Moody’s Investors Service has changed its outlook for Brazilian insurers from negative to stable for the next 12-18 months in light of an improvement in underwriting disciple that it believes will drive an increase in premiums and stable profitability, despite slow economic growth.
“Even though Brazil´s currently weak economic environment limits growth prospects for insurers, the sector has overall grown at faster pace than the economy”, said Diego Kashiwakura, Vice President – Senior Analyst at Moody’s.
He added that the low insurance market penetration suggests the sector may also have room to expand once macroeconomic conditions, such as employment rates, improve.
“As interest rates fall, we expect insurers to focus on underwriting results, strengthening policies and controls and reducing underwriting expenses to sustain returns on capital”, said Kashiwakura.
Additionally, the sector is likely to benefit from the current debate surrounding Brazil’s pension reform, which could create new long-term growth opportunities as pensioners seek life and pension products that will complement or replace lower benefits in future.
The recent introduction of universal life, a product with flexible features that combines protection and savings elements, may be another source of potential growth for the insurance industry, Moody’s noted.
At the same time, any change to Brazil’s sovereign rating (currently Ba2, stable) will directly impact Brazilian insurers, whose investments are largely concentrated on government bonds, with overall asset quality and portfolio diversification somewhat limited.
