BB Seguridade sees end near for interest rate pain point

The negative effects of Brazil's low benchmark interest rate on the earnings of the country's insurers will likely end next year, according to José Maurício Pereira Coelho, president of BB Seguridade Participações, the insurance arm of state-controlled Banco do Brasil.

Insurers and other companies had been parking their money in government bonds in recent years when the Selic base rate was in double digits, generating high returns for investors. But in recent quarters, due to the slowdown of inflation, the central bank has cut the Selic drastically to the current historical low of 6.50%, resulting in much less financial gains for companies.

BNamericas: The Selic reduction has hurting the results of insurance companies in the last quarters. When will this negative effect come to an end?

Coelho: In our view this is the last year that we will have this effect.

The explanation is clear. If you compare the average Selic rate for the first quarter of 2017 with the first quarter of that year, the Selic average was at 12.70% a year ago, and at that beginning of this year it was slightly above 6%.

At the end of this year, the annual comparison base will decline and this effect will be neutral from the start of 2019. In the last quarter we will have a base of comparison that will be of a Selic around 6%, while in the previous year [4Q17] it was 7%. So, this negative impact on the financial side should not be more meaningful next year.

BNamericas: In the short term, how can insurers compensate for their declining revenues?

Coelho: Looking at the operational side, we at BB Seguridade had an increase in operating income in the first quarter. There is no alternative but to have a more efficient operation. All companies are seeking to strengthen the operational side, not just us.

BNamericas: What are the segments with better growth potential for BB Seguridade?

Coelho: We still see a strong growth potential in the pension segment this year, although lower than the pace we saw in 2017; but still, it will be significant growth.

We will also focus on life insurance, which is an important segment to improve the operational strategy as a whole.

BNamericas: For the insurance industry as a whole, which segments are the most interesting to insurers?

Coelho: Vehicles. With economic conditions trending upward, this segment is likely to improve even more.

Also, we need to remember that this segment currently has a high level of claims due to urban violence, and there is room to improve.

BNamericas: Banks and insurers have invested heavily on the technology side. Is that also on BB Seguridade's agenda?

Coelho: Our main products are already being offered for our clients via the bank's app. Our life insurance, pension, capitalization, residential insurance products are offered there. We are aligned with Banco do Brasil's strategy to expand and improve our digital footprint.