Demographic changes create a challenge and opportunity for LatAm re/insurers

Falling fertility rates similar to those in other developed markets such as the US, Europe or Japan are leading to an ageing population, with fewer entrants coming into each country’s labour market, says Michael Garvin, chief financial officer–Latin America region for Principal Financial Group.

He will be addressing the significance of demographic changes on the re/insurance market in a panel discussion on day three at FIDES.

“Another factor impacting the region is increasing life expectancy, whether as a result of medical advancement or greater access to quality healthcare,” Garvin said. “Our projection up to 2050 in Brazil and Chile is that we will have a higher percentage of people aged 65 and older than in the US.”

This creates an opportunity for re/insurers but also a challenge, he continued, because the average person in Latin America still does not think about life in terms of pensions, savings and the need for a lifetime income.

“On the demand side I think there is an underappreciation of this coming demographic change in the region. There is also an issue from the supply side, in terms of developing the market in a sophisticated way, whether it is through product innovation, reinsurance and longevity swaps.

“There is a lack of understanding in the region. I believe the companies are working on it and there is a push for these methods of dealing with the situation that all these economies are faced with, but in general I would say there is underdevelopment of these markets.”

This represents both a challenge and an opportunity for re/insurers, which will be discussed at greater length on Wednesday.

Principal is responding to the same themes by moving more deeply into its key markets of Chile, Brazil and Mexico.

“We are focused on pensions, long-term savings and asset management, with a second step in our strategy being moving into new countries including Colombia and Peru, although our primary focus is the three markets that we are in today,” said Garvin.