Dominique HierroChief Marketing Officer Latin America

LATIN AMERICA REUNION | TRUMP TOWER PANAMA | 13 & 14 NOVEMBER 2012

Developments and Challenges in Life & Health (Re) Insurance sector in Latin America.

Provide a Regional Overview

Provide a Brief Synopsis of Latin American Insurance Markets

Describe the Trends of Life & Health Insurers in the Latin American Region

Finally to review Developments & Challenges in the Life & Health (Re) Insurance Sector in Latin America

Objectives for Today

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Regional Overview

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The region is a vast one, with a population of aprox. 588 million

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Latin America presents opportunities which greatly outweigh the challenges.

Asia and Latin America are considered important growth areas. While Latin America is not growing as rapidly as the Asian economies are, it’s nonetheless doing much better than most regions.

Total Population Projected

Latin American Countries 2012 2025 2050Argentina 41,523 46,115 51,382

Bolivia 10,364 12,368 14,908

Brazil (5th) 198,683 213,754 217,835

Chile 17,454 19,199 20,388

Colombia 47,555 54,918 54,918

Cuba 11,208 11,143 10,030

Central America 40,342 49,498 63,354

Ecuador 14,078 16,128 18,891

Mexico (11th) 112,777 124,019 133,341

Panama 3,616 4,267 5,092

Paraguay 6,680 8,026 9,867

Peru 30,174 34,478 40,305

Puerto Rico 3,743 3,753 3,657

Dominican Republic 10,151 11,585 13,244

Uruguay 3,394 3,562 3,750

Venezuela 29,954 35,370 42,042

Others 6,351 8,407 19,960

Total 588,047 656,590 722,964     12% 10%

Thousands of persons, at mid year

Source: ECLAC United Nations

Regional Overview

The demographics of the region are extremely attractive for providers of Life and Health insurance

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The Latin America continues to be a very young region, with a third of the population being under 15 years of age, much younger than that of advanced economies.

Challenges:– A third of whom live on or below

the poverty line.– Income distribution is extremely

uneven, and this economic reality more than any other is perhaps the major short to medium term growth inhibitor for the region.

Structure of the total population, by age groups 2010 2040

Latin American Countries 0-14 65 & over 0-14 65 & overArgentina 10,185 4,277 9,310 7,767

Bolivia 3,591 481 3,251 1,371

Brazil 49,852 13,489 33,839 38,893

Chile 3,821 1,576 3,484 4,111

Colombia 13,334 2,593 12,222 8,878

Cuba 1,938 1,378 1,398 3,116

Central America 14,013 2,656 13,902 5,606

Ecuador 4,215 923 3,703 2,529

Mexico 30,878 7,305 24,183 22,861

Panama 1,017 235 994 723

Paraguay 2,164 336 2,113 936

Peru 8,819 1,770 7,822 5,086

Puerto Rico 787 480 566 816

Dominican Republic 3,108 604 2,796 1,647

Uruguay 759 469 660 705

Venezuela 8,568 1,626 8,210 5,327

Others 1,644 421 1,918 1,705

Total 158,692 40,619 130,372 112,076

28% 7% 18% 16%

Thousands of persons, at mid year

Source: ECLAC United Nations

Regional Overview

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1950 1960 1970 1980 1990 2000 20100

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Canada United StatesJapan MexicoChile BrazilColombia ArgentinaPanama El SalvadorGuatemala Costa Rica

Significant demographic bonus for the next 30 yearsFertility rates have decreased in the region (Average number of children per woman)

Data from http://gapminder.org

Regional Overview

However, the replacement rates will continue to be high. By midcentury several Latin American economies will be fast approaching

developed world levels.

The rise of the Latin America middle class

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Growth of middle class consumers, that is generic for all the region.

Emerging middle class consumersSource: Raymond JamesBrazil

Regional Overview

More specific, the LatAm emerging middle class

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A decade of social progress in the region has created a bigger middle class – but not yet middle class societies.

We refer to an emerging middle class, not solid, more vulnerable (considering income as determining class) not as solid as in the mature markets.

The expanding middle (Nov 2012)Source: The Economist

Regional Overview

Spending of Life Insurance per capita still low when comparing to other regions in the world

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P. Rico has the largest premium per capita, followed by Chile (a much smaller market) that has the 2nd greatest spend per capita

Source: Fundacion Mapfre (The Latin American insurance market 2010-2011)

Regional Overview

Untapped potential for Insurance

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Insurance penetration remains low even compared to other emerging economies.

Insurance penetration varies considerable among Latin American countries, ranging from aprox. 1% in Paraguay and Guatemala, to 4% in Chile.

Source: Fundacion Mapfre (The Latin American insurance market 2010-2011)

Regional Overview

The Life & Health insurance sector still remains small

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The Latin America Insurance sector which accounts for 3% of world premiums.

Mexico and Brazil are by far the two largest markets within the region. Life & Health, represents 53% of premiums, while Non-Life 47%.

Source: Fundacion Mapfre (The Latin American insurance market 2010-2011)

Regional Overview

Brief synopsis of Latin American Insurance Markets

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Brazil

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Brazil has the fifth-largest population in the world, the seventh-largest economy in the world in terms of GDP, and the largest (re) insurance market in Latin America

The Brazilian reinsurance market, closed to private companies for decades, opened up in April 2008. This change has revolutionized the Brazilian (re) insurance market and has been consistent with their globalization trend

Nevertheless as of 2012 the Brazilian Life &Health reinsurance market remains very small and challenging. While it represent a large market volume & potential, the IRB continues to dominate with a large share of the local reinsurance segment and profit margin.

Brief synopsis of LatAm Insurance Markets

Mexico

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Continues to meet economic expectations with solid economic performances. Mexico is the second largest insurance market in Latin America, but is still underdeveloped

An emerging insurance market with a penetration index of almost two percent of GDP. The country has targeted a growth and structured plan to increase penetration to over five percent by 2015

Argentina In Argentina there have been political and economic challenges

during the past year. After four years of continued growth, the economy began to slow down during the second quarter of 2010

A number of regulatory changes took place during 2011. The main one affecting the reinsurance industry was the new resolution eliminating the purchase of reinsurance abroad.

Brief synopsis of LatAm Insurance Markets

Colombia

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Colombia, shows a positive macroeconomic outlook While the main focus for foreign investment has been Brazil and

Mexico, we foresee Colombia as a target market for investors, due to the improvement of the insecurity climate, good years to come in terms of premium growth

Chile Chilean economy is strong and has a positive outlook. Has the highest

GDP per person in Latin America. Chilean is a well developed insurance market

The new regulation that initiated in 2012, requires that every credit institution must tender to the best bidder their portfolio of insurance associated with their mortgage loans. Lenders must tender new and existing insurance. The consequences of tendering is that the value of total insurance decreases approximately 40%. Will this new regulation be adopted by other Latin American Insurance markets?

Brief synopsis of LatAm Insurance Markets

Latin America as a region

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New insurance companies, have enterer and others exiting, due to market variety, size and diversity of regulations.

Some companies are very successful in one market, and not that victorious in others. Or not finding the adequate operations so easily.

“It is very challenging”

Brief synopsis of LatAm Insurance Markets

Developments & Challenges in the Life & Health (Re) Insurance Sector in Latin America

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We distinguish four main growing trends in the region:

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In the Individual Life and Health lines of business, we distinguish four main growing trends in the region:

1. High Net Worth Segment

2. “On-shoring” offerings

3. Accessing the Latin America Middle Market

4. Health Insurance

Developments & Challenges

Number of HNWI´s are growing throughout the region

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1. High Net Worth Individual Life Market

Products targeting the wealthy individuals in the region.

Strong pressure and opportunities to develop the onshore high private and premier banking segments, providing solutions for wealthy people.

However, the domestic onshore companies continue to struggle to compete as the offshore companies offering lower mortality costs, superior underwriting and the agents commissions are typically undeclared income.

Although this segment is incipient, it is growing, so it will continue to provide interesting opportunities in the region.

Developments & Challenges

HNW Market by Region - Population

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Developments & Challenges

HNW Market by Region - Wealth

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In emerging markets, 5% of HNW individuals’ asset

portfolios include insurance

Developments & Challenges

Latin America high middle class is starting to demand better individual life onshore solutions

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2. “On-shoring” offerings

Historically the offshore individual life market has only been sold to the higher socio-economic groups, the trend has changed targeting also the high middle class segment with lower face amounts.

Individuals are beginning to demand this products onshore, as economies start to offer more stability. Important necessity to create more sophisticated products to satisfy domestic needs, such as: financial planning, business loans, etc.

Domestic Companies need to improve domestic capabilities (pricing - reduction of mortality costs), distribution, underwriting, etc.

Developments & Challenges

Penetrate the emerging Latin American middle class

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3. Accessing the Latin America Middle Market

Underinsurance (the “protection gap”) is an issue in many markets, and the need to tap in to the middle market is a focus for insurers

Large volume of the population with no access to the financial systems

Significant informal economies in the region.

Developments & Challenges

Interesting development in Bancassurance & Alternative Distribution

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3. Accessing the Latin America Middle Market

Bancassurance & Alternative Distribution channels have been offering simpler products with small sums assured:

– The main players in the market have been the banks which have built a formidable presence in the bancassurance market in all the main countries across the region, targeting the population with access to the financial systems.

– Alternative Distribution, through retail players such as: Azteca in Mexico, Wall mart and Falabella in Chile (companies with presence throughout the region), have shown interesting sales performance targeting the significant informal economies in the region.

Developments & Challenges

Bancassurance poor persistency levels

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3. Accessing the Latin American Middle Market

However, the banks have had problems with poor persistency levels, which typically arise from ineffective sales.

As lapse continues to be an issue, so loyalty discounts in the form of premium refunds for customers who maintain their policy for a specified period of time are becoming popular.

Also, the trend of some bancassurance players is to expand their horizons to traditional distribution channels, such as: agents & worksite marketing

Developments & Challenges

Traditional insurers recognize the need to diversify

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3. Accessing the Latin America Middle Market

Traditional agency distribution is being challenged: expensive to maintain, aging distribution force, difficulties recruiting new, younger agents in to the profession.

So traditional insurers are beginning to recognize the need to diversify. So partnering with marketing providers seems to be the trend. In order to expanding the targeted population and the product range.

Telemarketing activities are beginning to grow in the region, the most successful schemes has been targeting solid relationships with the credit clientele (loans, mortgages), rather than the payroll or checking account.

Developments & Challenges

Health Insurance – Still important gaps4. Health Insurance Healthcare systems vary dramatically around the Latin American Region,

and trying to compare one to the other is a overwhelming task (i.e. Onshore, offshore, major medical, comprehensive, catastrophic schemes).

However there are still important gaps to consider, such as: – High out of pocket expenditures– Lack of universal cover or social security services offering limited

and/or poor services, not covering the needs of the people

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LatAm Mexico Brazil ChilePopulation 588.0 112.7 198.6 17.4

Life Expectancy at Birth (2010)

74 77 73 79

Health expenditure as % of the GDP (2010)

7.69% 6.32% 9.0% 8.0%

Out of pocket as % of the private expenditure (2010)

85% 92.2% (high) 57.8% 64.3%

Source: World Bank

Developments & Challenges

Health Insurance – Opportunities to penetrate new and underserved segments through indemnity type products

4. Health Insurance

Important product needs, that can be covered by private additional or complementary benefits

We foresee an opportunity to penetrate new and underserved segments through health indemnity type products with fixed benefits, and relatively easy claims and administration

Population living longer & working longer. Living benefits should be considered. CI penetration is very low, should consider combining with other benefits (i.e. hospital cash, surgical cash) 28

Developments & Challenges

Life Reinsurance - No credit for reserve is utilized throughout the region

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Across the region, no credit for reserve is utilized. In Mexico currently the new Solvency II initiative is in progress, based on the European scheme. So this might be an opportunity for reinsurers

The trend of many companies when purchasing reinsurance is changing, more multinationals players are negotiating their reinsurance treaties, regionally.

Continue to be important problems to get good quality data from direct insurers

Developments & Challenges

Health Reinsurance – The most popular schemes continue to be working excess of loss covers

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Although, some large companies have decided to retain the risk as buying reinsurance in the long term has not been a solution for claims frequency, due to reinsurers small appetite for proportional health schemes.

Health reinsurance support throughout the region continues to be very popular.

Continue struggling to get good quality data from direct insurers.

Developments & Challenges

Final Thoughts

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Lots of potential and needs for innovation

The problem of extreme income inequality and poverty needs to be addressed, for without major developments in that are the growth of life insurance, especially via its more traditional channels, will be limited

While an insurance culture may be lacking, there is no lack of demand if the right products are distributed efficiently

Generational changes (consumer demographics) are influencing the way we do business

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Final Thoughts

The important thing is not to distribute the same slices of the pie between the existing players,

but to grow the pie to a bigger one “Creating the Market”

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Final Thoughts

34The security of experience. The power of innovation.

Thank YouAny Questions?

dhierro@rgare.com