Thursday, 28 February 2013

Brazil, Canada and Japan Insurance Report Q2 2013

As is the case for many of the major industries in that country, Japan’s insurance sector differs markedly from its counterparts in other countries in important respects. In part because of mega-mergers (particularly in the non-life segment), companies have enormous scale by any standards. Insurers are an integral part of the peculiar financial sector of Japan, in which accumulated savings are enormous and are often channeled to the government and its agencies through Japanese government bonds (JGBs) or other securities. Perhaps most crucially, the markets are orderly. Notwithstanding that some major lines (such as the autorelated business written by many of the major non-life companies) there is an absence of cutthroat competition. Barriers to entry to foreign groups are high. However, they are not insurmountable. Particular foreign groups with the absolute size, capital strength, brands, expertise in developing annuity products (especially) and long-established distribution relationships continue to flourish in Japan.

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As of early 2013, the strength and dynamism of Canada’s insurance sector remains obvious. The life companies are world-class, multi-faceted financial services organisations that clearly have the capacity to sustain growth almost regardless of developments in the Canadian life segment. The non-life companies are benefiting from improved profitability, thanks in part to their pricing power and in part to the motor insurance reforms in Ontario.

Key Insights And Key Risks
Although the details vary from quarter to quarter, newsflow from Canada’s insurance sector continues, in late-2012, to highlight its strength and dynamism. In both the non-life and the life segment, the main players have scale, access to capital (even if they are mutuals), financial strength, well recognised brands, and clearly enunciated strategies for growth. In each case, business is developing as a result of at least one of the following factors: increased numbers of policies and policy-holders; firming prices; changes to distribution arrangements; product innovation; acquisition of rival businesses in Canada, and expansion in markets overseas in ways that exploit the competitive advantage of the company in question. As has been the case for a while, a major challenge comes from pervasive low interest rates and, for some companies, the general volatility of equity markets.

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As of early 2013, the major trends that make Brazil one of the most exciting and dynamic insurance markets globally remain intact. Thanks to the steady fall in interest rates, the general improvement of perceived macro-economic risks and commercial initiatives by the insurance companies themselves, premiums are growing rapidly: this is at a time that leading players in both the non-life and the life segments are achieving high levels of profitability. Over the medium-term the only constraint on growth will be insurers’ ability to raise capital to support their businesses.
As of late 2013, the latest data from Brazil’s leading insurance companies- in relation to the first three quarters of calendar 2012 – confirm our view that the country is home to one of the world’s most dynamic and rapidly growing insurance sectors. Overall premiums are growing at double-digit rates because of: a) the openness of the market to entry by major multinationals, b) the growth in the number of households that can afford to buy insurance (and/or to save for the long-term) and c) the continuing downward trend in inflation, interest rates and risk premiums attached to investment.

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For more details contact Mr. Priyank Tiwari: / +18883915441