetary policy and slower global growth.
“The growth of premiums in the insurance market presented solid indexes, but the lower economic growth could affect premium production in the coming periods.”
Fitch has the 2023 Brazilian insurance sector outlook as ‘neutral’, in line with Brazil’s ‘stable’ outlook. Fitch Ratings upgraded Brazil’s sovereign rating to ‘BB’ from ‘BB–’ with a stable outlook in July 2023. The upgrade to Brazil’s sovereign rating led to Fitch’s view of the sector’s profile and operating environment improving.
The rating agency also warns of a deceleration in premium growth. “The improvement in inflation reduces pressure on the loss ratio. However, Fitch expects lower price adjustments due to inflation, mainly for insurers with auto and P/C lines coverage.”
It notes that Brazilian insurance companies’ investment portfolios are composed mainly of local public or private fixed-income securities. Therefore, the beginning of a more expansionist monetary policy should reduce the profitability of these securities.
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