Latam & Asia Insurance perspectives - (article published by ART Ins. Services Ltd - worth reading)

Prospectively, insurers will need to place great importance on professional and disciplined underwriting if they are to benefit from the healthy growth outlook in emerging markets and operate on a sustainable basis. Capital management will also be vital to support growth and comply with tightening solvency requirements.

LATAM & ASIA 

Insurance perspectives

Latin America has experienced strong growth over the past decade and the outlook for the next decade remains promising. Nonetheless, given the expectation of persistent low interest rates at least in the near future, achieving profitable growth will become challenging. Insurance premiums in Latin America have expanded robustly by 6.9% per annum in real terms over the last 10 years, compared with 1.3% growth in industrialized economies. 

Outperformance is expected to continue in the next decade and is attracting the attention of global insurers, who look to Latin America and other emerging markets for profitable growth beyond more saturated mature markets.

Due to their size, industrialized countries are in absolute terms still the main insurance premium contributors, but emerging markets are catching up fast. In 2010, for example, industrialized economies contributed $120bn in additional premiums in nominal terms, with emerging markets following closely with $109bn.

Latin America, together with emerging Asia, contributed the most to emerging market premium growth in the past ten years. Many factors have driven this premium growth, including a sound economic environment, improvements in insurance regulations, product innovation, and a leveraging of multiple distribution channels.

Although insurers in Latin America and other emerging markets have seen stellar premium expansion, achieving profitable growth is far from the norm. For example, out of around 174 life insurers from a sample of emerging Asian and Latin American markets, 46% of insurers failed to report consistent profits between 2006 and 2009, and only 20% registered profit margins (net profits divided by direct premiums) in excess of 10%.

In non-life markets, 49% of all non-life insurers in the sample emerging markets recorded negative underwriting margins (underwriting results divided by direct premiums), with around 36% of non-life insurers reporting margins in the range of 0%-10%. Low profitability may indicate an overly aggressive focus by insurers on top-line growth rather than profitable growth. Between now and 2021, more than half the growth of the global economy is expected to come from emerging markets.

Non-life insurance premiums in emerging markets are expected to grow more than twice as fast as in industrialized countries. Commercial lines such as property, engineering, transport, and credit and surety will continue to grow as manufacturing expands, governments roll out infrastructure projects, and trade related lines of business recover from the slump in the past years. A strong pipeline of infrastructure projects is expected to underpin the growth of engineering and surety lines. Life premiums are also expected to outpace those in industrialized countries.

Even though they face strong competition from domestic insurers, many international insurers plan to actively pursue opportunities in the rapidly growing Latin America. Banks are also likely to leverage their branch networks to further penetrate these markets. However, with interest rates expected to remain at low levels for an extended period of time in both developed and emerging markets, insurers will find it increasingly difficult to achieve profitable growth.

Source:   Swiss Re Corporate Solutions Latin America