The Chilean insurance industry is the third-largest in Latin America. The industry recorded strong growth between 2008 and 2012, primarily driven by increasing annual disposable income and growing consumer awareness of the benefits of insurance. The industry grew from CLP3.0 trillion (US$5.8 billion) in 2008 to CLP5.6 trillion (US$11.5 billion) in 2012, at a CAGR of 16.6%.
The industry’s growth was aided by government regulations, which allow foreign companies to establish subsidiaries and branches in Chile under the supervision of the regulatory authority, Superintendencia de Valores y Seguros (SVS). Investor-friendly regulations have encouraged several international companies to enter the Chilean insurance industry and competition is expected to increase as a result.
The Chilean insurance industry is dominated by life insurance, which accounted for 59.3% of the overall written premium in 2012, growing from CLP1.8 trillion (US$3.4 billion) in 2008 to CLP3.3 trillion (US$6.8 billion) in 2012 at a CAGR of 16.5%. The growth was primarily driven by Chile’s rising life expectancy and increasing demand for retirement products. The combined written premium from general annuity and pension plans grew from CLP1.2 trillion (US$2.2 billion) in 2008 to CLP2.3 trillion (US$4.8 billion) in 2012, at a CAGR of 19.1%.
Chile implemented its mandatory individual retirement account system in 1981, under which employees are required by law to contribute to a private pension plan and a state pension. Private pension plans are managed by the Administradoras de Fondos de Pensiones (AFPs), and employees must contribute a minimum of around 12.3% from their gross monthly earnings to their individual accounts.
The penetration level of life insurance products in Chile is still low when compared to other developed nations. The penetration level of Chilean life insurance products stood at 2.5% in 2012, compared to 8.5% in the UK and 6.3% in France. Limited consumer purchasing power and a preference for products offered by financial services such as banks, stockbrokers and mutual fund companies have limited the scope of life insurers.
The non-life segment represented 33.6% of the industry’s written premiums in 2012. The value of the segment grew from CLP1.0 trillion (US$1.9 billion) in 2008 to CLP1.9 trillion (US$3.9 billion) in 2012, at a CAGR of 17.0%, supported by growing demand for property, motor, liability, marine, aviation and transit insurance. The segment was negatively impacted by the 2010 earthquake, when it recorded an earned premium of CLP1.2 trillion (US$2.3 billion) against paid claims of CLP4.5 trillion (US$8.8 billion). However, 59.8% of the premium was ceded to reinsurers in 2010. The frequency of natural disasters is expected to increase consumer awareness of insurance products for protection, driving demand for non-life insurance over the coming years.
The personal accident and health segment is in early stages of development and accounted for just 7.1% of the industry’s written premium in 2012. However, the category recorded strong levels of growth, increasing from CLP226.5 billion (US$0.43 billion) in 2008 to CLP400.1 billion (US$0.82 billion) in 2012, at a CAGR of 15.3%. According to SVS regulations, all vehicle owners must take out compulsory insurance for personal accident-related instances at the time of registering a vehicle. Rising car sales are therefore anticipated to increase sales of personal accident and health products.
Chilean insurers use several distribution channels to reach customers. Key distribution channels include agents, brokers, direct marketing, bancassurance and e-commerce. Technological developments, such as increased internet and broadband penetration, and the development of mobile internet have provided new channels for the distribution of policies, encouraging insurers to develop and implement multichannel strategies.
Chile is widely considered to be one of the most stable market and political environments in South America. It benefits from a strong, market-oriented economy characterized by high levels of foreign trade, robust financial institutions and sound economic policy.
At constant prices the Chilean GDP grew at a CAGR of 4.0% to reach a value of CLP109.5 trillion (US$129.8 billion) in 2012. Strong economic growth is expected to attract increased levels of foreign investment that could have a major impact on financial services, such as life insurance. As a result, the value of the life segment is expected to increase from CLP3.3 trillion (US$6.8 billion) in 2012 to CLP4.9 trillion (US$10.0 billion) in 2017, at a projected CAGR of 8.0%.
Within the life segment, general annuity and pension are the key product categories, collectively accounting for 70.6% of segment premiums in 2012. Together, the general annuity and pension categories valued CLP2.3 trillion (US$4.8 billion) in 2012, after registering a CAGR of 19.1%. This value is expected to increase to CLP3.6 trillion (US$7.4 billion) by 2017, after recording a projected CAGR of 8.9%
The dominance of the general annuity and pension categories is largely due to the mandatory contributions to private pension schemes, in addition to the country’s state pension scheme. Employees are also able to make additional voluntary contributions into their pension funds above the mandatory contribution through Voluntary Pension Savings (Ahorro Previsional Voluntario, or APV). This is primarily designed to cater to employees who feel that the mandatory private pension contribution is not sufficient for their retirement.
Significant growth opportunities are anticipated for the segment, due to the large potential market for life insurance products that has yet to be fully accessed. The penetration level of life insurance products stood at 2.5% in 2012. Any substantial improvement in this figure is likely to require insurers to venture into less developed areas and cater to more consumers by offering constantly improving products.
The growth of the life segment is also expected to be driven by the expansion of distribution channels, such as agencies, brokers and bancassurance, which is projected to increase the nationwide presence of the country’s leading life insurers. This strong distribution network is expected to raise the volume of new policies sold across all life insurance product categories, including general annuity, pension, endowment, term life and unit-linked insurance.
Finally, the segment is expected to be supported by the continuing impact of government policies to liberalize the industry, and have led to a high number of foreign life insurers operating in the country. Competition within the segment is expected to increase, with further entries anticipated due to favorable government policies. This will lead to expansion and the opening of new branches and subsidiaries in urban and semi-urban areas and an increase in the penetration of life policies.
There are 30 companies operating in the Chilean life insurance segment, including both domestic and international companies. Consorcio Nacional de Seguros SA is the market leader in the segment, with a market share of 9.6% in 2011. Although foreign companies are encouraged to enter the Chilean life insurance segment, life insurers operating in the country must maintain the minimum capital levels stated in Chile’s solvency regulations, something that may act as a deterrent for potential new entrants.
The expansion of distribution networks across the country played a key role in the development of the life segment between 2008 and 2012, with the country’s life insurers recognizing the need to develop effective distribution models to match the needs of the country’s socio-economically diverse regions. Robust and efficient distribution networks help to ensure that insurers maintain their cost competiveness while expanding their presence across the country. The distribution network for life insurance in Chile is made up predominantly of agency networks, direct sales, bancassurance, financial brokers, telemarketing and e-commerce.
Agencies are the largest distribution channel for life insurers, accounting for 47.7% of the country’s total life insurance market commission in 2012. The primary reason for this dominance is the ease through which life insurers can access the country’s culturally and geographically diverse population through a strong and widespread network of agents.
The number of agents selling life insurance products in Chile stood at 1,215 in 2012. The written premium earned through this channel increased from CLP114.2 billion (US$218.6 million) in 2008 to CLP149.6 billion (US$307.5 million) in 2012 at a CAGR of 7.0%. Written premium through this channel is expected to grow at a CAGR of 5.6%, to reach CLP196.4 billion (US$402.2 million) in 2017, with the number of agents reaching 1,366 by the end of 2017.
The direct marketing channel is one of the most popular distribution channels among life insurers. A key reason behind this is that the channel helps insurance companies reduce their distribution costs by eliminating expenses such as brokerage fees, thereby improving their profit margins. As a result, Chilean life insurance companies increased their sales forces to generate higher sales through direct marketing.
The written premium earned through this channel increased from CLP38.3 billion (US$73.3 million) in 2008 to CLP59.6 billion (US$122.5 million) in 2012 and registered a CAGR of 11.7%. It is expected to grow at a CAGR of 8.6%, to reach CLP90.1 billion (US$184.5 million) in 2017. This growth is expected to be driven by life insurers’ increasing reliance on direct marketing to improve their profit margins. The total number of direct marketing players operating in the country is expected to reach 7,925, by 2016.
The use of the bancassurance channel – the third largest distribution channel for the life segment – increased moderately from 2008 to 2012, with an increasing number of the country’s leading life insurers entering into agreements with some of Chile’s largest banks to cross-sell life insurance products through the banks’ extensive branch networks. New business generated through bancassurance increased from CLP35.8 billion (US$68.5 million) in 2008 to CLP37.3 billion (US$76.8 million) in 2012 at a CAGR of 1.1%.
Life insurers also distribute their products through a nationwide network of brokers, and e-commerce. Although e-commerce distribution is still in an early stage of development in Chile, the channel is emerging rapidly and was one of the fastest-growing distribution channels between 2008 and 2012. Written premium generated through e-commerce grew at a CAGR of 35.3% to reach CLP3.0 billion (US$6.1 million) in 2012; written premium generated through brokers witnessed a CAGR of 14.6%, to reach CLP36.8 billion (US$75.7 million) in 2012.
MetLife Chile commences cash tender offer to acquire AFP Provida
02 September, 2013
AFP Provida offers private pension fund administration and related services in the Republic of Chile. Its services include collection for individual capitalization accounts, voluntary savings accounts, voluntary pension savings, life and disability benefits, investment services, and accounts administration.
MetLife Chile is offering to pay $6.14 per common share and $92.21 per ADS, in cash respectively.
Along with the US Offer, MetLife Chile is making an offer in Chile to purchase all of the outstanding common shares of Provida from all holders of common shares, wherever located, for the same price and for the same terms.
As previously announced, Banco Bilbao Vizcaya Argentaria has agreed to transfer its 64.3% stake in Provida to MetLife pursuant to the transaction agreement, signed on 1 February 2013.
Upon consummation of the transactions contemplated in the transaction agreement, MetLife will own at least a 64.3% stake in Provida.