At a glance: Latin America’s insurance leaders and laggards in 2018

The Latin American insurance market contracted 5.5% last year in dollar terms to US$151bn, partly reflecting unfavorable forex fluctuations and other headwinds in regional powerhouses Argentina and Brazil.

Over 2018, the average exchange rate in Argentina and Brazil weakened 69.8% and 14.4%, respectively. 

Life insurers took the biggest hit, with regional premium growth registering at -7.2%, compared with growth of 9% in 2017, Mapfre said in its 2018 Latin American insurance market report. The non-life industry fared slightly better, reporting a 4.0% drop following an 8.2% expansion in 2017. Non-life premiums represented 55.4% of total premiums in the region, with life making up the balance.

Argentina reported US$13.9bn in premiums for 2018, down 3.5% in real terms. Brazil posted US$57.6bn, down 4.4%.

Last year Argentina was battered by a perfect storm of headwinds, shrinking the economy by 2.5%, while Brazil reported a below-par expansion of 1.1%, amid much political uncertainty and caution ahead of the October presidential elections. 

Regional GDP grew 1.0% in 2018 and is expected to decelerate to nearly 0% this year.

“Performance of exchange rates, combined with the economic slowdown in certain countries and the impact of various monetary policies, has contributed to a less dynamic and unbalanced growth scenario in the region’s insurance markets, which primarily affected the life insurance segment,” said Mapfre.

MACRO OUTLOOK

Argentina and Brazil are expected to gain strength in 2020, which will support their respective insurance industries.

While Argentina will continue sputtering, some economists expect, once president-elect Alberto Fernández announces his policy plans, the pace of GDP contraction may ease. In Brazil, this year's approval of a major pension reform – seen as vital to the health of government finances and stronger investor confidence - is expected to bear fruit. 

In Argentina the two biggest lines are compulsory auto and workers compensation insurance, which together generally account for around two-thirds of premiums and they took a hit last year. In Brazil, the life segment is particularly sensitive to interest rate changes, which weighed on growth in 2018.

ALSO READ: The 10 Latin American countries expected to grow fastest in 2020

In its Sigma report, Swiss Re said 2020-21 should be brighter for emerging economies.

“On aggregate, we expect emerging market growth to improve modestly over the next two years, with emerging Asia in the lead, and as crisis-hit countries like Argentina and Turkey return to slow growth or shallower recession," said the reinsurer. "The outlook for some large Latin American countries, notably Brazil, is also improving," it added.

In a report on Latin America's insurance industry for 2020 and beyond, Moody's said economic growth will still not be strong enough to power the sector ahead.

"Economic growth will be weaker compared with pre-2014 period, which will weigh on the expansion of the insurance industry," the rating agency said.

Moody's industry outlook is stable for Brazil and Mexico, and negative for Argentina and Colombia. 

Latin American countries, particularly the biggest, have been impacted by domestic political problems and external headwinds.

The biggest among the latter is the US-China trade conflict.

“The macro effects are very real and already being felt, in particular the effect of the uncertainty being created,” says Swiss Re group chief economist Jerome Jean Haegeli. “Uncertainty is the enemy of the business cycle.”

Trade talks between the two superpowers continue although no final agreement has been reached.   

The UN’s regional economic commission Eclac this month forecast growth in Latin America in 2020 would register at 1.4%.

Macro data indicates there are major tasks facing the region’s policymakers and business owners in order to establish a firm foundation for solid future growth.  

“The development of long-term savings, investment in infrastructure and productivity are still challenges that the region must face in order to speed up its potential growth,” said Mapfre.

A campaign advisor to former US president Barack Obama, Parag Khanna, recently echoed this during a conference in Chile, telling BNamericas there was no major secret.

“There is a technocratic answer which is savings and counter-cyclical investment. There is a reason why certain formulas, principles, prescriptions become entrenched, become part of the dogma – it is because they are right. How could you argue against those things?" said Khanna.

“Structural reforms, human capital. We're talking about 300mn people in Brazil and you're talking about the potential of Colombia and if you can have a new leadership in Venezuela. You know, having a continental area of 600mn-700mn people is still very, very high potential and that’s without factoring in how to cope with climate change and the fact that this continent does not have to be a victim of climate change, the way it is sort of making itself," Khanna said. 

"There are a lot of human decisions that need to be made and should have been made, but we know what role irrationality and domestic politics and national pride and machismo play in political decisions here," he added.

THE FASTEST GROWING MARKETS IN 2018 IN REAL TERMS

No. 1

Dominican Republic 

Premiums: US$1.2bn

Real growth: 16.5%

No. 2

Peru

Premiums: US$3.9bn

Real growth: 12.1%

No. 3

Bolivia 

Premiums: US$500mn 

Real growth: 8.2%

No. 4

Puerto Rico

Premiums: US$13.9bn

Real growth: 6.4%

No. 5

Panama

Premiums: US$1.6bn

Real growth: 5.9%

THE FIVE SLOWEST-GROWING MARKETS IN REAL TERMS

No. 1

Venezuela

Premiums: US$400mn

Real growth: -92.5%

No. 2

Uruguay

Premiums: US$1.5bn

Real growth: -5.9%

No. 3

Brazil

Premiums: US$57.6mn

Real growth: -4.4%

No. 4

Argentina

Premiums: US$13.9bn

Real growth: -3.5%

No. 5

Guatemala

Premiums: US$900mn

Real growth: -0.7%