Spotlight: Latin America wooing insurers amid microinsurance rumblings

Friday, March 16, 2018

Are we witnessing the beginning of a fresh wave of insurance M&A activity in Latin America and a key stage in the expansion of microinsurance in the region?

The conditions are certainly right.

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The region's economy is strengthening which should fuel growth in the size of the middle class, and a hefty chunk of the population is unbanked and underinsured – but online.

On top of that the region has an infrastructure gap that needs filling with the likes of roads and bridges and airports. Key regional players such as Argentina and Chile are working to increase the amount of electricity generated using renewable energy resources, and nations are building out their digital infrastructure. It all spells projects, from wind farms to tunnels, which need insurance.


The past several months have seen developments, including the following.

Zurich said it was acquiring the Latin American operations of QBE - which took a US$1bn battering last year - and shortly afterwards announced it was snapping up 19 travel assistance entities that operate under the Travel Ace and Universal Assistance brands. Zurich is also interested in acquiring Chilean life insurer and fund manager EuroAmerica, according to local paper El Mercurio.

And Portugal's biggest insurer - Fidelidade - announced it was entering Latin America by purchasing a stake in Peru's No. 4 player La Positiva.

Chile-based financial services group Bicecorp announced it was purchasing Colombian giant Grupo Sura's annuities operations in Chile for about US$230mn. Sura's life insurance operations in Chile are not included. 

And German insurer Arag has held talks with Chile's insurance watchdog about setting up shop in the country.

While not strictly M&A operations, Spain's Seguros Santalucia announced a strategic alliance with Colombia's Fundación Social and fellow Iberian player Cesce said it wanted to expand in the region by forming closer links with Spanish banks Santander and BBVA.

On the JV front in Brazil, the local unit of Santander and insurance company HDI Seguros formed a 50/50 venture to offer vehicle insurance.

Luis Enrique Bandera, president of inter-American insurance association FIDES and general manager of Panama's General de Seguros, told BNamericas that Latin America presents significant opportunities.

"Latin America definitely presents enormous development opportunities for the industry," Bandera said.

"A recent study sponsored by FIDES showed the gap, by country, between business written and business that could potentially be written," he added. "Certain conditions, mainly the adaption of public policies that permit this opportunity to be taken advantage of, are required. That is why FIDES is promoting this initiative in the short term."

He said, however, that the main international players were in a consolidation, rather than expansionary, phase.

Marcos Kantt, managing director and head of Latin America Financial Institutions at Bank of America Merrill Lynch, told BNamericas the region is attractive for insurers.

"There's quite a lot of interest in the region on the part of global insurers. Some of them are players that have pulled out during the financial crisis and want to return, while others are players that are already established in the region but want to increase their market share," Kantt said.

"At the moment we're seeing interest in all lines of insurance."

He added that the pace of deployment of technology in the sector was growing regionally.

Insurance penetration in Latin America stands at around 3% of the region's GDP, while in more developed insurance regions this percentage is at least double, AM Best's Alfonso Novelo, senior director of analytics, Latin America, told BNamericas.

"When you consider such a gap, it can be inferred that the room for organic growth in Latin America is very attractive when compared to more developed regions," he said. "In order to harvest such opportunities, a number of structural and technological changes that allow lower income households to access financial services need to take place. Participation from global participants in Latin America has steadily increased over the years and there are still good prospects for M&A activity in the region. We expect the volume of life and non-life premiums to grow around 2% in 2018, but these estimates could be pressured as a result of lower economic activity given election periods in Brazil, Mexico and Colombia, three of the largest markets in the region."      


The outlook for both sector growth and M&A activity is particularly bright for Latin America's No. 3 economy, Argentina.

In terms of M&A, players are circling.

"There's interest," Lionel Moure, an insurance analyst at the Argentine office of professional services firm Deloitte, told BNamericas recently.

"This interest is primarily linked to the country's brighter economic prospects, which is making Argentina blink brighter on the radars of investors," he added.

Moure said that achieving efficiency of scale was unlikely a key M&A driver in Argentina's insurance sector since both large and small companies tend to have the same cost structures. 

"I don't see any acquisition derived from efficiency of scale," he said.

ALSO READ: The BNamericas Intelligence Series report Argentina's Banking and Insurance Industries in Recovery


There have been rumblings on the microinsurance front. The region, which has a large insurance gap, seems an attractive prospect.

Argentina's watchdog SSN is working to develop the segment and has introduced tailored regulations.

In Puerto Rico, insurers have approached local authorities about launching operations on the island.

And in Central America, Spanish telco Telefónica and Sweden-based microinsurer BIMA announced a global partnership to drive microinsurance in the region. The two firms kicked off the venture by launching a joint initiative to sell mobile-delivered life insurance to Telefonica Movistar customers in Nicaragua. BIMA already operates in the region.

Life insurance penetration in Nicaragua has hovered around 3.1% while mobile penetration has reached 90% of the population.

Also in Central America, regional player Assa announced it was joining Blue Marble, a consortium of insurers and reinsurers focused on providing insurance protection to the underserved.

Eduardo Fábrega, CEO of Panama-headquartered Assa, said: "Because of our market influence in the six Central American countries as well as our track record, risk capacity, and our team of over 1,000 employees, we have witnessed first-hand the existing gap between available insurance products and the protection needs of the emerging middle class.

"We have a strong interest in finding solutions for this segment", he added, "and as participants in Blue Marble, we will gain access to the incubation and implementation of ventures looking to address this issue."

Indeed, Microinsurance saw significant expansion in Nicaragua, Honduras and El Salvador last year, according to a study conducted by the Central American and Caribbean microfinance association Redcamif.

The report showed the largest policy growth in Nicaragua, expanding 147% to 49,366 microinsurance policies written from 19,985 in 2016.

Honduras saw such policies increase to 21,407 from 16,840 in the same comparison, up 27%, while in El Salvador policies jumped to 11,614 in 2017 from 4,345 a year before (+167%), according to Redcamif data.

These figures and developments on the M&A front indicate Latin America is a land of opportunity for insurers. We've already seen a flurry activity of this year - and we'll see more.

Pictured: A man cuts layers of fabric to make football kits at a market in Lima, Peru (CREDIT: AFP)