Brazil Insurance Report

Wednesday, December 13, 2017

The profits of Brazilian insurers took a hit in the first nine months of this year, as the reduction in the benchmark Selic interest rate dug into their financial gains and represent a huge challenge ahead.

Insurance companies operating in Brazil reported total net income of 9.86bn reais (US$3.05bn) in the January-September period, including health and pension operations, which was nearly 8% down from the year-ago period, according to figures from insurance regulator Susep compiled by local consultancy Siscorp.

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The country's prolonged recession and high unemployment, which only recently begun to subside, are still affecting the insurance sector.

In addition, the central bank's slashing of the benchmark interest rate have undermined insurers' results due to lower returns on their investment portfolios.

After years of seeing the Selic rate in double digits, insurers parked their cash in governments bonds, guaranteeing a high rate of return - now they must look for a new strategy to increase revenues.

"2018 is looking to be more difficult than 2017, and the solution is searching for diversification of services," said Gabriel Portella, CEO of local insurance company SulAmérica.

The executive also highlighted that the October 2018 presidential election will hurt the overall business environment. "Due to the high uncertainty about the results of the election, next year will be a period of high volatility and lots of speculation."'

Source: Siscorp


Brazil's insurance industry is highly concentrated, although there are over 100 local and international players active. Insurers linked with major local banks Banco do Brasil, Bradesco, Itaú Unibanco and Caixa Economica Federal dominate the segment in terms of profits and premiums.

The volume of written premiums in January-September period increased 7% to 154.3bn reais, according to Siscorp.

"At the start of this year, we had the expectation that the insurance industry in Brazil could achieve growth of between 8% and 10% [versus 2016] in terms of premiums. Now, we've just reviewed this estimate, reducing it to 6-8% growth," said Marcio Coriolano, president of insurance confederation CNSeg, in a recent interview with BNamericas.

Source: Siscorp

Coriolano highlighted that behind his downward revisions for premiums is the reduction of demand for pension plans, as the drastic drop in the Selic rate forced many people to change their investment strategies.

Another important impact concerns health plans, according to Coriolano. With the economic crisis, many Brazilians have adjusted their health plans. Although there is no significant reduction in beneficiaries, many people are opting for cheaper health plans based on their budget.

Looking ahead, the performance of country's labor market will set the tone for the insurance sector.

"The resilience of the sector depends on certain factors. In the case of health plans, we need to see how the labor market, employment and [personal] income perform. If the job market recovers quickly, the health sector will benefit," said Coriolano.

Another important fact flagged by insurance analysts is the proposed pension reform. If the reform moves forward, the sale of private pension products will tend to increase. If there is a broad pension reform, the growth of the private pension sector will tend to be larger.

In a bright spot, the recovery of vehicles sales in recent months is also considered a positive indicator for insurers' 2018 outlook.

Source: Siscorp


The regulation and supervision of the Brazilian insurance market are the responsibility of the following watchdogs:

Susep (Superintendência de Seguros Privados or superintendence of private insurance): Oversees insurance, private pension, savings bonds and reinsurance companies since 1966.

CNSP (Conselho Nacional de Seguros Privados or national council of private insurance): Implements the rules that regulate the insurance, private pension, savings bond and reinsurance markets.

ANS (Agência Nacional de Saúde Suplementar or national supplementary health agency): Regulates and supervises the health insurance market. The agency also monitors prices, adjustments of health plans, coverage limits, and the procedures of sector players.


Brazil's private health insurance regulator ANS is reviewing measures to reduce fraud in the corporate health segment.

In recent years, health insurance companies focused more on corporate plans and reduced the number of individual plans due to rising costs in this segment.

Many Brazilians who found themselves unemployed during the 2015-16 recession started their own companies through which they obtained health insurance. ANS has detected that a number small companies were created solely as a way to acquire the health coverage. The agency is now planning to adopt measures to combat this type of fraud, including demanding that firms have at least six months of operations before being allowed to purchase a corporate health plan.

Meanwhile, Susep started to apply new rules in the directors & officers (D&O) insurance segment in November.

The main change was the inclusion of payments of fines in the D&O coverage. Before the new rule, the Brazilian D&O coverage included costs related to the legal defense and the freezing of assets. Executives involved in wrongdoing in Brazil are subject to potentially heavy fines from prosecutors, the central bank and securities and exchange regulator CVM.

Coverage of fines poses a considerable risk to insurers and could lead to an increase in terms of insurance premiums, Flavio Sá, financial lines managers at AIG Brasil, said in a recent interview with Valor Econômico.

In the wake of the massive Lava Jato anticorruption probe, growth in the Brazilian D&O segment has accelerated.

In addition, Susep created a working group to evaluate impacts and possible penalties regarding the offer of insurance products by unauthorized operators.

The objective is to analyze the activities carried out by associations, entities and cooperatives that offer insurance coverage and products in an unregulated manner, according to Susep.