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>> Latin American Outlook

Latin American Outlook


Oil Insurance Cost Expected to Grow Sharply

The oil spill in the Gulf of Mexico is already causing a feeling of defeat among drilling equipment operators and insurance carriers in Brazil. As the losses caused by the accident suffered by the Deepwater Horizon probe (resulting in at least 5 million oil barrels being spilled over the US coastline) are estimated, the market is already facing some difficulties with policy renewals. Insurance premiums are expected to increase by 50%.
“Today, no one is willing to enter into long-term deals. Insurers are postponing most discussions” said an industry executive who requested to remain anonymous. Three companies with platforms operating off the Brazilian shore confirmed the difficulties and voiced their fears about price increases. Brazil is today leading the deepwater drilling business.
Drilling equipment is insured by two kinds of policies, one covering the drilling vessel and the other covering the social responsibility, i.e. environmental and third-party damage. In the Deepwater Horizon case, the market expects insurers to incur a loss ranging between USD 3 billion and 5 billion once British Petroleum (BP) has paid for most of the damage through the clean-up operations, fines and third-party damage (estimated at over USD 30 billion).

Chilean Premiums Totaled USD 2,261 M

Total P&C premiums had increased by 5.2% as at 06/30/2010, thus continuing the variable trend observed in previous years. As of June 2010 the premium amount was USD 2,261 million, compared to USD 2,149 million in 2009.
Retained premiums increased by 7.4% during the period under review. As of the same date, these totaled USD 1,246 million (2009: 1,161 million).

Insurance Sector Expected to grow by up to 4%

If the current dynamism of the Mexican economy continues (and following an almost unchanged first semester in comparison to 1H 2009), the insurance sector expects to grow by 3.5 to 4% by year-end.
Recaredo Arias, Director General of the Asociación Mexicana de Instituciones de Seguros (AMIS) (Association of Mexican Insurance Carriers), stated that by the end of the first semester the industry had reported premiums worth MXN 119,400 M.
At a press conference, he indicated that this means “there has been a negligible change in real terms from last year’s figures, with a growth rate of only 0.01%".
In spite of this, if the Petróleos Mexicanos (PEMEX) policy is factored in (the company is not considered for premium purposes as it renewed its contract for a 28-month period last year), the growth rate would have been 7.7%.
In this regard, Juan Ignacio Gil Antón, President of AMIS, noted that the sector might book a growth rate ranging between 3.5 and 4% if the current economic situation is maintained.
When referring to each specific line of business, Arias Jiménez indicated that the Life business, where Pemex bears no impact, experienced hardly any change (0.8% variation).
In turn, the seguro de grupo grew by 110.7%, whereas group insurance suffered a 29.9% drop that contrasts last year’s marked increase.
Accident and Health premiums grew by 11.7% in notional terms during 1H; this rate was 15.7% for PA and 11.7% for Medical Expenses, with Health insurance premiums going down by 4.8% during the period under review. The sector booked a 5.7% increase in direct motor insurance premiums.
Property insurance premiums suffered a marked decrease (24.9%), precisely because the largest portion of the 28-month Pemex business relates to property; these would have grown 6.3% if this policy is excluded.
As far as claims are concerned, a 3.2% increase has been reported. Where the insurance sector is paying all benefits, this figure grows by 3.2%, totaling MXN 66,294 million.

Growth Rate Hits 11.92%

As reported by Government, a strong rebound in domestic demand has caused the Peruvian economy to grow 11.92% y-o-y in June, the best rate in almost two years and among the highest in Latin America.
This figure is well above the downturn in economic activity in June last year (2.5%), when Peru was hit by the global financial crisis, and it also exceeds the y-o-y 9.19% increase in May.
Analysts asked by Reuters had anticipated a 10.9% annual growth rate for June.
In turn, the Peruvian economy (Note: Peru is a large raw material exporter) experienced a seasonally adjusted growth rate of 1.15% in June, the highest since September 2008, before the financial crisis, when the country grew at 12.19%.
Authorities from the Instituto Nacional de Estadística e Informática (INEI) (Peruvian Institute for Statistics and Information Systems) indicated at a press conference that the Gross Domestic Product (GDP) grew by 8.17% in 1H.
Key sectors expanding the most include construction and manufacturing (up 22.7% and 21.61%, respectively).
As reported by the Institute, other growing sectors were services (12.27%), finance and insurance (11.6%) and trade (10.74%).
New Insurance Legislation in Latin America

Venezuela has passed a new insurance law which will increase State involvement in the private sector. The law includes provisions which permits government involvement in determining whether premium rates set by private insurers are fair.
According to local sources, the change in law was motivated by perceived abuses in the industry and the need to further protect consumers.
Guatemala and Nicaragua: New insurances laws were reently approved in these countries, driven by the requirements of the Dominican Republic – Central America Free Trade Act.
These new laws fundamentally overhaul the regulatory schemes applicable to both domestic and foreign insurance and reinsurance entities with activities concerning these jurisdictions, including adjustments to premium taxation rates, minimum requirements for authorization, approval of insurance products, conduct of cross-border business and penalties for non-compliance with local laws and regulations.
The reforms increase the risk of harsher penalties for companies that have been doing business in these countries in a “grey market” fashion.
Ecuador: A project is under way to overhaul insurance law in Ecuador.
Mexico: A new law, which will bring the country in line with Solvency II principles, is expected to become effective on January 1 next year and is in the process of being scrutinised by regulators.

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