Insurance Presentation Report

Report on: The Development of the Brazilian Insurance Industry

Submitted to: Dr. Bogusław Bamber
Presentation date:
BBA Finance & Accounting
Semester 5, Academic year 2013-2014

Jamir Issa de Oliveira 25139 .........................
Vinicius Appolinario 25545 .........................

Executive summary

The aim of this report is try to evaluate how the insurance industry has developed in Brazil since it began its operation in 1808, operating in the begging only with maritime insurance through company named Boa Fé. During that time Brazil was still a colony of Portugal and Boa Fé Company had the role to insure ships transporting valuable goods such as gold and precious woods extracted from Brazil and sent to Portugal. In 1850 was when the Brazilian insurance industry started to develop due to creation of law specifically to the Brazilian Insurance industry. These new law and regulations made possible the raising of new company in the market which operated not merely in the maritime sector but also in other kind of insurance such as property insurance for example. The attractiveness of the Brazilian market took attention of multinational corporations. The first foreign insurance companies arriving in the Brazilian market was in1862 and in the following years many other foreigner companies kept come to Brazil and from 1950 to 1990 the Brazilian insurance industry got slower its pace and was considered to be stagnated. Was in the late 90’s that Brazilian insurance industry started a trend it goes until nowadays that is called the “Golden Era”. Due to economical, monetary and political stability Brazil became very attractive to most of the multinational insurance companies, the boom observed lately in the Brazilian economy made Brazil an obligatory place to be in other to keep growing its revenues for insurance companies. In 2012 companies reported 127 billion dollars received in premiums and claim paid in the order of 67 billion dollars. Annalists are still very optimists and they forecast growth in revenues and profit in the years to come, taking into consideration that Brazil is a enormous country and the internal demand for insurance for a new built middle-class is the reason for the good perspectives.

Table of contents History 4 Development 4 Nowadays 5 Overview 5 Life segment 5 No life Segment 5 Non-traditional segments 6 Perspective 6

History The insurance industry in Brazil started its operation in 1808. The first company operating in Brazil was named “Boa Fé” what in English would mean Good Intention. The company was objected to operate in the in the maritime sector. Brazilian insurance sector were operating under Portuguese Law and only in 1850 laws were created specifically to Brazilian market. The creating of this regulations were fundamental for the development of the insurance industry in Brazil making possible the arising of several companies, which operated not only in the maritime sector but on land insurance. In 1862 appeared the first multi-national company operating in Brazil.
Development
The insurance industry in Brazil became well developed in the end of the XIX century due to a new regulations on maritime and on land insurance which it brought a large number foreigner companies with vast expertise. From 1950 to 1990 the insurance industry in Brazil were stagnated.
The government granted the insurers greater freedom to set prices and other terms of policies, several international companies began operating in Brazil, the product offering has diversified and increased competition brought benefits to consumers in the form of falling premiums. With the reforms of the early years of the 90s, began a period of growth that was even more pronounced after the success of the 1994 monetary stabilization that ended hyperinflation. The main indicators of the insurance market more than doubled: the annual revenue from insurance premiums and contributions to pension plans increased from U.S. $ 32 per capita in 1990 to $ 395 in 2012 (estimated) and the quotient of this revenue against GDP rose from 1.2 % to 3.6 % over the same period. In 2012, that market grossed U.S. $ 252.4 billion in direct premiums of insurance, health insurance, pension contributions and savings bonds. Such awards and contributions served to increase provisions amounting to R$ 420 billion, which represented 5.69 % of GDP. Provisions have also secured the payment of compensation of claims, welfare benefits and redemption of pension plans and capitalization of R $ 135.2 billion in 2012 (3.05% of GDP). The importance of the sector exceeds, by far, the numeric expression. Indeed, everyday life, as we know since the Industrial Revolution, would be impossible without insurance. The companies could not take risks as they do at present, so your investment would be severely restricted and, with them, the future expansion of the economies. Entire markets would collapse: just imagine what would happen with the sale of cars, with the credit market and the trade if there was not the support of insurance. The insurance industry, increasingly supplements the State in providing critical services in health and social security, and in doing so, allows the state to focus attention and resources on meeting the needs of the poorest sectors of the population.

Nowadays The Brazilian insurance industry is living it golden ages. Brazil for the past two decades has become one of the most attractive places for insurance companies. Increase in the population income level due to rapidly and steady economic raised a middle class which buying and investing their money in house, car, health care, private social security among other things. The demographic index is raising and These factors combined with a slow grow in USA and Europe made Brazil a important market for most of insurance large corporations. Major sport events as Soccer World 2014 Cup and Olympic Games 2016, which will be held in Brazil, have boosted the insurance sector.
Overview
The insurance industry rose in 2012 in premium of U$ 127 Billions and paid indemnification U$ 67 Billion. The insurance industry in Brazil is concentrate in three sub-divisions; Health insurance, Personal Insurance (Life, Accidents and Social Security) and Vehicles.
Together they make up to 85.7% of the revenues in 2012. Nevertheless the industry is been growing rapidly in non-traditional segments such as Financial and rural risk.
Life segment
Life insurance, which includes life insurance and pension contributions, is one of the most important markets, with 36.6 % of total revenue premiums. But there are important differences within this group. The most important product is what brings life insurance and pension plan, called Life Generator of Benefits (VGBL). This product was created in 2002 and quickly became the star of the pension market. In VGBL, the contribution is defined, i.e. the investor pays a monthly or occasional deposits is to generate savings that can be received at one time or converted into monthly installments. Taxation of income tax only occurs in the rescue and not only focuses on the total amount of the withdrawal, but only on income derived from what was applied in the same way that occurs with investment funds
No life Segment In the no life segment, the most important insurance in on vehicles, followed by health insurance and house insurance. The vehicles insurance was the most important in the country but lose its position to other segments such as privet social security. House insurance has less demand in Brazil in comparison with USA and Europe for example, because Brazil is not affect by natural disasters such as earthquakes and tornados. The main reason that Brazilian get an insurance is related to theft or accidents.

Non-traditional segments
Some non-traditional branches had rapid growth in recent years. It is the case of insurance extended warranty for appliances, that nonexistent in 2004, earned premiums of over U.S. $ 2.6 billion in 2012 and insurance of financial risks, rural and housing, whose premium revenues increased between 2006 and 2012 respectively, 534 %, 351 % and 253 %. The reason for this relates to the resumption of economic growth with the expansion of credit to the excellent results of agriculture and the creativity of the insurance market in offering new products best suited to the needs and risk profiles of consumers. The insurance extended warranty is to assure the insured, after the end of the manufacturer's warranty and to the maximum indemnity contract, the extent of the property insured warranty against defects in workmanship and materials, listed in the Policy / Certificate Insurance.
The financial risks insurance protects contractors (employers, tenants etc.) against losses arising from breach contract terms, a concern that increases as the economy reactive. Rural insurance is an important tool for agricultural policy by allowing the producer to protect themselves against losses resulting mainly from adverse weather conditions. Such insurance had breakthrough with the creation of the Program Grant to Rural Insurance Premium in which 40 % to 70 % of the insurance premium are guaranteed by the federal government. The safe housing is a fundamental guarantee for the mortgage, with benefits for all parties involved. Ensures that the family stays with the property in the absence of borrower death or permanent disability. And to the financial institution that granted the loan, the repayment of the debt. Also ensures compensation or reconstruction of the property, if damage is caused by physical risks covered.
Perspective
The Brazilian insurance market, open private pension and capitalization have grown at high rates and the expansion will continue in the future. In developed markets, the annual collection of prizes is located next to the 10 % of GDP. Brazil, with the current 3.4 %, has therefore long period of growth. Life insurance and supplementary pension plan is an important link in the chain of mechanisms of protection against risks of retirement and old age. In Brazil, a few decades ago, this risk was insignificant in view of the large participation of youth in the population, with contributions that financed the pensions of the elderly. Currently, this no longer occurs. In fact, the Brazilian population of more than 65 years, who had remained at around 3 % of the total by 1970, may reach 13 % in 2020, and levels of the European Union in 2050. That said, the pressure on state security schemes based allocation scheme is inevitably growing. Much has been made in pension reform, but there is still plenty to do . Life insurance and private pension are essential in preparing people make of their future and as a complement to the security officer. Similar considerations apply to the branch of health insurance: older populations require more health services, but found in the Unified Health System (SUS) great scarcity of resources. Here cooperation and division of labor between government and private sector are even more important. In the field of damage insurance, the market will benefit from the free functioning of reinsurance. Among the benefits of reinsurance opening are the expansion and diversification of products, increased competition between companies and better pricing, ultimately benefiting the end consumer, and access to services side, speedier procurement and processing of reinsurance, favoring local insurers. Additionally, looking ahead, the insurance industry will play an important role in the management of risks linked to the process of climate change on a global scale. And do not just take sufficient measures to reduce emissions of pollutants, whose impact will only be felt in the long term. You will need to deal with the risks that arise in the short and medium term. The scale of these risks is still small in the case of Brazil, but there is no doubt that all countries will be affected to some degree. The insurance market is the only one able to properly deal with such risks.