Ecuador

ANDRÉS MORALES CARBOPresidente Ejecutivo

Ecuaprimas (a Partner of Lockton Global)011.593.4.220.9333

andresmorales@ecuaprimas.com

Manuel H. CasasVice President

Global Client Services1.213.689.2366

mcasas@lockton.com

L O C K T O N C O M P A N I E S

Market Update April 2013

ECUADOR: A GROWING MARKET

FACES INSURER CONSOLIDATIONFor a country of roughly 14.5 million people, Ecuador has a surprisingly large, robust, and constantly changing insurance market. At last count, there are 42 insurers and two reinsurers operating in the country. But, as with many industries, mergers, acquisitions, and other factors will drive down that number in coming years.

Currently, the five largest Ecuadorian insurers control 40 percent of the market. The ten largest insurers control 62.5 percent of the market.

The primary lines are auto (26 percent; US $390.2 million), life (20 percent; US $302.4 million), and property (11 percent, including catastrophic; US $166.5 million).

By the end of 2013, we expect there will be between 32 and 38 insurers in the market—and no more than 25 insurance companies will operate in the market in 2015 (when 80 percent of the market will be controlled by the 10 insurers).

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$302.4

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A t bil Lif P t (i l di C t t hi )Automobile Life Property (including Catastrophic)

Market Update, Ecuador—Regional

Changes in legislation and regulations, M&A activity, and the addition of multinational companies such as ACE, AIG, Mpafre, QBE, Latina Seguros, Generali, Liberty-Panmericana y Cervantes, Coface, Pan American, Bupa y BMI will be the primary factors in market consolidation. Not all insurers that are currently operating within Ecuador, however, will have the ability to evolve, and many will not survive the changes.

Laws and Market Forces Driving Change

For the size of Ecuador, 42 may seem like a large number of insurers, but it used to be even higher. As is the case in many countries, several other factors have also contributed to consolidation:

� In 2010 and 2011, a presidential decree forced public sector companies to purchase their insurance from public sector companies (e.g., Sucre and Rocafuerte).

� In 2012, a new law prohibited banks and their shareholders from having any interest in insurance companies.

� In 2013, new rules focused on increasing capital, technical reserves, and classification and valuation of investments—as well as a greater number of regulations and/or controls such as the implementation of the Corporate Governance Code—were put into place.

� The reduction in reinsurance capacity for midsize and large risks.

� Increasing claim costs, mostly from workers’ compensation, medical, and vehicle parts and repairs, has driven up premiums. In 2012, the premiums were US $1,492 million (US $1,190 million nonlife plus US $302 million life). In 2008, those types of claims totaled US $883.8 million (US $721.3 million nonlife plus US $162.5 million life).

Growth Ahead for Insurance in Ecuador

But it is not doom and gloom for the insurance market in Ecuador. The consolidation of insurers will create many opportunities for the remaining companies—both those assuming and those transferring risk. The share of GDP for the Ecuadorian insurance market was 1.5 percent in 2008 and is now about 2 percent, one of the lowest in Latin America.

We believe that the market will continue to grow as long as the dollarization is kept and the government continues with its social investment and infrastructure development and funds its budget. If these factors remain constant, the market has the potential to grow at an average rate of 7.5 percent annually for the next five years.

Looking forward, we estimate the highest growth lines in Ecuador will be auto, life and health, property, and surety bonds. The price of insurance products will be driven mainly by commercial insurance, which ultimately benefits the consumer and will slow market consolidation. However, the ever-decreasing number of suppliers and reduced capacity will eventually accelerate the market consolidation process.