16 minute read 26 Feb 2021
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How Latin American insurers are evolving

By EY Global

Ernst & Young Global Ltd.

16 minute read 26 Feb 2021

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Economic diversification and an expanding middle class in Latin America will encourage increased trade and future investment.

Prospects for sustainable growth in Latin America have been on a downward slide in recent years. Some countries are on track for solid expansion, while others face economic challenges, including currency devaluations and evolving fiscal and monetary policies. Economic diversification and an expanding middle class will encourage increased trade and future investment.

The insurance market outlook is promising even though GDP growth across the region has slowed considerably, with most countries lowering their gross domestic product (GDP) forecast. As Brazil faces high inflation and one of its worst recessions, Argentina is slowly recovering. The four trading partners in the Pacific Alliance (Mexico, Chile, and particularly Colombia and Peru) are expanding at a solid pace.

The key issues facing insurance companies: increased competition and market consolidation, greater contagion risk and rising customer expectations. Against this backdrop is a complex regulatory landscape where companies are at various stages in advancing risk transparency and adopting global solvency standards, corporate governance and enterprise risk management (ERM).

We introduced our first Latin American report on regulatory developments in 2012, with an update in 2014. By 2016, Mexico had set the standard by being the first in the region to adopt a framework modeled after Solvency II.

Brazil received provisional Solvency II equivalence status in January 2016, and Chile is close on its heels with a risk-based capital approach modeled after Solvency II. Colombia is moving toward the more risk and economic value-based ComFrame, while Peru, Uruguay and Argentina have been cautiously watching their neighboring countries with no immediate plans to implement a risk-based capital system.

Risk-based capital and Solvency II-type rules are still evolving in many of these countries. Upgrading ERM practices and collaborating with governments, regulatory organizations and other financial institutions may be a reasonable strategy to achieve a more consistent insurance regulatory framework across the region.

Glacier in Argentina with mountains in background
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Chapter 1


The country has plentiful capacity in a crowded insurance market.

Argentina’s economy is the third largest in Latin America, behind only Brazil and Mexico. High inflation, currency volatility, deteriorating consumer confidence and a slowdown in macroeconomic growth are only a few of the issues plaguing the country.

The presidential election late in 2015 brought important political changes. Yet, while the new Government promises higher economic stability, analysts project that the 0.5% GDP growth will continue to contract. In spite of this outlook, the trend for the insurance industry is positive, driven by fresh inflows of capital and prospects for a return to consumer spending.

By global standards, the life insurance industry is underdeveloped, though a robust market for group policies is emerging that will foster continued growth and opportunity. Insurance penetration in Argentina is among the lowest of the major global economies. Both life and nonlife segments are expected to grow by 30% to 40% in 2016, primarily due to inflation. Life, nonlife, retirement and workers’ compensation are estimated to total US$14.16 billion at year-end June 2016.

With more than 200 life and nonlife insurers, the market is ripe for consolidation. By 2002, nonlife is expected to outpace the life segment, which has been constrained by Argentina’s ongoing financial crises and lingering effects of the 2008 nationalization of the private pension system.

No risk-based capital or economic capital standards have been issued. However, market growth and consumer protection are high on the Superintendência de Seguros de la Nacion insurance agenda.

The way forward

Argentina is one of the world’s major economies, though insurance penetration remains low. This reflects the broader political and economic issues in the country, such as high inflation, fluctuating credit ratings, and the nation’s large fiscal debt. These uncertainties impact how insurance companies do business and how potential foreign investors view the market.

The insurance industry in Argentina expects new changes from the SSN in the following areas:

  • Increase in capital requirements, primarily for reinsurers
  • More controls regarding technical losses, mainly in motor coverage
  • Fiscal benefits for life and retirement coverage

The new Argentine President has the potential to reduce regulation and restrictions on foreign investment and introduce reforms which could lead to greater industry expansion. The SSN position on creating an internal body of insurance companies to assess their solvency was part of the original strategic plan.

However, no further developments have emerged. Insurance companies are hopeful that growth, change and bolder reforms are on the way.

Harbor beach and buildings Rio de Janeiro Brazil
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Chapter 2


The country's provisional Solvency II equivalence encourages investment.

During the last 10 years, the Brazilian insurance market has continued to expand significantly, with an annual compound growth rate of 10%. This growth, coupled with the increased demand for insurance, has attracted the interest of the international insurance industry. In comparison with international markets, Brazil has one of the highest growth rates in insurance premiums worldwide: 12.1% between 2013 and 2014, and 10.2% between 2014 and 2015. Including premiums from health insurance, the annual growth rate was 16% between 2009 and 2013.

In addition, Brazil’s market presents high growth potential for global and local insurers, as total premiums per capita and insurance penetration relative to the GDP are still low compared with developed countries.

In the past two years, Superintendência de Seguros Privados has published significant regulatory changes aimed at moving toward Solvency II equivalence.

The way forward

It is expected that SUSEP will fully regulate Own Risk and Solvency Assessment (ORSA) in 2017, making it effective by 2019. This represents a major transformation on how insurance companies will operate, considering a forward-looking solvency assessment and business decisions tailored to risk-taking choices.

The process of full acknowledgement of equivalency for the Brazilian insurance market began in June 2015, with the approval of the first stage by the European Commission. This decision will most likely benefit Brazilian insurers planning to operate in the European markets, as it facilitates operations abroad. Similarly, European companies that operate in Brazil may benefit from lower capital requirements.

The first stage covered the solvency calculation for companies operating in the sector. The second includes an evaluation of potential group supervision, where several subsidiaries would be supervised as part of a group, and not individually, as before. The European Insurance and Operational Pension Authority (EIOPA) has already filed its report on this stage. In the last stage, the European supervisor will evaluate supervisory norms and procedures for the reinsurance sector.

In the case of full equivalency, the supervision carried out by SUSEP will be considered equivalent to the norms and procedures of the European market.

High-rise buildings in Santiago Chile
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Chapter 3


The country is progressing toward a risk-based capital regulatory model.

Chile remains one of the most stable markets in Latin America. The outlook for the insurance industry is promising and the potential for growth is being driven by evolving distribution channels, rising consumer expectations and emerging regulations.

The country had the highest insurance penetration rates in the region until 2012. Since then, the insurance dynamics have changed and the pace of growth for both life and nonlife sectors has declined to under 2%. It may take a few years for growth to return.

The Chilean insurance industry is driven primarily by products that are mandatory by law and driven by the Superintendencia de Valores y Seguros (SVS), under the supervision of the Ministry of Finance. Life insurance, pensions and annuities account for nearly three-quarters of the overall market — making Chile one of the few countries in the region where life insurance has a larger presence than nonlife.

One of the most significant issues for the industry relates to real estate and liabilities — two areas that will increase capital requirements for insurance companies

The way forward

ORSA represents a huge task for insurance companies. Insurers are starting to consider what this means in terms of the cost, resources and talent that they must allocate to this effort. ORSA does not require approval from Congress, unlike proposed regulation for capital requirements.

Solvency II in Chile is still pending approval. However, ORSA has already been approved and will be implemented next year. That would drastically change how companies view risk and require many insurers to establish a robust risk management structure and think more seriously about advancing risk transparency and capital management protocols.

Skyscrapers in Bogota Columbia
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Chapter 4


The country faces tightening capital market regulations.

Colombia continues to be one of the fastest growing countries in the region. Inflows of foreign investment and favorable trade agreements with other countries in Latin America have contributed to a stable macroeconomic environment. In spite of slower global economic growth and lower oil prices, the gross domestic product averaged about 3% in 2015 and, and over the next four years, is expected to reach 4.4%. Unemployment reached a record low in 2015.

During 2015, insurance premiums were US$7.16 billion, a nominal increase of 13% over the prior year. An upturn in life annuity sales was a major contributing factor. Real growth for the industry was 5.8%, or 1.9 times the growth of the economy. Colombia currently has 26 nonlife and 19 life insurance companies. Insurance penetration was 2.7% of GDP in 2015.

Low life insurance penetration is due to relatively low wages compared with premium levels. This has prevented individual products from becoming mass marketed, contributing to the perception of life insurance as an expensive investment.

Unlike other major Latin American markets, bancassurance is not predominant in Colombia — though it has been available for more than 10 years. While banks leverage existing customer relationships such as loans and mortgages, they do not offer insurance products aggressively. Customers tend to prefer the services of captive agents or brokers.

The SFC aims to incorporate a risk-based capital approach into the current regulatory framework — without fully adopting Solvency II equivalence or ComFrame.

The way forward

The Colombian insurance industry presents great potential for 2016. Colombia enjoys a higher economic growth rate than other economies in the region and also foresees financial stability over the next three to five years, unlike some of its less fortunate neighbors. With high investments from international investors, supported by a growing middle class, Colombia presents significant growth opportunity in times to come.

Insurers are currently sitting on a wealth of customer data due to various regulatory requirements such as AML, but due to legacy systems and lack of system integration they are not using data analytics effectively. Such analytics will allow insurers to check fraud, improve underwriting and create cross-selling opportunities. They will need to invest in new distribution channels such as bancassurance, direct and digital to reach customer segments which are underserved.

Though the SFC is not presently seeking Solvency II equivalence, it is moving toward adopting IFRS standards, particularly in the treatment of technical reserves. Recent regulatory reforms are creating opportunities for insurance companies that dominate the growing and well-capitalized financial sector.

Mexico hilltop village in early evening light
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Chapter 5


The country is the first in Latin America to adopt a Solvency II framework.

The Mexican insurance market is the second largest in Latin America. As of December 2015, gross premiums totaled approximately US$22.5 billion, an increase of 7.3% over the prior year. The insurance penetration is one of the lowest in the region (almost 2.2% of GDP). Yet, the industry continues to grow against a backdrop of low inflation, declining unemployment and government consolidation measures.

New insurance laws and Solvency II regulations are leading to market consolidation, as well as growth in specialty and consumer product lines. The high demand for life insurance is reflected in individual life premiums which rose 41.7% in 2015, with a 6.8% increase in savings products.

The regulatory framework in Mexico is evolving toward a more sophisticated risk-based capital approach. A Solvency ll regime was proposed by the Mexican regulator, Comision Nacional de Seguros y Fianzas (CNSF), and the Mexican association of insurance companies, Asociacion Mexicana de Instituciones de Seguros (AMIS), in the second half of 2008.

The Mexican Congress approved the new regulation in April 2013. QIS and Qualitative Impact Studies (EIC) are moving forward and new accounting principles are under discussion. Insurance companies are in various phases of implementation as legislation continues to evolve.

In April 2015, after 730 days of implementation, the Solvency II-type insurance regime was introduced, making Mexico the first Latin American country to adopt the new framework.

The way forward in Mexico

Most regulatory requirements are defined, and the methodologies to obtain the technical reserve balances are approved by the regulator. Therefore, it is important to analyze if the results are adequate based on the obligations of each insurance company and then implement these methodologies into more robust actuarial software.

In the case of the SCR, insurers are not expecting major changes in 2016, but there are still some areas, such as reinsurance and derivatives, that need to be reviewed.

The regulatory principles do not provide much guidance for ORSA, so each insurance company must define the level of maturity and reporting of this process, and evaluate the way the capital requirement will be projected.

Man viewing treeless mountainside
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Chapter 6


Regulatory change may be on the horizon.

The Peruvian GDP is estimated to grow 4% in 2016 — above the average for Latin America, according to the Central Reserve Bank of Peru. This outlook is expected to continue, promoting growth in the insurance market in 2016. Favorable macroeconomic indicators include an increasing middle class, declining unemployment, rising consumer spending and a positive climate for investment.

The insurance industry in Peru has shown steady development in recent years and profitability ratios remain highly competitive. Net insurance premiums increased more than 15% in 2015, with similar growth forecast for 2016 — far above the GDP rate. Premium growth has been driven mainly by annuities, followed by property and motor insurance. In 2015, general insurance comprised 39.5% of the market, followed by private pension system (PPS) insurance (26.6%), life insurance (21.2%) and accident and health insurance (12.6%).

The Peruvian insurance industry is composed of 19 companies — highlighted by new entrants to the market and an increasing investment of foreign capital insurers in recent years. However, there is still low market penetration (only 1.9% of GDP versus the Latin American average of 3.3%), and an even lower rate compared with developed countries.

According to Fitch Ratings, the insurance industry in Peru has historically been characterized by its high level of concentration in a few companies. In spite of strong competition, four insurance groups account for more than 70% of the market. As new companies enter, it is expected that their market share will gradually decline.

Mexico and Chile are moving toward Solvency II equivalency and setting a standard for the region. Insurance companies in Peru are benefiting from their experiences.

The way forward in Peru

The political environment in Peru may change within the next year, with the election of a new President. In the meantime, no major regulation involving risk-based capital, Solvency II, IFRS 9 or ComFrame is expected. For the most part, Peruvian insurers are still following a Solvency I model and watching other Latin American countries such as Mexico and Chile before making decisions on their future direction.

Plaza in Montevideo Uruguay
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Chapter 7


There remains no major legislation toward a Solvency II approach.

Uruguay has a small, open economy that has contracted in recent years as a result of a downturn in the region, particularly in Brazil and Argentina, which are the country’s key trading and investment partners. Economic growth is supported by agribusiness and services such as tourism, information technology, finance, transportation and construction.

According to Fitch’s year-end 2015 ratings, the Uruguayan economy is stable and has strong creditworthiness. This stability, coupled with rising foreign investment and agricultural product exports, has encouraged a decline in the unemployment rate in recent years. Higher employment and more disposable income has increased the demand for life insurance as a savings product. Pension and retirement products continue to be among the fastest-growing life segments, as nearly 14% of the population are pensioners or above 65 years of age. In addition, 65% of the population is of working age, which is contributing to growth in individual whole life products.

Life insurance is concentrated with three major life companies, though nine conduct business in the country. Banco de Seguros del Estado, the state-owned insurance company, accounts for 63% of market share as of March 2016. Its dominance in the market has hampered growth in recent years. There are 15 companies in the insurance marketplace. Life insurance represents 37% of total premiums, and nonlife accounts for 63%. The nonlife insurance penetration rate is expected to grow at a CAGR of 11.9% between 2014 and 2019. Total GWP for the insurance industry is expected to increase from US$375.4 million in 2014 to US$954.0 million in 2019, after registering a forecast-period CAGR of 20.5%.

It is hopeful that future regulatory reforms will make Uruguay a more attractive destination for international investment.

The way forward in Uruguay

As Mexico, Chile and Brazil move toward Solvency II equivalence, Uruguay remains uncommitted to a specific approach or framework. In spite of the limited size of the insurance market and the small population, the country continues to attract foreign investment. And, although there are fewer changes in regulation and legislation, there is talk of reform — and clearly a need to move in that direction.

While the insurance industry continues to evolve, capital markets are still underdeveloped and face considerable government debt. Implementing risk management practices and improving corporate governance will require resources and talent in the areas of financial reporting, underwriting and event-risk mitigation. It is hopeful that future regulatory reforms will make Uruguay a more attractive destination for international investment.


Risk-based capital and Solvency II-type rules are still evolving in many Latin American countries. Upgrading ERM practices and collaborating with governments, regulatory organizations and other financial institutions may be a reasonable strategy to achieve a more consistent insurance regulatory framework across the region.

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By EY Global

Ernst & Young Global Ltd.