Abstract
As the Brazilian economy moves further into 2009, it seems to us that the
much-praised resilience of the
consumer sector has been left behind in
2008. Although signs of a decelerating economy had already
started to
surface during the last two months of the year, our outlook for 2009 has
turned markedly more
bearish in January, as a series of negative economic
indicators started to appear. Industrial output
numbers are showing
worrying signs of a prolonged contraction; sales figures too are pointing
to
retrenching domestic demand. This comes against the backdrop of the
global economic recession and the
ongoing financial crisis, leading to yet
another bout of weakness for global stocks. Such a backdrop will
hardly
soothe the ongoing decline in confidence levels (both consumer and economic),
suggesting to us
that borrowing appetite in Brazil this year will be kept
to a minimum.
Latest data show that industrial production took a decisive
turn for the worse back in November, when
output contracted by a
staggering 11.5% month-on-month (m-o-m), marking a fall of 6.2%
year-on-year
(y-o-y) that month. This was the largest y-o-y drop in
industrial output in Brazil since December 2001.
A key barometer of
Brazilian economic activity, in our view, has traditionally been the auto
industry.
Here too, the alarm bells are ringing. Vehicle output during
December collapsed to 102,053 units, from
193,062 units a month
earlier.
Infrastructure development projects will be supportive of
economic growth over the coming years, when
we expect a moderate recovery
in real GDP growth to 2.6% in 2010 and 4.4% in 2011.
The global financial
crisis is likely to affect the various segments of the global insurance
industry in
different ways. In many countries, especially in Europe, the
coming recession points to softness in the nonlife
segment. In many cases,
the numbers of policies may fall and there should be downwards pressure on
premiums. By contrast, the main problem for the life segment in almost all
countries is the extreme volatility
of financial markets. Over the longer
term, however, the fortunes of life insurance will likely recover thanks
to the secular growth of organised savings in most countries. China - where
the larger insurance companies
continue to achieve double-digit growth in
premium income - is a good example of this. Some particular
niches should
also do well in the current environment, such as legal liability
insurance.
In Latin America, we profile 21 companies. These are AEGON,
AGF, AIG, Allianz, AXA, Cardif,
CNP, Generali, HDI-Talanx, HSBC Insurance,
ING, Liberty Mutual, MAPFRE, MetLife, New
York Life, Prudential Financial,
QBE, RSA, the Hartford, Principal Financial and Zurich.
We also look at
various local firms that are active. In general, these are small to
medium-sized operations
by world standards. However, several of the
leading Brazilian insurers would rank as extremely large
even in a major
market.
Over the course of 2008, estimated total premiums in Brazil rose
by 19% to BRL171,912mn. Non-life
premiums rose by 19% to BRL126,530mn,
while life premiums rose 19% to BRL45,382mn.
Between now and the end of
the forecast period, we expect that annual non-life premiums will grow by
BRL69,760mn, while annual life premiums should grow by BRL22,878mn.
Growth
in non-life premiums during 2009 should be driven by the general growth of
nominal GDP plus a
rise in non-life penetration from the current level of
3.48% to 5.00%.
Growth in life premiums during 2009 should be driven by
the change in the overall population and a rise
in life density from US
$120.10 to US $200.00 per capita.
BMI' s Insurance Business Environment
Rating is 67.4.
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