Insurance >> Brazil

Brazil Country Market
Insights and Opportunities

Insurance Sector

Overview: In 2007, the Brazilian insurance market reached US$ 47 billion, approximately 3.7% of Brazil’s GDP, and almost half of South America’s insurance market. The Brazilian insurance industry has grown for six years at higher rates than GDP, doubling since 1994, with life and health insurance showing the greatest growth. The market’s potential continues to attract foreign companies - in 1994, Brazilian companies controlled 95% of the market – but today, foreign companies have 40% market share (US insurers 21%).

Regulatory Environment: Brazil’s government regulates private insurers through:

The National Council of Private Insurance (CNSP): CNSP sets insurance policy guidelines and rules, regulating insurer creation, organization, and activity. CNSP establishes guidelines for insurance contracts, reinsurance rules and sets general accounting and statistical standards. CNSP is comprised of representatives from the Ministries of Finance, Justice, and Planning; the Office of the Superintendent of Private Insurance, IRB (the state owned reinsurer), Brazil’s Central Bank, and four private insurers.

Superintendent of Insurance (SUSEP): SUSEP is an independent agency subject to the Ministry of Finance. SUSEP monitors the insurance and private pension market through a solvency index; establishes and monitors operational risk limits; supervises technical reserves; regulates open pension funds; and regulates insurance brokers.

New Regulatory Agency: Creation a new insurance sector regulatory agency, similar to those in Canada, Japan and Scandinavia, is being studied. The new agency would combine SUSEP, CVM (Brazil’s SEC) and part of the Finance Ministry that oversees pension fund administration.

Property & Casualty Insurance: Brazil’s property and casualty insurance market is dominated by auto insurance, a segment that continues to be one of the best opportunities for U.S. insurers operating in or seeking to enter Brazil. In 2002 Brazil had one car for every 8.8 inhabitants, and some insurers predict that by 2009 the ratio will be one car for every four Brazilians. Brazilians still do not purchase much homeowner’s insurance, but once interest rates drop to single digits and homes can be purchased on credit (which requires homeowner’s insurance) more opportunities should arise.

Pension Insurance: Brazil’s pension system is composed of public social security, administered by the National Social Security Institute (INSS) and private plans. Though the government recently reformed the public system it still runs a deficit.

The private system consists of funds that are open and closed to the public. Open funds are available to the public and operate as an insurance product, i.e., clients contribute to the plan through premiums, and are paid an annuity when they retire. Insurance firms and banks’ insurance subsidiaries are the principal open fund providers.

Two funds similar to 401(K) plans are also available. The Individual Programmed Retirement Fund (Fundo de Aposentadoria Programada Individual) is a long-term individual savings and retirement fund, operated by financial institutions, that allows small and medium-sized companies to supplement employee social security plans. The Tax-Free Benefits Generation Plan (Plano Gerador de Benefícios Livres) is offered by insurance companies and is popular because of its tax incentives.

Life Insurance: Though Brazil ranks 35th in the life insurance sector worldwide, life insurance products are becoming more sophisticated and have been the fastest growth area for insurers. Group term insurance has traditionally dominated the Brazilian life market, but 1998 saw the first permanent life insurance products (endowments and whole life).

According to the Brazilian Superintendent of Private Insurance (SUSEP), Brazil’s life insurance sector’s net written premiums were estimated to be US$ 15.8 billion in 2007, or 33% of the market.

Health Insurance: Although a country with 180 million inhabitants, Brazil has a rather small medical insurance market. 74% of the population receives health care through the public health system. Only 3% of the population is enrolled in insured plans, versus self-insured, medical groups, cooperatives or Health Maintenance Organizations (HMOs).

Reinsurance in Brazil is currently a market of around US$ 1.3 billion, or about 1% of the world’s reinsurance market.

The Brazilian Reinsurance Institute (IRB) was founded in 1939, and acted as a monopoly for over 60 years. In 1996, the Congress passed a law to open this market to competition. As of 1997, the IRB – now IRB Re Brasil, is owned 51% by the Brazilian government. The 49% remaining shares are owned by insurers, which include Bradesco Seguros (21.3%) and Unibanco Seguros (around 19% - note that Unibanco had, until the end of 2008, a joint-venture with the U.S. insurer AIG).

All of these steps were taken to complete IRB’s privatization, but in July 2000, some Brazilian congressmen stopped the privatization, stating that a "specific legislation on reinsurance should be created”. By that time, about 25 foreign companies had established branches in Brazil to strengthen their bids for the IRB's auction. Following the acts of Congress, most of them decided to leave the Brazilian market.

On January 15, 2007, Vice-President José de Alencar, who was acting President at the time, signed into law the proposal to open the reinsurance market. Complementary Law 126 was published on January 16, 2007 at the “Official Gazette;” and the opening process was concluded on April 2008.

Market Trends - Reinsurance: In comparison to 2000, reinsurance premium income in Brazil grew 415%. According to the Brazilian Federation of Insurers (FENASEG) and Standard & Poor’s, Brazil ranks as 59th in reinsurance premiums, with an income of US$ 2 billion in 2007.

Opportunities: Market sources estimate that the insurance sector in Brazil will not be affected much by the global financial crisis. Sectors that could be impacted are: engineering risk insurance (since the construction rate may be reduced), group life insurance (considering a possible reduction on employment level) and car insurance.

SUSEP has pointed to potential business opportunities in niches in the Brazilian insurance market. For example, in the energy sector, some power utilities in Brazil are planning to adopt a new type of insurance to cover items such as excessive power loads, with policies that guarantee compensation in the event of power blackouts or other problems. This kind of policy has been used in the United States, but is virtually unavailable in Brazil.

Pension reform also offers opportunities: according to trade industry analysts, projections for 2009 are for a 51% sales increase, based on “VGBL” plans (similar to the U.S. 401(k) plan), functioning as an alternative to social security.

Retail banks will market insurance policies to more of their clients.

Other niches are in civil liabilities; personal property; reinsurance; extended warranty insurance; micro-insurance and rural activities ( aka "crop insurance"), covering climate variations.

In Reinsurance, opportunities include: Partnerships with the IRB; Partnerships with a Brazilian reinsurance broker; and Opening a representative office in Brazil. There are also good opportunities for: Law firms; Service providers; Actuarial expertise; Software companies; Warranty; Large risk segment; Marine – platforms, cargo ships, etc. and Aerospace.

  2012 3rd International Conference on Environmental Science and Development (ICESD 2012)