Argentina Insurance Report Q1 2013

The Argentina Insurance Report considers the prospects for life and non-life insurers in the country. Atfirst glance, the newsflow from Argentina’s insurance sector through mid-2012 looks good. There hasbeen strong growth in premiums in both the non-life and the life segments. Several companies havehighlighted that their Argentine businesses are contributing meaningfully to the development of theirregional operations. Some players have confirmed that profitability has been improving. Unlike in otherparts of the world in 2011, or Chile in 2010, there have not been major catastrophe losses. In the non-lifesegment, Australia’s QBE has emerged as a major player. QBE bought HSBC La Buenos Aires Segurosfrom HSBC and has entered into a 10-year bancassurance deal with the latter’s bank in Argentina.

Meanwhile, many of the leading local groups continue to benefit from their associations withgovernment-backed financial institutions, from the support of policy-holders who see their own interestsas being closely aligned with mutual insurers, and/or strong brand names.

Nevertheless, we continue to highlight the structural weaknesses of Argentina’s insurance sector. Both ofthe main segments are underdeveloped by most metrics. In particular, Argentina’s long history offinancial instability means that households tend to be reluctant to use life insurance which, by definition,requires a long-term contract between the client and the underwriter of the risk. As we explain, lifedensity rose very strongly over the year to June 30, 2012: however, we believe that it is premature tosuggest that the life companies have built (potential) customers’ trust in the product.

The competitive landscape is fragmented: many of the largest local groups lack scale in anything otherthan a purely Argentine context. In past reports, we have suggested that multi-national companies withoperations in Argentina face barriers to exit. In view of the BBVA and QBE-HSBC deals, we woulddescribe this aspect differently: multi-nationals can exit the Argentine market, but most easily if they havea business that another multi-national wants to buy and/or can assist with distribution. Meanwhile,regulatory changes and policy shifts in the insurance sector – as in the broader financial services industry– are often motivated by politics rather than economic rationalism.

In our Q212 report, which was written at the beginning of the year, we said 2012 ‘may well be a yearwhere Argentina’s insurance sector changes dramatically – for better or worse’. Nine months later, we areinclined towards an optimistic interpretation. In the (much more important) non-life segment, the absolutesize of the market, its diversification over various lines, (generally) disciplined companies, and potentialto grow through the use of insurance by first time users are all key positive factors. Fragmentation mayhave resulted in cut-throat price competition in the past: however, it is not happening now.

Over the last quarter, BMI has made the following changes:

The analysis incorporates BMI’s latest forecasts for Argentina’s economy, including details inrelation to auto sales and trends in the healthcare sector.

We incorporate a considerable amount of commentary made available by leading insurers inrelation to conditions in H112.