Ronald Poon Affat shares his passion for a country rich in life and progress
More to Brazil than the beautiful game
Brazil has the world`s sixth largest economy. It has demonstrated robust growth and has been relatively resilient to the economic crisis of 2008. It is attractive to North American and European investors because of its blend of large domestic economy and long term growth potential. In addition it's the only BRIC country that holds the unique combination of free and fair democratic elections, has a government that is respectful of company law, shareholders, human rights and has no nuclear arms ambitions.
One of the main reasons for weathering the economic turmoil is the presence of the world`s 5th largest population with 194 million people which drives domestic consumption.
Big is beautiful
As at the end of December 2012, the total Insurance premium in Brazil was US$78 billion written by 90 insurance groups. There`s no restriction on the acquisition of local companies by multinationals and as such 50% of the market premium is either fully or partially controlled by multinationals.
In 1939, the Brazilian Reinsurance market was closed to direct access by international reinsurers. It was officially reopened in April 2008 and is now home to 103 multinational reinsurers including the State Reinsurer, Instituto de Resseguros do Brasil (IRB Re). In 2012, reinsurance premium was US$3.2 billion which is double the volume pre-monopoly.
The Brazilian insurance premium in 2011 was more than 50% of the entire volume of Latin America and the Caribbean. Someone from Latin America or the Caribbean one really has to be in Brazil be a global player in the insurance market.
Health Insurance probably requires an article of its own, but in summary, the Brazilian Health Market stands at US$48 million of premium making it the largest in Latin America, and the 6th largest in the world. It includes over 1,000 health carriers that include Insurance Companies, HMOs and Cooperatives (like Blue Cross Blue Shield).
Consumer surveys confirm that Health Care is the 2nd most sought after product of the Brazilian middle classes (after home ownership).
At the end of 2013, the US giant, United Health Care (UHC) made waves by acquiring the largest Brazilian HMO (Amil) with a price tag of US$5.3 billion. UHC may have been the first major healthcare player to plant their flag in Brazil, but it`s likely that other global health carriers will join in and soon. Surprisingly Amil did not have a Latin America footprint and UHC has publically announced that they will now extend their Brazilian healthcare expertise throughout the region. It`s not uncommon for Brazil to be used as a base platform to expand throughout Latin America, yet another reason to be in Brazil.
Short term products
The historical ravages of hyper-inflation made Brazilians understandably cautious about long-term financial products. Hence the Brazilian tendency towards insurance products being short term in nature.
Lines of businessIndependent brokers and banks drive the distribution, which is why the products tend to be fairly simple in their design and coverages. The table assumes a constant rate of exchange of R$2 to US$1 for the sake of simplicity.
Growth is still on the cards for the insurance sector
The leading indicator of high growth in the personal lines insurance market is the increasing size of the middle class. The middle class is defined as households whose monthly income is between US $625 and US $3,100. In a mere 5 years, the sum of the top of middle and upper middle classes has increased from 49% to 65% of the general population. Experience in other developing countries has shown that personal lines products follow the trend in emerging middle class households.
Upside regarding Insurance upside
Even though Brazil already dwarfs its neighbours in terms of sheer market size, the low market penetration points to real upside potential.
What are the challenges?
So let`s be honest, not everyone has made it to Brazil (yet), United Health Care only made the plunge late 2012. So what are some of the issues that keep multinational executives awake at night?
> Highly regulated market. There are separate regulators for the Insurance, Health and Pensions market and they don`t talk with each other. Of late, the health carriers and the reinsurers have probably suffered most. The Brazilian government keeps changing the rules regarding the regulation of reinsurers and selling individual health plans profitably makes Sisyphus' task look trivial.
> The level of Brazilian underwriting standards and the scarcity of claims data makes risk assessment/pricing extremely difficult. There are a few mega-companies in Brazil (top 10 enjoy 80% market share) who can take the occasional mispricing hit. As such, they can be more flexible in assuming risks with incomplete data.
> Brazil can be a very expensive place to do business. Sao Paulo and Rio de Janeiro office rentals are amongst the world's top 10 most expensive cities. Sao Paulo salaries for the well educated are on average, higher than in either New York or London but even so staff turnover is notoriously high.
How to be an actuary in Brazil
Now that you're convinced Brazil is the place to hang up your actuarial shingle, what's the qualifying process? To gain the actuarial qualification in Brazil (MIBA), there are two steps. First one has to graduate from an undergraduate course in Actuarial Science that`s recognized by the Brazilian Ministry of Education and Culture. There are 18 Universities situated in 10 states that offer such a program. After which one has to pass an Actuarial Exam that`s administered by the Brazilian Institute of Actuaries (IBA) http://www.atuarios.org.br/iba/.
Presently there`s no mutual recognition between IBA and the British or American Actuarial Bodies. I'm sorry to tell you that to become an actuary in Brazil, you will have to sit another set of exams, but this time they will be in Portuguese.
(The insurance (life, P&C & reinsurance), health and pensions industries are regulated by individual government bodies. The regulators require a qualified actuary to sign off on the liabilities and also for technical actuarial notes relating to product pricing and reserving methodology.) Is this paragraph necessary/ relevant to the passage?
There are 784 MIBAs in Brazil, most actuaries work in Pensions, Life, P&C and Reinsurance industries (in that order). But there is small but growing number that work in the Health market. Only a very small number of members work in Investments.
In spite of the large percentage of multinationals in Brazil, over a hundred multinational reinsurers and the presence of almost all of the world`s leading actuarial consultancies, you can squeeze all of the foreign trained Fellows into a Porsche 911. There are only 2 UK Fellows (one Fellow who`s here on a temporary assignment and me), two Fellows of the Society of Actuaries and one Fellow of the Casualty Actuarial Society.
The good news is that the Cass Business School (my alma mater), the Faculty of Actuarial Science and Insurance and the Escola Nacional de Seguros, Brazil, have committed to supporting scholars, from Brazil, to undertake the one year full time Masters course in Actuarial Science or Actuarial Management at Cass. These scholarships were launched in 2012 to promote the sharing of knowledge and expertise in the field of Actuarial Science between the UK and Brazil.
Its difficult to answer the question, why aren`t there more US or UK trained ex-pat actuaries in Brazil at the moment, but I would hazard three possible reasons,
1) Language barrier - business is conducted in Portuguese
2) The fact that UK/USA qualifications are not recognized under Brazilian regulations
3) Senior executives are expected to assume many roles: technical, commercial, operational, legal etc. In one of my previous positions at a wholly owned Brazilian company, I was responsible for being both the CRO and Director of Marketing and Communications at the same time. Actuaries are often hesitant to embrace non-traditional roles. Also, while are great at taking decisions when presented with a ton of data, many simply freeze when given an incomplete data set and of course they are expected to present a price that`s both technical and competitively attractive.
The best way to get a position in Brazil would probably be to work at a reinsurer or actuarial consultancy that has a Brazilian unit and then volunteer for every project that`s related to Brazil; and thereafter lobby for an internal transfer. Getting a work permit is quite a challenge without a corporate sponsor.
Even forgetting the fact that the World Cup will be held in 2014 and the Olympics 2016, there`s no getting around the fact that Brazil is the place to be. Its simply presents one of the last opportunities on the insurance landscape to gain a significant share of a dynamic market that still has tremendous potential upside.
Ronald Poon Affat FIA has worked on the editorial board and has been a director of the Society of Actuaries and works in Brazil.