Fitch Ratings recently released a special report entitled "Brazilian Insurance Industry: Annual Results and Prospects." In the report, released September 26, 2008, Fitch reports that the Brazilian insurance market grew by 15% in 2007 and predicts that the market, already the largest in Latin America and the Caribbean, will experience "consistent growth in the short and medium term . . . ." Among the factors that Fitch cites in support of its prediction are the following:
- Economic Environment: "Economic stability, maintenance of fiscal discipline and increased international reserves have reduced Brazil's vulnerability to external shocks . . . Since 2003, the Brazilian economy has resumed a positive trajectory, which culminated in the upgrade of Brazil's sovereign Foreign and Local Currency Issuer Default Ratings to investment grade in June 2008. The ratings upgrade reflected the extraordinary improvement in Brazil's external and public sector accounts, which significantly reduced the country's vulnerability to external and exchange shocks and strengthened its macroeconomic stability and the prospects for growth in the medium term."
- Reinsurance Developments: "Effective break-up of the reinsurance monopoly and advances in the regulation of insurance and reinsurance is expected to benefit the market in the medium and long term . . . Fitch expects that the participation of more reinsurers in the market and the possibility of greater price bargaining and new product offerings will lead to the adoption of more sophisticated strategies in the medium and long term, particularly if the insurance companies continue to improve their underwriting and control standards."
- Growth Prospects: Despite its status as the largest insurance market in Latin America, insurance penetration is still very low in Brazil, indicating significant potential for growth.
On the other hand, the report notes certain structural economic weaknesses and the slow rate of economic reforms as possible threats to the expected growth in the insurance market: "Brazil's ratings continue to be limited by structural weaknesses in its public finances, the gross public debt burden, an unfavourable (albeit improving) domestic debt structure and the extremely slow progress of structural reforms. The reduction of these limitations through reforms could unleash the economy's potential and strengthen public finances, ultimately benefiting the country's ratings. However, persistent political slippage that undermines the credibility of the current structure could negatively affect Brazil's ratings."