This disparity in rankings demonstrates the great growth potential of this segment which, with the elevation of the C and D classes to the consumer market, continues offering excellent opportunities for insurers. For five years, it has been one of the fastest-growing segments in the country, with double-digit growth rates. In 2008, the insurance industry represented four percent of Brazil’s GNP, as one of the few segments with growth based on financial solidity. Within this promising scenario, the Bradesco Seguros e Previdência Group, the leader of its segment in Latin America, with a 24 percent market share of the Brazilian insurance industry, offers a wide range of products available nationwide while focusing on activities contributing to sustainability and quality of life. The group has once again demonstrated outstanding financial solidity, with €19.912 billion in technical reserves in 2008.
The global financial crisis, which started in 2007 with the subprime mortgage collapse in the US, intensified in the last quarter of 2008 with the bankruptcy of Lehman Brothers and the US Treasury bailout for AIG. In concert, the central banks of the world’s largest economies, led by the Federal Reserve Bank and the ECB, injected trillions of dollars and euros into their markets in an attempt to stanch the most serious global crisis since the 1929 crash. The collapse of credit and the sharp drop in stocks, commodities and real estate markets in the last quarter of 2008 battered developed economies and, consequently, caused an economic slowdown in emerging countries.
After a 2.7 percent growth in 2007, the combined GNP of OECD member nations suffered a 3.1 percent decline last year. Led by China, emerging economies experienced a growth rate of six percent, as compared to more than eight percent in 2007. Only a few countries were spared a drop in production in the last quarter of 2008.
Despite the projections of the World Bank and the IMF showing that the global crisis won’t start to recede until 2010, fortunately, starting in March of this year, international capital flow has been gradually restored in the principal international financial centres. The impact of the global economic slowdown, in terms of production, unemployment, consumption and the poor performance of stocks, bonds and real estate has also affected the insurance and pension markets, with a 3.5 percent decrease in revenue from premiums on a global scale (measured in US dollars).
Developed economies, which make up the OECD and represent 86.56 percent of the global insurance and pension market, have experienced a 5.3 percent decrease in revenue from premiums (measured in US dollars), as a result of the impact of the financial crisis on the technical reserves of companies operating in this segment. On the other hand, insurance markets of emerging economies registered a 15 percent growth (measured in US dollars) in 2008, but that is insufficient to neutralise the retraction of the markets of OECD member nations, since these economies only represent 13.34 percent of the global market, according to data from Swiss Re.
Due to the serious global economic crisis, it has become imperative to recognise the importance of strengthening the reserves of insurers as a way to minimise any impact on their ability to guarantee the peace of mind and protection of their policy holders. In Brazil, the insurance and pension market is one of the world’s most solid, thanks to the existence of a stringent regulatory framework concerning technical reserves. Brazilian insurance and pension plan companies are strictly forbidden from investing their technical reserves in derivatives. Based on these premises, from January to March of 2009, the Brazilian insurance industry registered a 3.2 percent growth, with annualised ROE between 15 percent and 30 percent. In most other countries, however, the insurance industry has shown negative growth rates and low ROE.
Solidity of the group
The Bradesco Seguros e Previdência Group, which is part of the Bradesco Organisation, under the leadership of Bradesco Bank, is a paragon of financial solidity. The group closed 2008 with a 24 percent share in revenue from premiums and contributions in the Brazilian insurance industry, according to data supplied by the Superintendência de Seguros Privados (Susep), Brazil’s regulatory agency for this segment.
In 2008, the group’s financial assets totalled €21.985 billion, amounting to 40 percent of the Brazilian insurance and pension industry, while technical provisions reached €19.912 billion, which represents 34 percent of the entire Brazilian industry. Of this sum, 97.9 percent of its reserves were invested in fixed income offerings producing good profitability and immediate liquidity, and 2.1 percent in variable income securities.
The group closed 2008 with above-average performance in the Brazilian insurance and pension industry. Its client portfolio increased by 14.55 percent compared to the previous year, reaching 27.482 million insurance policy holders and pension plan participants. Total premiums amounted to €7.137 billion, the equivalent of nearly one percent of the Brazilian GNP. This represented a 7.78 percent growth compared to 2007. The group paid €5.056 billion in insurance claims plus payments and benefits to pension plan participants. Net profits for 2008 totalled €816 million, a growth of 12.44 percent compared to 2007, and stockholder equity amounted to 29.11 percent.
The figures for 2009 already demonstrate the excellent performance of the group’s financial management, designed to strengthen solidity. In March, the group’s client base reached 28.590 million, including insurance policy holders and participants in pension funds, an increase of 13.16 percent vis-à-vis the same period in 2008. Offering a wide range of products, the group has 338 offices throughout Brazil, plus a network of over 31 thousand insurance brokers. It also relies on the support of the more then three thousand branches of the Bradesco Bank. Revenue from premiums during the first quarter of 2009 amounted to €1.7 billion, an increase of 2.74 percent over the same period in 2008, when the Brazilian economy was at peak performance. Net profits for the quarter totalled €211 million, which represents 36 percent of the entire Brazilian insurance and pension industry. Stockholder equity was 31.82 percent and the participation of the group in the results of the Bradesco Bank was 38 percent. Also notable is the group’s unwavering focus on initiatives supporting sustainability and quality of life, through projects in the areas of education, health and the environment. An outstanding example of this policy is the group’s support for the Bradesco Foundation (www.fb.org.br), which provides education and professional training for more than 110 thousand children, teenagers and adults every year at its more than 40 centres throughout Brazil.
A growing insurance industry
The performance of the Brazilian insurance market showed positive results in 2008, with revenues of €29.846 billion, 15.15 percent growth as compared to the previous year. The most promising sectors in the Brazilian economy – automotive and real estate – also offer excellent opportunities for insurers. Some measures taken by the Brazilian government to reduce taxes on durable consumer goods, for sectors capable of generating an exponential effect in terms of production, employment and income (vehicles and parts; construction materials; stoves, refrigerators and washing machines) have allowed an increase in the participation of the domestic market in sustaining the country’s economy.
The expansion of credit plus income growth in classes C and D, which dominate more than 50 percent of the Brazilian consumer market and who gained greater access to financial products like pensions, health plans and insurance, have generated new opportunities for insurers. An example of this is the increase in the sales of affinity policies, which are mass-marketed in partnership with retail chains, credit card companies and public service providers. Their growth potential has led the group to adopt a greater focus on this segment through the creation of BSP Affinity in 2008. More than one million policies were sold last year.
In the automotive insurance segment, in the Brazilian fleet of more than 40 million vehicles, a little more than 11 million have some sort of insurance, while the potential is for half of the fleet (20 million units) to have some sort of insurance coverage. The outlook for the real estate market is even better. There is currently an estimated shortfall of seven million homes in Brazil, which housing development programs by state and city governments aim to reduce. Homes are the principal asset of low-income families, and the increase in the number of homeowners could generate more policy holders. Today, only 10 percent of Brazilian homes have some sort of insurance coverage, which demonstrates the growth potential in this segment. Among small and medium-sized businesses, there is also great growth potential through a number of insurance choices.
Another high-demand segment, in which the group holds a leading position with 35 percent of the market, is pension plans, which help foment long-term savings. Likewise, the group is the leader in corporate health care plans, with strong penetration among the country’s largest corporations. Dental coverage, the third most requested benefit among workers, is another area with huge growth potential for the group. For a country with more than 190 million inhabitants, the strength of the internal market is of extreme importance.
Samuel Monteiro dos Santos Jr is Executive Director Vice-President of the Bradesco Seguros e Previdência Group
