dcsimg
Insurance Markets

An economic endurance test

The Rio de Janeiro Olympic Games represent a considerable achievement in the face of adverse economic developments, political uncertainties and – as if that weren’t enough – the spread of the zika virus. As impressive as this feat is, the country is taking on an even bigger challenge proving its resilience in steering toward recovery and stable future growth.

03.08.2016

As Brazil prepares to host the 2016 Olympic Games, the country’s political and economic situation remains as much in the international media spotlight as the athletic competition. Following over two decades of dynamic growth, analysts are now asking: Is the milagre brasileiro – the Brazilian miracle – over? Far from it, says Rodrigo Belloube, CEO of Munich Re’s São Paulo headquarters (see interview) He sees the current recession as a necessary correction. And the ongoing spate of corruption scandals in the political and corporate communities reflects a new and healthy intolerance toward malfeasance and abuse of power. As the Brazilian economy recovers, the challenge is to steer it toward moderate but stable growth, a goal the insurance industry can support.

20 years of lively growth

When Brazil introduced the real as legal tender while at the same time reforming its social and tax systems in 1994, the country achieved an exceptionally high level of stability and set the stage for the vigorous development that followed. It succeeded in striking a healthy balance between political intervention and market forces, concentrating on domestic consumption as a source of impetus. From the year 2000 onward, Brazil’s gross domestic product (GDP) grew at an annual rate of around 4%. 

The country’s macroeconomic policy management proved itself when put to the test by the global financial crisis, with GDP declining by only 0.6% as opposed to the international average of 1.9%. The middle class has continued to grow over the years as social mobility has steadily increased. 

Starting in 2014, the drivers behind the expansion – above all, commodity prices – began to weaken, sending the economy into a protracted recession that continues today. Brazil's GDP declined by 5.45% in the first quarter of 2016 in comparison the same period in 2015 (source: IBGE). This represented a slight improvement over the fourth quarter of 2015 (a 5.9% fall) and beat market expectations of a 6% drop. It was the eighth consecutive quarter of contraction. To place this in perspective, the annual GDP growth rate in Brazil averaged 2.78% from 1991 to 2016, reaching an all-time high of 10.1% in the first quarter of 1995 and a record low of -5.9% in the fourth quarter of 2015. 

Despite the current downturn, investments in infrastructure, power generation and urban development remain strong economic drivers. Facilities and infrastructure for the 2014 World Cup football championships and the 2016 Olympic games combined are expected to total more than €35bn. Especially in the case of the Rio de Janeiro Olympics, construction projects like new public transport lines and sports facilities will provide lasting benefits to society and can be expected to support recovery and future steady economic growth.

Challenges and opportunities for insurers

Brazil remains Latin America’s largest insurance market, with around 40% of the total gross premium written. It is followed by Mexico, Argentina and Colombia. Despite years of steady market growth, especially in life business, insurance penetration is still low. As the country recovers from the current recession, insurers can expect increasing opportunities to fill the penetration gap, for example, with products that address the needs of Brazil’s expanding middle class. In addition, industrial and agricultural solutions offer huge potential. By developing targeted covers, risk carriers can help attract investors and enable important projects. With 74 insurance groups and a total of 114 insurance companies operating in the country, the Brazilian market is highly consolidated. The top 10 largest groups are responsible for 79% of total premiums, excluding accumulation products. Overall insurance premium grew 11% between 2014 and 2015, with accumulation products clearly leading the way, growing by 19.2% (see figure below). Non-life lines are dominated by motor, which accounts for almost 50% of non-life business.
The Rio de Janeiro Olympic Games represent a considerable achievement in the face of adverse economic developments, political uncertainties and – as if that weren’t enough – the spread of the zika virus. As impressive as this feat is, the country is taking on an even bigger challenge proving its resilience in steering toward recovery and stable future growth. © Source: Munich Re
Gross written premium (GWP), Brazilian market (BRL billion)
Above figure for health refers to health insurance products sold by insurance companies. Total Health market summed up BRL145 billion in 2015 (14.3% nominal growth compared to 2014)
Following liberalisation of the reinsurance market in 2007, additional players were attracted to the country, with 97 foreign reinsurers registering under the categories “ressegurador local” (full-fledged local reinsurer), “admitido” (approved) or “eventual” (registered locally but writing business from offices outside of Brazil) by 2011. This increased the supply of reinsurance capacity beyond demand, resulting to disappointing sales for some players. Failure to realise projected business volumes and the current downturn have led a number of reinsurers to rethink their Brazil strategies. There are currently more than 200 players with one type or another of reinsurance license in the market.

Munich Re is commited to the Brazilian market since many years

Directly involved in the Brazilian market since 1951, Munich Re has a deep commitment to Brazil. We have a track record of consistently cultivating close business relationships based on in-depth local knowledge, an approach that has intensified since the establishment of our representative office in the country, which was headed by current Munich Re CEO Nikolaus von Bomhard, in 1997. Not surprisingly, we were the first non-Brazilian reinsurer to obtain the status of “ressegurador local” in 2008.

Munich Re is convinced of Brazil’s mid- to long-term potential for sustainable economic development and is dedicated to supporting primary insurers and industry players in projects that respect the environment and benefit society. When the excitement of the Olympic Games is over and the international media spotlight moves on to the next big thing, we will still be there as a strong and knowledgeable partner.

We use cookies to improve your browsing experience and help us to improve our website.

By continuing to use our websites, you consent to the use of cookies. Please see our cookie policy for more information on cookies and information on how you can change your browser's settings.
You can disable cookies, however please note that disabling, deleting or disallowing cookies will affect your web experience.