SAO PAULO American International Group Inc (AIG.N) expects revenue from underwritten premiums in Brazil to rise 40 percent this year, the unit's top executive said, underpinning fast growth in a market where the U.S. insurer has ambitious expansion plans for the next decade.
AIG will pump about $120 million into the unit in Brazil to propel growth in life, property-casualty and high risk corporate insurance, Jaime Calvo, AIG's chief executive officer in Brazil, said late on Monday. The insurer, the largest in the United States, is forecasting underwritten premiums at $225 million this year, Calvo added.
The capital injection is part of a broader strategy that includes acquisitions and which aims to make Brazil one of AIG's top-five markets by 2017. Calvo said the company expects to almost double staff to 700 employees within three years; currently AIG's Brazilian operations are not even among the group's top-20 performers.
"Our plan is one of accelerated growth. It implies organic growth of course, but it includes acquisitions too," Calvo, a Maxico-born company veteran, said. "The secular process of household income gains in Brazil will naturally lead to more demand for insurance services and products."
Brazil's insurance market, with its rapid growth in demand, is the target of foreign interest. Brazilians spend less than a 10th of the amount Britons or Americans do on insurance products and, as the middle class in Latin America's biggest country grows, insurers are luring new clients by transforming traditional, costlier policies into cheaper products.
According to Susep, Brazil's watchdog for the insurance sector, premiums rose 18 percent in the first 11 months of 2013.
AIG's strategy in Brazil does not only aim at seeking rapid market share gains in some segments but also to achieve high returns, Calvo added. The company's biggest bet is on retail insurance products, starting with auto insurance, allowing the so-called consumer lines to represent about 75 percent of AIG's portfolio in Brazil, from 25 percent currently.
In the case of the local auto insurance market, an increase in the size of Brazil's fleet coupled with healthy pricing dynamics is bolstering growth in premiums. Partnerships with insurance brokers and even commercial banks could help AIG fend off the shortcomings of having small scale in distribution of its products, Calvo noted.
In addition, the highest interest rates in more than two years could help improve financial income at insurance companies in Brazil, while marginally fanning competition in the auto insurance segment. Still, according to Calvo, there are no signs of any player trying to expand market share by lowering prices yet.
Despite the company's appetite for potential acquisitions in Brazil, AIG is reluctantly analyzing Itaú's plans to sell its high-risk corporate insurance portfolio.
Itaú put the unit up for sale late last month in a bid to deploy capital more efficiently in coming years. Analysts say the sale could fetch about 1 billion reais ($426.48 million) for Itaú.
Yet, Calvo said that the portfolio itself does not look attractive without an effective distribution network. "An outright purchase just for the sake of it does not interest us," Calvo said of the deal.
The process to dispose of the high-risk insurance portfolio is in preliminary stages, Itaú executives said last month. The sale comes after infrastructure projects related to hosting the World Cup in 2014 and the Olympic Games in 2016 got off to a late start, and the government auctioned rights to operate roads, railways and ports a year later than expected.
($1 = 2.3448 Brazilian Reais)