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Brazilian Insurance Market Overview
Samy Hazan
Sao Paulo, 17/11/15
Presentation Outline
• M&A activities and New Insurance Companies in Brazil
• Brazilian Insurance Ecosystem Overview
• Growth, Margin and Profitability Analysis
• Main types of Players and Market Share by Business Model
• Brazil Macroeconomic Update and Industry Fundamentals
• Q&A
M&A Activities and New Companies in Brazil
•Travellers M&A
•Sura M&A with RSA
•Omint new Life Insurance Company
•Care Plus New Life Insurance Project
•Bradesco selling P&C (Large Risk portfolio)
• Itau Group Life still for sale
•New Travel Insurance Opportunities …
2
Brazilian Insurance Ecosystem Overview
Regulation • Brazil is the most accessible of the BRICs for foreign insurance companies• Regulator more focused on Solvency and Consumer Protection than on
anticompetitive pricing • No regulated rates (tariff) for insurance • No Compulsory third-party automobile liability (only DPVAT – basic bodily injury
coverage)• Stringent Capital Requirements: adopted risk based Capital model in 2008• International Financial Reporting Standards (IFRS) since 2010• Stringent Anti-Money Laundry, Anti-Corruption and Internal Controls Regulations
Competitive Landscape • Domestic groups tend to have superior market positions in the personal lines and
retail segments (banking groups in Life, Credit life and Pensions segments with 85%
market share in 2014)
• 46% Market Share of Top 5 Players in all Non-Life Segment 2014 (SUSEP’s figures)
• 70% Market Share of Top 5 Players in Automobile Segment 2014
• 69% Market Share of Top 5 Players in Life segment in 2014 (all five banking related
groups)
• Rising natural disaster risk (climate-related events are increasing in frequency and in severity)
• Other emerging risks arising (Water Supply, Energy, Cyber Risks, Public Sector Corruption)
• Decreasing overall level of criminality in the Country due to economic growth from 2000-2013
• Automobile risks: decreasing frequency of auto theft and robbery in the last 15 years • Individual Risks Assessment through risk profile questionnaire
Insurance Risk Structure
Brazilian Insurance Ecosystem Overview
Distribution
• Traditional distribution is predominant in most Non-Life lines • Brokers dominate more than 80% of Non-Life segment • Brokers licensing requirements in Brazil still very low compared to mature markets • Automobile: high relevance of brokers and still low penetration of alternative
channels (internet)• Insurance Price comparison sites still struggling in Brazil, most with large call center
structures to increase sales conversion ratios (high expenses and high acquisition costs)
• Life and Pension distribution dominated by large mega banking groups (85% market share in 2014)
Economics • Industry challenge for operational efficiency to reduce costs and increase profitability
• Average underwriting margin of 10% over past five years (underwriting result as a %
of net premiums earned) for both Life and Non-Life Segments
• Still high, but decreasing contribution of investment income to overall industry
profitability (investment income accounted for 13% of earned premiums in 2014)
• Top 5 Non-Life Companies ROE in 2014: 15,2% (average risk free rate at 10,8% in
2014)
• Top 5 Life Companies ROE in 2014: 48,0% (all bancassurance operations)
Consumer Behaviors • Traditionally limited adoption of insurance products among population • Low knowledge and know-how of insurance among society • Personal Lines: Customers value the quality of SERVICES and relationships• Price, Insurer’s Reputation and Services and the 3 Top most desired attributes (Ipsos
Survey 2012)• Over 60% of consumers still prefer the human touch and personal contact to renew
an auto insurance policy (IPSOS Survey 2012)• Internet and Direct Channels: mostly for searching information, claims registration
and service request – multichannel and multi-touch points approach trend
13,4 13,3
18,5
5,54,3
6,37,0 7,1
8,1 8,0
2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E
Life and General Insurance Growth Rates (%)(Ex VGBL)
Brazilian Insurance Market Growth Rates Evolution in Local Currency
Insurance market negatively impacted by macro economic cycle (lower disposable income, raising unemployment rates and political instability)
Source: SUSEP database as Sept/15 and FenSeg Estimates
Appetite Appetite More Selective
Strong Average Weak> 30% Gross Margin > 20% Gross Margin > 10% Gross Margin
Low
M
ediu
mH
igh
10%
20%
30%
Automóveis
Life (ex VGBL) Patrimoniais
Transportes
Rural
Habitacional
Riscos Financeiros
Responsabilidades
Riscos Especiais
Marítimos
Microsseguros
Segm
en
t A
ttra
ctiv
en
ess
Gro
ss P
reiu
mC
AG
R (
Oct
/09
to
Sep
t/1
5)
Gross Margin as % of Earned Premium LTM (Sept/14 to Sept/15)
Brazilian Market Growth Opportunities by Line of Business
Source: SUSEP database as Sept/15
Gross Margin per line of Business
Except for the Health Insurance sector, gross margins in Brazil have been stable over the past few years. Life Insurance has been outpacing P&C lines in 16 pts on average
Fonte: SUSEP
Gross Margin = (Earned Premiums – Claims – Commissions) / Earned Premiums
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
35,0%
40,0%
45,0%
2010 2011 2012 2013 2014
Health Insurance
P&C & Auto
Life (ex. savings)
2014: 9M14 Health 6M14
19,5
24,9 25,2
30,1
43,6
13,1
9,5
10,5
6,710,29,7
11,6
8,4
7,810,8
2010 2011 2012 2013 2014
ROE Bancassurance % ROE Traditional % Cost of Capital %
Insurance Sector ROE % X Cost of Capital %
Average profitability of broker based insurers has been only 0,3 points above cost of capital as risk free rate (mailing auto insurance), while Bancassurance has been 19 points above risk free reference rate (mainly Life and Credit Life business)
Traditional Distribution: average of top 10 broker based insurance companies Bancassurance: average of top 3 bancassurance players Risk Free Rate: average CDI rate in the year (reference risk free interest rate)
Fonte: SUSEP e BACEN
Bancassurance
Traditional Distribution
Risk Free Rate
9
Value Added Players
MixedPlayers
Low Cost Players
Business Model Key Capabilities Insurers
• Companies focused on offering attractive and premium services to customers and brokers.
• Competition is not just with the amount of services , but in quality of services
• Exclusive network of providers
• Tools and offices for brokers
• Brand and Relationship Management
• Diversify and offer a wide range of synergistic products.
Total Insurance Market Share %
• Offers low rates, ease and purchasing convenience.
• Offers services trough telephone, Internet and alternative channels.
• Training for direct channel with low cost.
• Relationship Management and with banks, financial and Retailers
• Efficiency in costs
• Companies focused on offering a low-cost insurance
• Simple product and basic services
• Limited scope of products• Limited exceptions to the
channel
• Leaner cost structure• Automation and
digitization core processes.• Prioritization of self-
service for customers and brokers
Added Values
Mixed Players
Low Cost
Alternative
Distribution
• Companies with varied and diffused offer
• Some combine service structure with positions at various prices
• Capital• Brokers network• Auto Centers• Less efficient cost structure
(higher relative expense index)
Samy Hazan
Alternative Channels
Four types of business model: Value Added, Mixed, Low Cost and Alternative Distribution Players
Source: Internal Analysis Yasuda Marítima Life Board and interviews with Brokers.
1,4% 2,5%
7,2%8,9%
27,0%
28,5%
8,0%
7,5%
2009 2015
10
APPENDIX
1111
88,0% 87,0% 85,1% 85,1% 84,3% 83,0%
10,90% 11,83% 13,40% 13,18% 13,88% 15,06%
1,1% 1,2% 1,5% 1,7% 1,8% 1,9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013
Market Share Evolution Global Insurance Market
Developed Markets Emerging Markets (Ex Brazil) Brazil
Insurance in emerging markets has grown by 38% in the last years, gaining significant share in the global market
Brazil has almost doubled its market share in the Global Insurance Market in the past years
• Insurance in emerging markets is experiencing
rapid growth, due to a combination of
macroeconomic and social circumstances:
– High GDP and GDP per capita growth
– Current low penetration of insurance (high
potential to grow further)
– New customers entering the market due to a
process of social inclusion
– Consumer confidence has risen
significantly in most emerging markets in the
last decade – stimulating consumption
– Changes in the demographic profile of
populations (e.g.: aging)
• Insurance market in many developed countries is
slowing down, mainly due to 2 factors:
– Developed economies were heavily affected
by the 2008 global crisis
– Demographic factors in developed
countries are limiting growth - such as the
Life insurance market in Europe
12
47,5
19
8,45,8 4,1
88,9
27,4
17,311,7 10,1
Brazil Mexico Argentina Chile Colombia
2008 2013
13,4%
7,5%
15,6%
15,2%19,7%
CAGR % (2008 – 2013)
48%
15%
9%
6%
5%
15%
Brazil
Mexico
Argentina
Chile
Colombia
Others Relative Share of Premiums(2013; US$ basis)
Sources Swiss Re Sigma
LatAm Insurance Premiums in USD In USD Billion –CAGR % (2008 to 2013)
Based on wide financials analyst’s current regional macroeconomic forecasts for the region, we expect that Latin America’s insurance markets will sustain their above-average growth trend as compared with most regions worldwide in the coming 3-5 years, and that Mexico’s growth trend will strengthen due to both ongoing recovery in the US and Canadian economies as well as the recent implementation of the country’s infrastructure development plan. This growth should bode well for further development and maturity of the region’s life, pensions, general and specialty insurance sectors.
Evolution of Insurance Penetration and Insurance Density in Brazil in USD
• Insurance premiums growth have been outpacing the Economy over the past years
• Average per capita spending on insurance in Brazil CAGR (2002 – 2013) was 17,9% (the second largest growth in LatAm), amounting US$ 443 per capita (more than 4X what it was 10 years ago)
Brazil - Insurance Penetration in the Economy from 2002 to 2013 (Written Premium/GDP)
2,5%
3,0%
3,5%
4,0%
4,5%
Brazil - Insurance Density from 2002 to 2013 (Written Premium per Capita in USD )
Source: SwissRe sigma 03/2014
50,0
200,0
350,0
500,0
Brazilian market size overview (Life & Non Life)Total Life Premium in Brazil reached US$ 49 billion in 2013, driven by personal lines segment (Credit Life, Pension and Savings Products)
Source: SUSEP, SwissRe sigma 03/2014
Traditional Life Insurance (risk based products) accounts for 24% of Total Life premiums in 2014 whereas 76% represents savings products (retirement plans called “VGBL”)
Total Premiums in R$ billion Main Growth Drivers
16,5 19,2 23,730,5
19,723,0
28,6
36,4
3,33,5
4,4
5,1
44,0
59,8
58,2
50,121,9
24,3
29,8
38,2
2011 2012 2013 2014
Auto Physical Damage Life DPVAT/DPEM Annuities & Pensions P&C
21%
41%
3%
19%
16%
19%
46%
3%
18%
15%
21% 24%
40%
3%
20%
16%
31%
23%
19%
3%
+27%
104,9
130,0
144,9
160,5
Life (CAGR 25% 2011 - 2013)
• Fast rates of population aging• Credit Expansion • Deficiencies/restrictions of Public Social
Security System• Increase in corporate plans as employee
benefits• Increase in the formalization of the
economy – increasing penetration in small and medium companies
• Increase in average premiums, with the addition of extra services and assistances
Non-Life (CAGR 16% 2011 - 2013)
• Growth of the automotive fleet• Growth of consumption levels• Government and private investments
(infrastructure and productive investments)• New products (e.g.: extended warranty)
Brazil macroeconomic overview
15
45 51 70 108 150 218 290 318 442
561 567 585 531
84 83 101 141
187 262
378 390
527
650 640 673 604
129 134 171 249
337
481
668 708
970
1.212 1.207 1.258
1.134
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Consumer Corporate
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
(BRL/USD)(IPCA - %)
Inflation (IPCA) BRL/USD exchange rate
4%
6%
8%
10%
12%
14%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
4,4%
1,3%1,9%
1,2%
5,7%
3,2%
4,0%
5,7%5,1%
(0,2)%
7,5%
2,7%
1,0%
2,7%
0,2%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
13,5%
8,8%9,2%
13,8%
8,2%
12,7%11,6%
7,2%
6,2%5,4%
3,9% 4,9%
2,5%
2,4%
4,3%
Inflation and FX rate Real GDP growth and real interest rates
Source: IBGE, EIU and J.P. Morgan
Real GDP
growth (%)
Real interest rate (Selic deflated by IPCA) (%) – Avg.
Total credit outstanding (US$bn)
Source: Brazilian Central Bank
Note: Largest range of data available
Jul-157.5%
Source: IBGE
Unemployment rate
‘ 13- ’14
Real GDP
growth
7.4%
7.3%
4.6%
1.9%
2.4%
3.0%
2.4%
0.6%
2.1%
1.6%
Source: IPEA and Brazilian Central Bank
9.6%
Jul-15
BRL3.22
16 16
50%
75%
100%
125%
150%
175%
200%
225%
250%
Jan-12 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Oct-14 Mar-15 Aug-15
Stock price performance since 2012 (January = 100%)
Source: Factset, as of August 19, 2015
Brazilian insurance players market performance
Brazilian insurers have continued to outperform the market in recent months
+104.7% BB Seguridade
+52.9% SulAmérica
+14.5% Banks
BanksInsurers
+86.5% Porto Seguro
(17.9%) IBovespa
