Posted on Apr 15, 2011 by Sergio Ulloa
Brazil's insurance industry has been experiencing healthy growth as a result of improving economic conditions and the loosening of market regulations in the country. The Brazilian economy grew by 7.5 percent in 2010. Domestic insurers have benefited from the strong level of economic activity, higher availability of credit, and growth in employment; all factors that have driven strong internal demand for coverage. The Brazilian insurance industry outpaced the country's GDP and grew 16.6 percent in 2010, with gross written premiums, excluding health insurance coverage, totaling R$99.4 billion (US$ 62.7 billion).
For 2011, estimates recently released from Brazil's Central Bank point to an expected GDP growth of around 4.5 percent, with the insurance industry projected to grow a further 12 percent.
Brazil's government has been regulating all insurance and reinsurance operations in the country since 1966. The government founded the National Council of Private Insurance, the Private Insurance Superintendence (SUSEP), Brazil RE and other companies that now operate in the country's private insurance market. High inflation as well as chronic macroeconomic instability hampered the development of the insurance industry initially. Such fiscal conditions made it difficult for many individuals to construct long-term financial decisions, or to have sufficient confidence in those that might be able to provide for them. In 1996 the Brazilian insurance market was opened up to foreign participants, which brought substantial investment and the introduction of new products, technologies and expertise to the domestic industry. SUSEP has embarked on further modernization reforms for the industry, based on international standards. In 2007, Complementary Law 126 eliminated the previous state monopoly on the reinsurance trade.
A combination of extensive regulatory overhaul, the expansion of new services in the industry and the end of high inflation have opened new opportunities for significant expansion of the insurance business in Brazil; these opportunities have been cited as the reason for the recent movement of foreign companies into the country, who have taken an increased share of the overall market. According to SUSEP's latest figures, there are almost 160 different companies operating in the Brazilian insurance industry, the most dominant of which tend to be controlled through the big commercial banks.
SulAmérica, the largest independent insurance group in Brazil, 36 percent owned by ING, has intimated that they will be pursing acquisitions to expand their presence in the local market and to further tap into the rising Brazilian middle class.
In July 2010, SulAmérica acquired a 49.92 percent stake in health insurance provider Brasilsaude Companhia de Seguros. In December the company agreed to purchase Dental Plan Ltd. for US$16.8 million, gaining customers in the north and northeast regions of Brazil, and further expanding their client base to over 6.3 million people. Thus far the majority of insurance premiums in Brazil (65 percent, according to SUSEP) have been generated from the prosperous Southeast Region.
SulAmérica CEO Thomz Cabral de Menezes explains the company's outlook: "The focus is a hundred percent in Brazil. We're looking for acquisitions that are accretive to our portfolio that are aligned within our business segments, meaning health, dental, auto and distribution channels for our mass- marketing products."
One additional target for acquisition for SulAmérica may be local health insurance brokerage Grupo Qualicorp. The Caryle Group, who acquired the company in July 2010, plans to sell their shares by midyear. Qualicorp wants to use the proceeds to further finance their own acquisitions.
SulAmérica ended fiscal year 2010 with a net income of R$426.6 million (US$ 270 million), a 3.2 percent increase over 2009's totals. Consolidated revenue from insurance premiums in 2010 rose by 15.2 percent, outperforming standard industry growth in the period. Average return on equity was 22.4 percent. SulAmérica expects to be able to build upon these figures and increase the number of policyholders throughout the year. Cabral de Menezes added: "The expansion of the middle class, plus the new consumers coming in, you're talking between 50 to 100 million people that eventually are going to be looking for insurance."
The Brazilian insurance market is the largest in South America, and offers the potential to become a more prominent international insurance market across all disciplines. Recent economic stability, positive credit trends, and regulatory reforms that have stabilized the currency and promoted domestic savings have produced sound growth across the insurance industry in Brazil. The severe disparity of wealth distribution in the country remains a concern, coupled with the low 3.1 percent penetration of insurance relative to domestic spending. While these problems remain on par with other Latin American countries, Brazil continues to lag more developed economies. However, large multinational insurers cannot ignore the market's size and growth potential and will be looking to invest themselves further in Brazil, and other emerging economies, to offset the continued static performance of the established North American and Western European markets.
SulAmérica is a Rio de Janeiro-based insurance business that provides a broad range of insurance services to individuals, corporate clients and government entities in Brazil. The company has been active in the insurance business since 1895. In 2002, SulAmérica entered into a joint venture with multinational finance company ING, who as of September 30, 2009, directly hold a 36% interest in SulAmérica.
BrasilSaude Companhia de Seguros
BrasilSaude Companhia de Seguros was founded in 1995 and is based out of Rio de Janeiro, Brazil. The company provides health insurance services in Brazil and operates as a subsidiary of SulAmérica SA.
Grupo Qualicorp is a leader in health benefits management services in Brazil. Founded in 1997, Grupo Qualicorp has around 1,200 employees and represents about 2.8 million policyholders as of June 2010.