The ongoing global financial crisis may lead some business lines such as annuities and credit insurance to experience a slowdown in volume given a more deteriorated outlook for both the local and world economies, an analyst at Chilean ratings agency Feller , Eduardo Ferretti, told BNamericas.
Annuities - the life market's largest segment, representing 44% of total premiums - rose 13.3% to 802bn pesos (US$1.25bn) in the period.
The number of people that retire each year depends on the profitability of pension fund manager (AFP) multifunds, GDP growth and the number of people that reach retirement age.
As AFP assets have fallen dramatically over the last few months, people close to retirement age have delayed the decision to retire for one or two years, hoping the market rebounds.
According to a recent report by the AFP association, over 95% of affiliates will not retire for at least five more years. In Chile, retirement age stands at 60 for women and 65 for men.
Those affiliates retiring over the last few weeks may choose the so-called programmed retirement option, in which AFPs payout a monthly pension to the retiree. And when markets begin to recover, then they are likely to buy a life annuity and profit from the rebound, Ferretti said.
RETURNS: WORST STILL NOT OVER
Lower investment returns caused Chilean life insurers to book a combined 60.2bn-peso loss from January-September, according to figures from regulator SVS.
Poorer investment returns also sent Chilean P&C insurer January-September earnings down 33.1% to 10.6bn pesos compared to the same period in 2007.
Returns from investments fell to 3.21% from 6.93% a year ago. These companies' investment portfolio hit 16.2bn pesos as of end-September.
In search of safer investments, life insurance companies increased their allocations in fixed income instruments to 77.9% as of September 30 compared to 76.1% a year ago.
In turn, variable income instruments fell to 5.26% of total life insurer investments as of September 30 compared to 6.95% a year ago. Life insurer foreign investments were also cut to 6.32% of the total from 7.61% as of end-September 2007.
Some companies that are much more sensitive to fluctuation in the markets such as Penta Vida - which has an above system average exposure to equities - recently announced a 40bn-peso new share issue.
Furthermore, insurers could post even worse results for the whole of 2008 than in the first nine months as heavy stock market losses in October will be incorporated in 4Q08 reports, Ferretti said.
CREDIT INSURANCE
Other business sectors Ferretti sees weakening going forward are title insurance, which sells title insurance for loans granted by the financial system.
As lending has slowed sharply since the beginning of the year, especially consumer lending, this segment is unlikely to be as vibrant as in previous years.
Rising corporate defaults have spurred a credit default trend, not only globally but also in Chile.
The ongoing financial crisis has deteriorated companies' payment behavior worldwide and Chile is no exception. This could be detrimental for the domestic credit insurance market, Ferretti said. Nevertheless, new players have recently entered the market.
Locally owned Continental, France's Coface and Spain's Mapfre control Chile's credit market. Earlier this year, Spanish export credit insurer Cesce launched operations in Santiago, targeting a 25% market share in 10 years.
"Younger companies are challenged to secure new customers fast, which increases the risk of signing up weaker portfolios," Ferretti said.
In 2007, Chile's credit insurance market grew 11.9% as measured in the country's inflation-linked unit, the UF, to some 19.7bn pesos.
About two-thirds of the total written premiums came from the domestic credit insurance segment, which rose 21.4% last year thanks to strong export volumes by large Chilean corporates.
No comments:
Post a Comment