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Peru is a market that has seen the entry of new insurers in the past several years as foreign players have looked to tap into the country's strong economy and low insurance penetration.
The Peruvian economy is, however, growing at a significantly slower rate today than during the years of the commodities boom, and the growth in insurance premiums has also slowed as a result.
To get an idea what to expect from Peru's insurance sector in the next few years, BNamericas interviewed Alfonso Novelo, senior director of rating analytics for Latin America (except Brazil) at insurance-focused ratings agency A.M. Best.
BNamericas: The Peruvian economy is today growing at a slower pace than the rates of 5-6% it boasted during the years of the commodities boom. Is Peru still attractive in the eyes of foreign insurance companies and do you expect new market entries from abroad in the next few years?
Novelo: Overall, Latin American economies have experienced a slowdown and Peru is no exception. However, despite a relatively low level of insurance penetration, Peru ranks as the sixth largest market in Latin America. A.M. Best considers Peru as an attractive option for global or regional insurers that are seeking further geographic diversification and inorganic growth opportunities. The main challenge within this market is the high level of premium concentration among the largest participants, but there is definitely room for growth in segments of the market that have not been explored.
BNamericas: By how much can we expect the Peruvian insurance industry's written premiums to grow this year?
Novelo: There was a relevant negative impact on the growth of the insurance market in 2016 due to the adoption of a law that allows people reaching retirement age of 65 to withdraw up to 95.5% of their pension fund. Despite this, A.M. Best expects the insurance sector in Peru to grow approximately 4.5% in 2018.
BNamericas: Where does Peru stand currently on the regulatory front, including Solvency II implementation?
Novelo: A.M. Best considers this market to still be in the very early stages of adopting a Solvency II-type framework.
BNamericas: Has the controversial "pension freedom" law that was approved in 2016 had any major impact on the annuities business in Peru? If not, do you expect any negative impact in the medium- to long-term?
Novelo: Most of the impact was registered in 2016 and now the challenge for insurers is to persuade the market that even under the current non-compulsory scheme, annuities are still a good option in terms of risk mitigation and resource management. There are comments in the market indicating that there could be dialogue to reverse the law or at least make adjustments. A.M. Best will continue monitoring this area to assess the medium- to long-term impact.
BNamericas: How much of an impact can we expect in Peru from technology and insurtechs in the future?
Novelo: A.M. Best does not foresee any short term impact from the adoption of new technologies. Insurtech will definitely change the medium- to long-term landscape in the insurance industry, but developing markets such as Peru are still relatively inexperienced and face many challenges. Efforts to increase the percentage of the insured population through banking and other financial services could certainly benefit from the adoption of evolving technological tools.
About Alfonso Novelo
Alfonso Novelo has more than 15 years of experience in the Latin American and Caribbean insurance industry.
At A.M. Best, Novelo is responsible for the rating analysis of all of Latin America, outside of Brazil.
Before joining A.M. Best in 2014, Novelo was director of market analysis and regulation for global strategy at the BBVA Group. He was also was an associate director at Standard and Poor's, specializing in the insurance industry and covering insurers in Latin America and the Caribbean. Novelo started his insurance sector career at Mexican insurance and surety regulator CNSF, where he held positions in reinsurance and financial supervision, as well as research and development.
Novelo studied economics at the Instituto Tecnológico Autónomo de México (ITAM), where he later received his Master's in finance.
About the company
Founded in in 1899 by Alfred M. Best, A.M. Best is the oldest and largest ratings agency with an exclusive focus on the insurance industry. Ratings are issued on approximately 3,400 companies in more than 90 countries. New Jersey-based A.M. Best has offices in the US, London, Hong Kong, Dubai, Mexico City and Singapore.