Insurance industry attractiveness
The life insurance segment dominated the Portuguese insurance industry and accounted for 66.7% of gross written premium in 2011. Saving products, such as endowment, pension and unit-linked products, led the segment. Non-life insurance, which was the second-largest segment in the industry, captured a market share of 22.5% in 2011. The segment was led by the motor insurance category which accounted for 59.1% share of the overall written premium of the segment, followed by property insurance with a market share of 34.5%.
The life insurance premium declined from EUR9.1 billion (US$12.5 billion) in 2007 to EUR7.2 billion (US$10.1 billion) in 2011 at a CAGR of 5.7% in the review period. The segment is expected to reach EUR8.0 billion (US$11.2 billion) by 2016, growing at a CAGR of 2.2% during the forecast period (2012-2016). Endowment was the largest category in the life insurance segment and witnessed a decline at a CAGR of 3.4% to reach EUR4.6 billion (US$6.4 billion) in 2011. The second-largest category in the life insurance segment was unit-linked insurance which declined at a CAGR of 8.3% during the review period to reach EUR1.9 billion (US$2.7 billion) in 2011.
The non-life insurance premium declined from EUR2.8 billion (US$3.9 billion) in 2007 to EUR2.4 billion (US$3.4 billion) in 2011, at a CAGR of 3.7% during the review period. The segment is expected to reach EUR2.7 billion (US$3.7 billion) by 2016, after recording a CAGR of 1.9% during the forecast period. Gross written premium in motor insurance, the largest category in the segment, declined from EUR1.9 billion (US$2.6 billion) in 2007 to EUR1.4 billion (US$2.0 billion) in 2011, at a CAGR of 6.5% during the review period. The segment is expected to grow at a CAGR of 1.7% to reach EUR1.6 billion (US$2.2 billion) by 2016. However, property insurance, the second largest category in the segment, increased at a CAGR of 2.1% during the review period. The gross written premium for the segment increased from EUR0.77 billion (US$1.1 billion) to EUR0.84 billion (US$1.2 billion) in 2011. The segment is expected to continue its growth trajectory to reach EUR0.94 billion (US$1.3 billion) in 2016, growing at a CAGR of 2.3% during the forecast period.
The Portuguese insurance industry is highly concentrated with the top 10 insurance companies accounting for 75% of the overall insurance written premium in 2011. Fidelidade Mundial is the largest insurance company in the country with a market share of 30.7%. The company operates in the life, non-life and personal accident and health insurance segments. The second-largest company is West Insurance, a composite insurance company with a market share of 13.2%. Santander Totta Vida Insurance is the third largest insurer with a share of 10.4%.
According to Insurance Europe, Portugal ranks as the twelfth-largest life insurance market in the European region in terms of gross written premium. The Portuguese insurance industry is dominated by the life insurance segment which accounted for around 66.7% of the gross written premium in 2011. The depressed economic environment and decline in household disposable income, on account of the global financial crisis and European debt crisis, led to a decline in the sale of life insurance products during the review period.
The Portuguese economy was severely affected by the sovereign debt crisis which began in Greece and extended to other countries in the eurozone. In order to contain the government debt burden, Portugal underwent three rounds of austerity measures, resulting in economic recession. However, the interest rates charged for its debt remained high. In May 2011, the Portuguese government received a financial bailout of EUR78 billion (US$97 billion) from the International Monetary Fund, European Central Bank and European Commission, making it the third European country to receive a bailout after Greece and Ireland.
Overall, the life insurance segment contracted at a CAGR of 5.7% between 2007 and 2011, declining from EUR9.1 billion (US$12.5 billion) to EUR7.2 billion (US$10.1 billion).
The insurance industry rebounded in 2010 and was supported by a rise in the demand for low-risk investment coverage such as general annuity and pension products. However, in 2011, the Portuguese life insurance segment contracted by 37.6% and fell below its 2006 levels. Gross written premium declined from EUR11.6 billion (US$15.4 billion) to EUR7.2 billion (US$10.1 billion) in 2011. The contraction was mainly led by the high withdrawal rate of pension and endowment products. The increase in redemption in these products was on account of a reduction in tax incentives proposed in the 2011 budget. Competition for deposits rose on the back of liquidity shortage and negatively affected the demand for life insurance investment products.
There was also a substantial decline in profitability recorded against a backdrop of an adverse situation in the capital markets resulting in the depreciation of debt securities. The total assets of the life insurance segment declined by 13.8% in 2011 to EUR44.4 billion (US$61.8 billion) from EUR51.5 billion (US$68.4 billion) in 2010.
According to a report published by the Portuguese Insurance Companies Association in May 2012, the solvency ratio of the life insurance industry reached 148% in 2011 despite of difficult economic conditions.
Portugal’s aging population, pension deficits and contacting working population are expected to drive the long-term demand for life insurance products. The ageing population will lead to the increase in demand for pension and annuity products whereas the demand for unit-linked products and group life insurance is expected to increase on account of the nation’s projected economic recovery.
The Portuguese life insurance distribution network is predominantly made up of bancassurance, agencies and direct marketing channels. Bancassurance is the leading distribution channel in the segment, followed by agencies and direct marketing. The other distribution channels are brokers and other channels including shopping malls. The highly-developed banking channels and tie-ups between banks and insurers drive the Portuguese life insurance segment. Insurance agencies accounted for the second-largest share in terms of distributing life insurance products. The established banking channel and the role of insurance agencies in providing advisory information provide confidence among the Portuguese towards both these channels.
The bancassurance channel accounted for 85.5% of the total market commission ? including both renewal and new business commission ? in 2011. However, new business written premium through the bancassurance channel declined to EUR4.8 billion (US$6.7 billion) in 2011 from EUR8 billion (US$10.6 billion) in the previous year. The need for funds, triggered by sovereign debt crisis, led banks to focus on marketing products with a view to making savings on their balance sheets, which led to a decline in written premiums.
The total value of commissions through the bancassurance channel reached EUR319 million (US$444.2 million) in 2011, accounting for a total channel share of 85.5%. In 2011, life insurance policies written premium new business reached EUR4.8 billion (US$6.6 billion). The competitive viability of bancassurance as a distribution channel from the view point of cost efficiency made this channel a market leader. The channel’s market share is projected to decline marginally to 85.0% in 2016.
Agencies emerged as the second-largest distribution channel for the distribution of life insurance products in 2011. The total value of commissions through this channel reached EUR36.5 million (US$50.9 million) in 2011, accounting for a share of 9.8%. Agencies comprise individuals and corporates that have obtained a license to distribute life insurance products for one or more specific insurance company. However, the value of commissions through this channel grew at a CAGR of 9% over the review period, outperforming all channels except brokers. In terms of new business gross written premium, this channel increased from EUR499.8 million (US$684.9 million) in 2007 to EUR545.4 million (US$759.4 million) in 2011 at a CAGR of 7.5% during the review period. This figure is expected to reach EUR625.6 million (US$871.1 million) in 2016 at a CAGR of 5.6% over the forecast period.