What does the future hold for smaller insurance companies? The Mexican Experience

Transcription

1 What does the future hold for smaller insurance companies? The Mexican Experience Angeles Yanez, Act.,MSc.,PhD Luis Barros y Villa, Act., MBA Contents I. General Market II. Small Insurance Companies III. Classification of Companies IV. Results V. Future Perspective VI. Final Remarks 1

2 I. General Market At the end of 2006, the Mexican Insurance Industry had 91 companies, 89 were private insurance companies, of which 43 were foreign subsidiaries. The number of companies have increased by 21 in the last decade; in 2006, five new companies entered the market The number of foreign subsidiaries has continuously increased, but only 7 companies have 100% foreign capital. Historic Number of Insurance Companies Year National Private Mutual Total Foreign Subsidiaries

3 5 Big Market Share Market is highly concentrated, five insurance companies have more than 50% of premiums. However the concentration has reduced in the last seven years: Year 5 BIG Market Share Premium Distribution by Line of Business Total premiums is 163,301, millions of pesos (14.8 billions of dollars). Health and accidents products have increased their participation from 2001, this is due to the social security reforms which opened the door to health companies to provide health services on behalf of Social Security Institutes, transferring the corresponding contributions. Up to date this specific regulation is not been applied. 3

4 Premium Distribution by Line of Business Companies specialized in annuities emerged with the 1997 Pension Reform. Disabled persons, widows and orphans are the current annuitants in the system. We noticed a large participation in premium income during , followed by a continuous decline from This change is explained by several changes to the law, including the limitation of the number of disability certificates issued by the social security institute (IMSS). Premium Distribution by Line of Business Year Health and Accidental Life Annuities Property and Casualty Total % 35.1% 3.2% 51.8% 100.0% % 31.7% 13.6% 45.8% 100.0% % 36.0% 12.6% 42.0% 100.0% % 44.0% 11.1% 35.8% 100.0% % 33.7% 13.3% 42.2% 100.0% % 39.2% 7.3% 42.7% 100.0% % 36.4% 2.7% 48.0% 100.0% % 39.0% 3.7% 44.6% 100.0% % 37.7% 3.2% 44.1% 100.0% % 41.9% 3.1% 40.2% 100.0% 4

5 II. Small Insurance Companies The Mexican Association of Insurance Institutions (AMIS) classifies companies as large, medium and small according to the amount of premium share. As of December 2006, there were five large companies, 10 medium and 56 small. Small sized insurance companies, represent 17.01% of market premiums New companies 36 out of the 56 small insurance companies are new, appearing during 1997 and 2006, most of them were formed in This is because the social security reform of 1997 allowed operations in health and pensions to start within the same insurance company, but december 2002 was the deadline to create a new independent company to carry out annuities business or health prevention products. 5

6 New Companies Company Year Lines of Business Company Year Lines of Business Pensiones Comercial América 1997 An Argos 2003 L/A&H Pensiones Banorte Generali 1997 An HSBC Vida 2003 L/A&H HSBC Pensiones (Bital) 1997 An Atradius 2003 H Allianz Rentas Vitalicias 1997 An Salud Preventis 2003 H Pensiones Principal 1998 An Sanatoro Durango 2003 H Afirme 1998 L/C&P Mapfre Crédito 2003 C&P American National 1999 L Salud Inbursa 2003 H Bancomext 2000 C&P Pensiones Royal & Sun 2003 An Pensiones banamex 2001 An Amedex 2004 H Hir Seguros 2001 L Centauro 2004 H Pensiones Inbursa 2002 An Vitamédica 2004 H ING Salud Comercial América 2002 H Patrimonial Daños 2004 C&P General de Salud 2002 H Novamedic 2005 H Metlife Pensiones 2002 An Seguros Azteca Daños 2006 C&P Pensiones Inbursa 2002 An Prudential 2006 L ING Salud Comercial América 2002 H Cardif Vida 2006 L Médica Integral G.N.P H An= Annuities Seguros Azteca 2002 L/A&H H= Health AIG Vida 2002 L/A&H L = Life GMX Seguros 2002 C&P A&H= Accidents and Health C&P= Casualty and Property Premium Distribution by Product and Size of Companies Premium distribution, by line of business and size of companies, shows important differences Annuity market is totally concentrated in small companies Large companies have a strong concentration in life products Small companies premiums for life insurance represent only the 19.6% of premiums produced by those companies. There is not significant difference in health and accidents premium distribution between small and medium companies, due to the fact that all new health companies in the market are small insurance companies. 6

7 Distribution by Product and Size of Companies Companies Life Health and Casualty and Annuities Total Accidents Property Large 46.24% 17.05% 36.71% 0.00% % Medium 41.28% 11.41% 47.32% 0.00% % Small 19.57% 10.31% 42.45% 27.67% % Source: Own calculation Mergers and acquisitions Besides having an important increase in the number of small insurance companies, the Mexican market has been transformed by multiple mergers and acquisitions in the last 10 years, most of them reduced the number of small companies. Royal Sun Alliance started operations in 2003 and bought BBVA Probursa portfolio (both of these companies were small and remain small) Cigna Insurance was bought by ACE also a small company Colonnial Penn, was acquired by Reliance and latter on by Argos, the largest of the small companies. Serfin portfolio was bought by Santander 7

8 Mergers and acquisitions Del Centro was acquired by GE insurance in 2001 and latter on by Genworth in 2005 Generali merged with Banorte and became a medium sized insurance company Genesis, a small insurance company, was acquired by Met Life, changed its name to Genesis Met Life and latter on, in 2002, Met Life bought Hidalgo (government owned), the third largest insurance company in the Market, becoming the second largest company. In 2003 Pensiones Bital and Seguros Bital were acquired by HSBC financial group changing their names to HSBC Pensiones and HSBC Seguros. La territorial was bought by Kemper in 1999 and latter by Cumbre in 2004 and it is expected to be acquired by QBE soon. Mergers and acquisitions The Japanese company Yasuda was acquired by Sompo- Japan in 2001 Allianz Rentas Vitalicias left the market in 2005 Liberty was acquired by St Paul and went out of the market in 2002 Conseco was merge into Hartford and left the market in 2001 GBM Atlántico, M de México and Seguros DFI left the market in 1999, followed by Comesec in 2000 and C.B.I. in

9 III. Classification of companies Annual real rate of increase in premiums will be the variable use to classify insurance companies. We are interested in knowing how much of the variability of results is explained by company performance rather than by market performance (inertia), thus we used a non conditional hierarchical linear model. This model without any predictive variables, allowed us to compared the variability between companies and the variability among each company. Model results show that only 15.34% of variability is explained by individual differences. Non-conditional model Variance between companies Variance within companies Total variance Percentage of variance explained by individual differences 15.34% Source: Own calculations 9

10 Method to classify Cluster analysis is an exploratory data analysis tool which aims at sorting different objects into groups in a way that the degree of association between two objects is maximal if they belong to the same group and minimal otherwise. Cluster analysis was used to produced groups among small insurance companies, given that we do not have any a priori hypotheses. Analysis included only those companies with 10 years of completed historical data, a total of 39, 22 of them small companies. III. Results Three groups resulted from the first analysis: A large cluster of 28 companies A cluster with pension companies only A cluster with two small companies and a medium insurance company: Argos and Santander, both small, show similiar growth pattern than Banamex-Aegon Principal was isolated in a cluster, this is due to its average increase, which is negative 30%, the smallest of all observed data. We did not identify further differences among the remaining 28 companies, therefore, we repeated the above analysis exclusively with small insurance companies. 10

11 III. Results This last exercise produced three clusters: Number of Cluster companies Total 24 Cluster One Table 10: Statistics for cluster one Standard Company Mean Dev. Argos Royal & Sun Alliance Santander General de Seguros Chubb de México La Latinoamericana La Peninsular Graph 1: Companies in cluster one Genworth Source: own calculations Std.Dev. Mean 11

12 Cluster One Graphically we found an important difference in Argos Insurance as well as Santander, in the previous exercise we had already identified that these two companies had a very similar structure to a medium size company and their rapid growing will eventually change their size classification. These two companies have a common market segment and both have addressed it with a different strategy very successfully: Argos focuses on payroll discount whereas Santander does it through bancassurance. Cluster Two Table 11. Statistics for cluster two Standard Company Average Dev. Pensiones Banorte Generali Pensiones Bancomer Porvenir GNP HSBC Pensiones (Bital) Pensiones Comercial América Principal Source: own calculation Graph 2. Companies in cluster two Stand. Dev. Mean 12

13 Cluster Two Again, at least one company does not fit in the group, this is Principal, which, apart from having the largest average loss in the whole group, it is not a pension company. Cluster Three Table 12: Statistics for cluster three Company Mean Stand.Dev. HSBC Seguros (Bital) Interacciones ACE Seguros (Cigna) Metropolitana Cumbre (Kemper y Territorial) ANA Tokio Marine El Potosí El Aguila Skandia Source: Own calculation Stand.Dev. Graph 3: Companies in cluster three Mean 13

14 Cluster Three Cluster number 3 is formed of 10 companies, but Skandia seems to be apart from the rest of the group. Skandia products have a strong investment fund component combined with a retirement plan and a small life insurance slice. Market segment it pursues is high income and its sales strategy is through very well qualified agents. IV. Future Perspectives After this analysis, we clearly identified 4 different groups of smaller insurance companies with different perspectives 14

15 Group One: Health Companies Group number one is integrated of health insurance companies. Most of them have joined the market very recently. We expect to see the market participation of this line of business to grow in the near future. Group One: Health Companies According to AMIS, if the economy does not show significant structural changes, the potential demand in premiums for life, pensions and health in 2025 will be of 189,822 millions of pesos (17.2 billions of dollars) a 14% larger than in Health insurance and annuities are expected to gain a larger participation of premium income, in consequence, we will see a strong decrease in premiums from life, casualty and property insurance. 15

16 Group One: Health Companies Also, it is expected that the social security reform regarding the transference of health contributions to specialized health companies will be in effect very soon, which will increase the penetration of the market in terms of premiums to 12.1 billions of dollars in 2025 (70.45% market penetration). ESTIMATION OF POTENTIAL MARKET AND PENETRATION FOR LIFE, PENSION AND HEALTH INSURANCE FIGURES IN MILLIONS OF DOLLARS POTENTIAL MARKET IN ANNUAL PREMIUMS 15, , , MARKET PENETRATION IN ANNUAL PREMIUMS 7, , , % PENETRATION 47.95% 47.96% 70.45% SOURCE: AMIS Group Two: Pension Companies Group number two is composed of annuity companies, which have followed a similar path between 1997 and 2006, mainly because of social security regulations. The total number of pensions increased very strongly form 1997 to 2001 and from 2002, the annual increase reduces to a steady 5% per year. Reduction in the number of pensions is explained by the limitation in the number of disability pensions issued by IMSS. 16

17 Group Two: Pension Companies As soon as AFORE s affiliates start to retire under the new pension system we will see an increase in the number of pension companies and the size of that market. Currently, however, pension companies are facing important challenges regarding minimum guarantee rate of interest which is under revision by the authorities to decide whether or not it has to be reduced, due to financial markets conditions. Group Two: Pension Companies YEAR TOTAL NUMBER OF PENSIONS Inc. DISABILITY PENSIONS Inc. ORPHANDS AND WIDOWS PENSIONS Inc ,213 2,130 2, , % 13, % 14, % , % 24, % 27, % , % 36, % 41, % , % 51, % 58, % , % 54, % 70, % , % 52, % 77, % , % 50, % 84, % , % 49, % 91, % , % 48, % 100, % Source: AMIS, EstadisticAmis

18 Group Three: Companies with moderate growth Group number three is composed of companies selling all lines of business with average annual increase around 18%, the percentage of variance explained by individual differences among this group reduced to 1.16%. Company Royal & Sun Alliance General de Seguros Chubb de México La Latinoamericana La Peninsular Genworth Source: Own calculations Line of Business Group Four: Companies with Low Growth Group number four is formed primarily by companies selling all lines of business, except for ANA and El águila which are specialized in automobile insurance. The trajectories of annual increases in premiums of these companies are very similar, the percentage of variance explained by individual differences reduced to 5.32%, but the level of annual growth is lower than those companies in group three (around 7.5% average) Company HSBC Seguros Interacciones ACE Seguros Metropolitana Cumbre ANA Tokio Marine El Potosí El Aguila Source: Own calculations Line of business Automobile Automobile 18

19 Groups three and four For both groups numbers three and four, we see them taking advantage of the new microinsurance law to be released shortly and which will give them access to new and very large potential market segments with low income. V. Final Remarks Finally, it is worth noting that we separated from the rest of these groups Principal, Skandia, Santander and Argos Principal sells life and health and accidents products, but is highly focused on life insurance with a strong saving component not as flexible as the products sell by Skandia, and therefore less attractive. We do consider company should re-address its strategy Skandia s future is very much on line with the pension segment, but addressing high income market, so we do see it continuing growing in the near future 19

20 Final Remarks Santander and Argos are the result of mergers and acquisitions and are very well positioned in their market segment and their strategy has proved to be the right one. So we could expect to see them join the medium size companies in the near future. Finally, we see more mergers and acquisition, as well as new participants, both local and foreign, in the Mexican Market in the future. Thank you very much for your attention! Questions? 20