Fitch Releases Special Report: ‘Chilean Insurance Industry: Review & Outlook 2011’

SANTIAGO, Chile--(BUSINESS WIRE)-- Fitch releases Special Report: 'Chilean Insurance Industry: Review & Outlook 2011'. The Chilean insurance industry grew rapidly in 2010 (20% in third quarter 2010), with total underwritten premiums in excess of USD8,500 million estimated for the entire year (about one third corresponding to non-life companies and the rest to life insurers). The increase was driven by a recovery in economic activity, a low comparative base and an active non-life insurance industry in the second half of 2010, were crucial to overcome the effects of the catastrophe that struck the central-southern zone of Chile on Feb. 27, 2010.

The increase in premiums presents double digit rates in both non-life (11.5%) and life industry (24.7%). Nevertheless, the growth on the life segment was more vigorous, while the larger share of life insurance (specially the annuities business) on the overall industry results in this segment being the largest driver on the Chilean insurance industry.

Net earning for the industry remains virtually unchanged from third-quarter 2009 (2.5% ROAA and ROAE of 19.7%, both annualized), based on positive investment performance (especially in the life segment) and the dilution of the strong effects in results after the initial reserves constitution associated with the increase in premiums mentioned above.

Third quarter 2010 net income was USD775 million for the life segment (ROAE 22.6%, annualized) against USD11 million registered by the non-life industry (ROAE 1.9%, annualized). It should be noted that the initial weight of the cost of the earthquake and tsunami in early 2010 (claims and reinstatement costs of catastrophic protections) were key factors to explain the poor net income for non-life insurers. In Fitch's view these results could improve substantially in 2011 in the absence of similar catastrophes.

The 27F Catastrophe will have an estimated cost in gross terms for the non-life industry of approximately USD8,000 million. Fitch recognizes that despite the magnitude of the disaster, adequate reinsurance programs and the recovery of demand for premiums helped to diminish the effects of this catastrophe on the profits of the industry during 2010, thus avoiding significant losses for the sector. As of third quarter 2010, the amount of gross claims costs has been USD6,792 million, compared with net claims cost (USD24 million), thus reaffirming the conservative reinsurance policies managed by the industry.

The positive outlook for the economy in 2011 suggests good growth perspectives that could be around double digit figures but lower than the one of 2010 due to its extraordinary profile. Non-life and non annuities related insurance products should grow 10% on average, however, in Fitch's view, it is expected a year of intensive production in the annuities lines that could boost aggregate growth to a range of 13% - 15%, thus returning to the historical average considering a relatively mature industry.

The prospects remain stable for 2011, being that the operational results on the non-life industry should improve closer to historical levels despite lower expected yields on the investment portfolio (after some years of significant volatility). Under the absence of extraordinary events, and also aided by the fast growing life insurance industry, the overall ROAE ratio for the industry should neighbor 12% -15%. This estimation still weights a more moderate return for the non-life industry (close to the average 5% to 7%) and moderate investment yields for life insurance companies; as said before, the larger driver of market trends.

The ratings assigned to insurance companies in Chile remained largely stable, with few isolated cases with Outlook changes to Negative from Stable, rating actions driven by the specific trends on the performance of those companies and not directly related to the catastrophic event of the beginning of 2010. In Fitch's view, the ratings should remain stable during 2011.

The full Special Report in Spanish is available as Reporte Especial: 'Industria de Seguros Chilena: Revision y Perspectivas 2011' on the Fitch international web site at 'www.fitchratings.com' and the local web site at 'www.fitchratings.cl'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:

--'Industria de Seguros Chilena: Revision y Perspectivas 2011' dated Feb. 22, 2011.

Applicable Criteria and Related Research:

Industria de Seguros Chilena: Revision y Perspectivas 2011

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Fitch RatingsRodrigo Salas, +562 499 3300
Senior Director
Fitch Chile Clasificadora de Riesgo Ltda.
Santiago, Chile
orFranklin Santarelli, +1-212-908-0739
Managing Director
or
Media RelationsBrian Bertsch, +1-212-908-0549
[email protected]

Source: Fitch Ratings