Acacio Queiroz, chief executive officer of ACE Latin America, in Sao Paulo, Brazil, sees tremendous opportunities for the property-casualty sector in much of Latin America.

Indeed, premium volume in Latin America grew by over 6 percent last year, after adjustment for inflation, despite the economy as a whole having grown by less than 1 percent, according to a report published earlier this year by sigma, Swiss Res research arm.

“The greatest opportunity today is that of price increases. Underwriters in most countries in Latin America are seeing significant growth due to premium increases on renewal in the order of 20 percent to 70 percent, with higher increases in the [catastrophe-prone] countries or with countries that require terrorism cover,” said Mr. Queiroz.

“The potential for the p-c sector in the region lies primarily with the medium- to small-sized commercial risks, because industrial growth has dropped off due to low levels of domestic savings and decreasing direct foreign investment into the region,” he continued. “However, there is also opportunity for insurers with expertise to compete for the existing large commercial risks,” he added.

“The other opportunity lies in the personal lines sector, especially homeowners, which is barely developed in the region,” Mr. Queiroz said.

Personal lines represents a significant percentage of total industry premiums. In Brazil, for example, auto insurance represents a full 31.33 percent of total premiums, according to Fenaseg, the Rio de Janeiro-based National Federation of Insurance Companies.

Joao Francisco Borges da Costa, president of Hannover International Seguros, a Sao Paulo subsidiary of German reinsurer HDI, believes that auto insurance is an excellent opportunity in Brazil.

“The automobile insurance market continues to represent the greatest opportunity in Brazil, considering that Brazil only has one car for every 8.8 inhabitants, a number that has grown from one car for every 11.1 inhabitants in 1990,” Mr. Borges da Costa said.

“We expect this to grow to one car for every 4.4 inhabitants by 2005,” he added. This projected growth, however, is linked closely to consumer credit. “The key to Brazil is interest rates. The other factor is that Brazils automobile sector currently has the installed capacity to double automobile production,” said Mr. Borges da Costa.

“Automobile insurance is becoming a mass market and consumer behavior is changing. The middle-class are starting to trade in their cars after a few years for new ones, and members of the emerging middle-class are starting to purchase their first cars,” he explained.

Mr. Borges da Costa is still skeptical about the growth of other lines in Brazil during the short term. “I dont see homeowners insurance becoming a major line of coverage in Brazil for quite some time. The only way this sector will grow significantly is when people start funding their homes with mortgages, a practice that is currently very rare in Brazil, due to the Brazilian prime rate being 18.5 percent per annum.

“Only when people start financing their homes, will homeowners insurance grow in any meaningful way as lenders will demand that borrowers purchase the coverage,” he explained.

Since 1994, foreign participation in the Brazilian insurance market has grown from 4.16 percent to 33.96 percent in 2001, according to statistics published by Fenaseg.

Mr. Borges da Costa said “foreign participation will continue to grow because foreign p-c markets are saturated and Brazils market is growing.” However, he predicted that Brazil will continue to be principally a life and auto insurance market for the short term.

“In order for consumer behavior to really change, we need an increase in two fundamental factors–personal income and education. Without an improvement in both, Brazilians will continue to purchase primarily automobile and health coverage,” he said.

Indeed, according to Fenaseg, these two lines of coverage represent a full 55.27 percent of the overall insurance market in Brazil, with life insurance producing another 16.9 percent of the markets premiums.

Ultimately, Brazils market is set to grow significantly, as are other markets in the region, with the exception of Argentina, according to the sigma report. Argentina is facing the most significant challenges due to a protracted economic crisis and recent currency devaluation. “Economic prospects are bleak [for Argentina], with real GDP expected to fall by 10-to-15 percent this year and inflation rates surging,” said the sigma report.

However, Mr. Queiroz even sees opportunities in Argentina, which is Latin Americas third-largest insurance market.

“There are companies that are currently seeking insurance opportunities in Argentina, as sometimes the best opportunities are available in times of economic instability. The Argentinean insurance sector will probably undergo a process of consolidation over the next few years, as will Venezuela,” commented Mr. Queiroz.

“Another country with an insurance sector experiencing positive growth has been Mexico, where greater openness to foreign investment has led to it being the beneficiary of a flight away from trouble spots such as Argentina” said a recent Standard and Poors report entitled: “Latin Americas Insurance Sector: Areas of Strength and Weakness.”

This growth will likely continue, according to Mr. Queiroz. “The economic stability and tight control of inflation in Mexico will push up the insurance market's growth automatically,” he said.

“Mexicos premium volume, which now generates about 25 percent of the regions total, is growing at an 8 percent compounded rate,” the S&P report noted.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.