The market supervised by SUSEP is composed by almost 160 companies, 72% of which are insurance companies, 17% are entities exclusively dedicated to offering open private pension schemes and 11% are companies exclusively dedicated to offering capitalization plans. Some Life insurance companies may also offer open private pension schemes.
Insurance premiums in Brazil are concentrated on three lines of businesses: life, automotive (including compulsory insurance for third party liability – DPVAT) and health insurance. Together they account for approximately 84% of the total premium revenues.
By the end of 2006, the total premiums of the market supervised had reached R$ 64.6 billion (US$ 29.6 billion) and the technical provisions, R$ 128.4 billion (US$ 60 billion). With these results, Brazil is the largest Insurance Market in Latin America.
This system aims to provide to the public the statistical data of the markets supervised by SUSEP. The data are provided by the industry by the “Formulários de Informações Periódicas - FIP” (Periodical Information Forms) which are subject to alterations due to SUSEP’s further verifications.
The table with the monthly movement of the operations by insurance line, since july/2004, is available in this data base.
Obs.: In 2001, for health insurance, the data of each company were considered until the month of the effective transfer of its control to the ANS (Health National Agency).
The economic reforms introduced by the Brazilian government in the last years, mainly the economic stabilization plan, as well as the deregulation process, the opening of the market to foreign insurers and the privatization program had a profound impact on the insurance market, which in the last years evolved from a mere participation of 0.8% in the GDP in 1994 to 2.55% in 2006. Considering capitalization and open private pension schemes, this percentage reached 3.24 %.
These conditions provide a favorable environment for non-life insurance lines, benefited by the growth of economic activities as a whole, as well as for life insurance lines, a protection instrument which had lost its attractiveness during the economic instability period.
The economic stability brought back also the possibility of adoption of the national currency as a trustworthy value reference. Consequently, the investment-making decision process performed by economic agents became more transparent, increasing confidence and overall credibility in the system.
The increase of the competitiveness and the new opportunities of business as well as the search for operational results, instead of financial results, imposed on the companies the need for more efficiency. Fusions and acquisitions were stimulated, promoting the market consolidation process and operational and scale gains for the companies, resulting in lower premium rates and expansion of activities.
The opening of the market to foreign participants in 1996 has permitted the transfer of capital and the introduction of new products, technologies and knowledge that helped to enhance the performance of the industry.
Regarding specifically to life lines (capitalization-structured products) and pension segments a great expansion could be observed, especially considering the recent performance of two products: the VGBL (“Vida Gerador de Benefícios Livres” or Redeemable Life Insurance) and the PGBL (“Plano Gerador de Benefícos Livres” or Plan Generator of Benefits).
Created in 2001,the VGBL is a life surrender benefit product that unites the outliving character of the annuity with the investment-oriented feature of the variable life insurance, which has been benefited from the stabilized economic outlook more conducive to longer-term savings. The PGBL, precursor of VGBL, is a private pension plan created in 1997 and inspired in the American 401-K. Both have special tax benefits.
By the end of 2006, VGBL total premiums had reached R$ 15,3 billion (US$ 7.0 billion) and R$ 41.74 billion (US$ 19.5 billion) in provisions (funds), representing 66.7% of all life insurance premiums in that year. In the other hand, the PGBL continued its great performance since its launching, achieving R$ 4.43 billion (US$ 2.0 billion) in premiums and R$ 27.59 billion (US$ 12.91 billion) in provisions (funds).
The possibility of the maintenance of this positive perspectives are also relevant considering that these products are financial saving instruments that could be used as an alternative to the Official Social Security, which reform is permanently being discussed by society.
Nevertheless, despite of the changes occurred since the Real Plan in 1994, the market needed products to redeem the confidence of the consumers, deeply affected during economical instability period, addressing both high-income and low-income classes.
In 2003 SUSEP started a modernization process based in international standards adopted in the most developed markets, notably the IAIS Core Principles. The idea resides not only in introducing innovation concepts in the Brazilian insurance market but prepare it to the reinsurance opening.
Since the beginning of this process, more than 500 rules were revised and a great number was published, focusing mainly in corporate governance and internal controls, accountability of directors, the strengthening of the roles of actuaries and auditors and the certification of employees.
Also, a great number of changes were made in order to stimulate saving plans’ consumers as, for instance: (i) a new tax regime that encourages the maintenance of pension plans resources in the long term; (ii) shield provisions in order to protect the policyholders’ interest; (iii) the possibility of using these provisions as guarantees in housing financing; (iv) the possibility of updating biometric tables during the deferral period in order to reduce actuarial risks.
In general, the perspectives point out to a more mature insurance market with great probabilities of growth in a near future.
Potential niches can be observed and exploited in the Brazilian Market, like microinsurance and internal credit lines. On the other hand, government policies effects on income distribution and welfare will have a positive effect on the Brazilian insurance market.
On January 15, 2007, Complementary Law 126 was published in Brazil. It eliminates the previous state monopoly. Previously, since 1939, reinsurance in Brazil was solely the domain of the government, via the Brazilian Institute of Reinsurance (IRB Brazil Re).
The IRB Brazil Re is organized as an equally owned partnership between the federal government and the insurance companies. Its creation was primarily aimed at increasing the domestic insurance companies’ capacity for retaining business, as a way of lowering the country’s outflows of foreign currency. Additionally, the IRB accumulated regulatory responsibilities on reinsurance, coinsurance and retrocession operations and undertook actions to promote the development of the insurance business in the country.
Now, under Law 126, the regulation of co-insurance, reinsurance and retrocession transactions and their intermediation will be the task for the insurance regulator, i.e., the National Private Insurance Council (“CNSP”) and the supervision is to be taken care of by the insurance supervisory body, i.e., the Brazilian Private Insurance Superintendence (“SUSEP”).
The Act contemplates three different types of reinsurance companies being authorized to operate in Brazil:
(i) the local reinsurer: namely, the reinsurer with registered offices in Brazil and incorporated as a corporation [S.A. (Sociedade por Ações)] with the sole purpose of conducting reinsurance and retrocession transactions;
(ii) the admitted reinsurer: namely, the reinsurer with registered offices abroad and with a representative office in Brazil, which, in compliance with the requirements of the Complementary Law and the rules applicable to reinsurance and retrocession activities, has registered as such with SUSEP for the conduction of reinsurance and retrocession transactions; and
(iii) the eventual reinsurer: namely, the foreign reinsurance company with registered offices abroad without a representative office in Brazil, which, upon complying with the requirements established in the Complementary Law and with the rules applicable to reinsurance and retrocession activities, has registered as such with SUSEP to conduct reinsurance and retrocession transactions.
In this context, the IRB will continue operating in the market only as a local reinsurer.
Following approval of new regulations and operational guidelines, we expect to see a greater portion of the risks in Brazil being reinsured by global programs. The consequences will include increased reinsurance capacity, more specialization in the reinsurance market, new products and potential price decreases due to the market’s newfound competitiveness. A clear picture will only emerge, however, once full regulations are established.