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The Peruvian insurance industry has seen solid growth during several years on the back of a strong local economy and an expanding middle class, yet it remains highly concentrated.
To find out more about the entry of foreign players, BNamericas spoke to Alfonso Novelo, director of rating analytics for Latin America (excluding Brazil) at AM Best.
This is the second of a two-part interview.
BNamericas: Several insurance companies from Chile have entered the Peruvian market in the last few years. What has motivated these insurers?
Novelo: Chilean insurers have entered Peru due to the geographical proximity and also because of their home country's high insurance penetration.
The level of insurance penetration in Chile is high by Latin American standards and this makes it harder to expand at fast rates in the domestic market. Some Chilean insurers have therefore sought growth opportunities in other countries.
BNamericas: What impact have they had on the high degree of market concentration in Peru?
Novelo: The entry of several insurers with links to Chile in the last two years has had an impact on the size of the life insurance segment and also on the overall level of market concentration.
Life insurance as a share of the total insurance market rose to approximately 49% last year from around 46% in 2013. And the five biggest players saw their combined market share decrease to around 70% from approximately 75% in the previous years.
BNamericas: Do you expect this trend to continue in the coming years?
Novelo: I think that will be the case, but in the next two years I don't expect market concentration to decrease as fast as it did during 2014.
BNamericas: Do you think we could see more foreign companies enter the Peruvian market?
Novelo: There is still room for more players in Peru because the level of insurance penetration is still very low and there is a significant growth potential in many insurance lines.
The Peruvian insurance market is also a market with high levels of profitability and this could also be a factor attracting some foreign insurance companies in search of higher returns.
BNamericas: With more foreign players moving in to Peru, do you expect the country's largest insurers to begin expanding themselves into other countries in Latin America?
Novelo: Not necessarily. The biggest players in Peru are likely to maintain their large market shares for several years, and the country's low insurance penetration represents significant domestic growth opportunities for them also. An international expansion cannot be ruled out at some point in the future, but we have currently not heard anything about such plans.
About Alfonso Novelo
Alfonso Novelo has 15 years of experience analyzing the insurance industry in Latin America and the Caribbean. Before joining AM Best, he worked at Grupo BBVA in Mexico, S&P and the Mexican insurance and surety regulator. Novelo is a trained economist who has a master's in finance from ITAM university in Mexico.
About the company
AM Best is a global credit rating agency focused on the insurance and reinsurance sectors. The company was founded in 1899 and has offices in the US, UK, Hong Kong, Dubai, Mexico and Singapore.