Latin American Insurance Review and Outlook 2010： Good Growth Prospects with Challenges Ahead

Insurance www.fitchratings.com May 18, 2010 Insurance Latin America Special Report Latin American Insurance Review and Outlook 2010: Good Growth Prospects with Challenges Ahead Executive Summary After several years of economic growth, more vigorous banking activity, and the successful conversion of public pension funds into privately managed comprehensive social security frameworks, the Latin American insurance market has expanded its economic activity and paved the way for significant future growth. Being a region where the average penetration of insurance activities is still below 3% of its GDP, growth is the only way to move forward. Nonetheless, this expansion will still be dependent on the overall trend of the economy and the number of individuals and companies that can access financial services in a broader sense. Contrary to what was seen in the developed world, 2009 was a relatively good year for the Latin American insurance industry. Despite lower growth and an increase in claims, the region was free from the negative effects of troubled assets and chargeoffs in investment portfolios. With most Latin American countries expecting to see economic activity rebounding due to the demand for insurance coverage, 2010 looks promising. However, performance will be contingent on the preservation of underwriting advances seen in the last few years and the need to move on from price wars in countries where they still prevail. To note, not all of the countries’ prospects are so bright. For example, the insurance markets in Argentina, Venezuela, Ecuador, and, to a certain extent, Bolivia, have to deal with the volatility of the operating environment and government intervention. Fitch Ratings has been covering the Latin American insurance market since the early 1980s through its extensive network of local offices in the region, assigning mostly national and international scale insurance financial strength (IFS) ratings in the largest insurance markets in the region. Currently, Fitch rates 122 insurance companies in Argentina, Bolivia, Brazil, Colombia, Costa Rica, Chile, the Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru, and Venezuela, covering around 30% of total collected premiums in the entire region. In general, the IFS ratings are based on the intrinsic financial profile of each individual company, and, given the significant penetration of international insurance groups in the region, some ratings have benefited from the expected support of their parent company as described in the criteria report, “Fitch’s Approach to Rating Insurance Groups,” dated March 24, 2010. During 2009, the majority of IFS ratings (national and international) held very well, with a limited number of negative rating actions. Some of the negative rating actions were driven by particular issues of individual companies and others resulting from changes in the rating of parent companies and/or issues with the operating environment in their own countries (e.g. Honduras). Given the growth prospects, adequate or at least sufficient capitalization in most of the markets, and the improved recent financial results, Fitch expects that the universe of IFS ratings in the region should remain stable during 2010. Analysts Maria Fernanda Lopez (Argentina) +54 11 5235-8130 mariafernanda.lopez@fitchratings.com Maria R. Goncalves (Brazil) +55 21 4503-2621 rita.goncalves@fitchratings.com Rene Ibarra (Mexico) +52 81 8399-9100 rene.ibarra@fitchratings.com Rodrigo Salas (Chile and Bolivia) +562 499-3309 rodrigo.salas@fitchratings.com Milena Carrizosa (Colombia) +57 1 326-9999 milena.carrizosa@fitchratings.com Eduardo Recinos (Central America) +503 2516-6606 eduardo.recinos@fitchratings.com Sebastian Baus (Ecuador) +593 2 222-2323 sebastian.baus@bankwatchratings.com Hugo Cussato (Peru) +51 1 444-5588 hugo.cussato@aai.com.pe Pedro El Khaouli (Venezuela and Dominican Republic) +58 212 286-3232 pedro.elkhaouli@fitchratings.com Franklin Santarelli (Latin America) +1 212 908-0739 franklin.santarelli@fitchratings.com Insurance 2 Latin American Insurance Review and Outlook 2010: Good Growth Prospects with Challenges Ahead May 18, 2010 The Latin American Insurance Industry General Comments Even with 2009 total collected premiums of about USD120 billion from Argentina, Brazil, Bolivia, Colombia, Costa Rica, Chile, Ecuador, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, and Venezuela, the size of the industry is still small compared with more developed markets. It is roughly half of the volume managed by the Asian region. As expected, overall insurance penetrati