Abstract
The successful passage of President Cristina Fernández' s pension takeover
bill will have a significant
impact on Argentine asset markets and the
economy. We reiterate our cautious stance on Argentina' s
credit default
swap (CDS) market and our outright bearish outlook for equities and the
general economy.
The five-year long economic boom is well and truly over
in Argentina, and the government' s current
attempts to micro-manage the
economy and stimulate aggregate demand through fiscal policy will store
up
trouble for the future, in our view. We believe that economic growth will fall
to 0.6% in 2009, from an
expected 6.0% in 2008, with growing government
consumption and a slight improvement in net exports
likely to keep the
economy above water, while private consumption and fixed-investment contract.
In
2010 we see an economic contraction of 0.9% as the government runs out
of fiscal policy options and
public consumption stalls, with an
improvement in net exports the only silver lining. This would mark a
considerable slump in real GDP growth relative to the stellar performance seen
since 2003. However, as
we have long argued, the benign external factors
and expansionary economic policies that facilitated the
boom have allowed
economic distortions to build up, and these now look like being exposed. On
this
note, we warn that the government' s current policy of using newly
seized pension funds to stimulate
consumer demand could also lead to a
fiscal crisis down the road and keep private investment levels
subdued
over the medium term.
Since the last quarter, we have made two major
changes to the data in this report. First, we have – to the
greatest
extent possible – incorporated hard figures that have been made
available by the regulator(s) and
trade association(s) in each country. In
some cases, therefore, we have begun to include numbers that
pertain to
the development of the insurance sector through the early stages of the global
financial crisis.
Second, we have extended our forecasts out to 2013. In
all cases, we have reviewed the key growth
drivers – non-life
penetration and life density – which we had incorporated in our
forecasts.
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
non-life segment. In many cases, the numbers of policies
may fall so 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,
though, the fortunes of life insurance will 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, they 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 12 months to the end of June 2008, total premiums in Argentina rose by 25%
to ARS23,980mn.
Non-life premiums rose by 25% to ARS17,684mn, while life
premiums rose by 25% to ARS6,296mn.
Between now and the end of the
forecast period, we expect that annual non-life premiums will grow by
ARS28,781mn, while annual life premiums should grow by ARS5,555mn. Growth in
non-life premiums
should be driven by the general growth of nominal GDP
plus a rise in non-life penetration from the
current level of 1.62% to
1.65%. Growth in life premiums should be driven by the change in the
overall
population and a rise in life density from US$46 to US$65 per
capital. BMI’s Insurance Business
Environment Rating for Argentina
is 53.5.
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