Peru's insurance sector presents both familiar pitfalls and springboards, and its stable economy and rising middle class should reduce the former, by taking advantage of the latter.


The Latin American market is experiencing accelerated insurance activity, as respective populations improve their standing, enter the workforce and swell the middle class. Beyond that, Peruvian insurers are increasingly clued up as to industry shortfalls. These include a deficit of skilled underwriting professionals, one source of external talent being the region's sizable reliance on the bancassurance model; albeit with a concomitant rise in costs incurred. Other familiar pitfalls are limited product awareness and public confidence. Meanwhile, the opportunities are there, and for one, Latin American nations are poke-happy consumers of social media, ideal for promotional online communities. Floating on the raft of aforementioned factors, total insurance premium growth in Peru was at 16% in 2013, thereby exceeding the nation's overall economic performance; again a common picture throughout Latin America.


In July 2012 the Wall Street Journal labeled Peru the New South American Tiger in the wake of 7.1% growth for that month alone. And according to Ernest & Young (EY), a highly competitive environment has resulted in a fine balancing act where Peruvian insurers are obliged to present multiple product offerings and leverage alternative distribution channels, while keeping the cost to the consumer affordable.

The Solvency II Directive harmonizing EU insurance regulation, and set to be effective on 1 January 2016, essentially determines the amount of capital that insurance companies must hold to mitigate the risk of insolvency. According to Gonzalo Basadre Brazzini, General Manager of Interseguro; “The superintendency has been reviewing Solvency II, and we have been working with them, conducting sensitivity analyses to understand the impact on our industry.”

The foreign insurer, too, is not missing out on local opportunities in the Peruvian market, thanks to regulations attached to the national strategy of spurring growth through a smooth investor environment. Peruvians, then, may take out insurance and reinsurance policies from foreign entities.

According to World Finance, Peru's growth is fueled by the solid financial markets it has swiftly developed, vital among which is the insurance industry. The 2012 insurance law that overhauled the system for growth and foreign investment anticipated the large demand for coverage from flourishing corporate and individual segments whereby, “…creative risk management becomes indispensable; it is for this reason that Peru has streamlined its insurance system.”


In Peru financial businesses, including insurance, are monitored by the Banking and Insurance Law and related regulations. The Superintendence of Banking and Insurance (SBS) is mandated with regulating financial entities, insurance companies, and pension funds. New legislation is set to improve the tax landscape in the 2015 to 2019 period, reducing corporate income tax and raising the dividend tax rate; further motive for entry. And as EY points out, “Peruvian life insurance companies are exempt from income tax where income is derived from assets linked to technical reserves for payment of retirement, disability and survivor pensions within the private pension fund administration system.” And meanwhile, Peruvians are exempt regarding allowances derived from life or health insurance contracts.

This also holds where income stems from endowment insurance contracts, and for life insurance contracts; these exemptions will likely be in place in perpetuity to foster insurance market maturity.

And at the corporate end of the spectrum—again, to foster investment—Peru has simplified the taxations of premiums payable to foreign insurance and reinsurance entities. Income tax law features a 'presumption of income', where, according to Finance World, “7% of the insurance premium value is deemed to come from a Peruvian source, taxable at 3%, which is applied only to the seven percent of presumed income.”

As SBS Superindent Daniel Schydlowsky explained in a TBY interview, despite the entry of several players in recent years, the market, “…is still not fully formed, and will have become more mature within a year or two. The same is true for micro-insurance.”


Schydlowsky points out, while; “There are 30 million cell phones in Peru […] only 2% of Peruvian people use [them] to do financial transactions.” Taking this to task is Peru's landmark Modelo Peru, a part of the government's social inclusion efforts. The platform stands to ensure that all citizens access the same mobile financial system, regardless of the type of financial institution they turn to


The writing of reinsurance business in Peru is open to by qualified non-admitted reinsurers (NARs), which need not be registered with the SBS, if possessed of the requisite credit rating (BBB - S&P or similar) and minimum net assets of $10 million. Peruvian law thus, does not curb or prohibit the payment by a reinsurer of reinsurance proceeds directly to the original insured party.


As at December 2014, Peru's insurance housed 18 constituent players. Five operate in the general and life branches, six solely in the general branch, and seven exclusively in life insurance. For 4Q2014, premium generation was led by general insurance at 38.6 %, followed SPP (mandatory individual insurance system) on 27.0%, life insurance on 21.6% and accident and sickness insurance on 12.9%.

Peru's insurance penetration rate is approximately 1-2%, and by law certain insurance segments are mandatory (auto insurance for personal injuries, life and health insurance for employees in high-risk activities). One of the least penetrated insurance industries in Latin America, Peru's GPWs are at just 1.6% of GDP, compared to the LATAM average of 2.6%. The sector grew 11.6% for 2014, on GPW of $3.4 billion on annual average growth of 14.6% over the past 5 years. A dissection of GPW conforms to the Latin America pattern of non-life segments (51.5%), life insurance (29.4%) and annuities (19.1%).

In December 2014, sectoral return on equity (ROE) as an average of the previous 12 months was at 18.3%, YoY up from 15.2%. Meanwhile, the return on Assets (ROA) climbed YoY to 2.9% from 2.6%. Administrative management, too, calculated as annualized costs over premiums retained, modestly impressed, declining YoY from 19.6% to 19.4%. The current liquidity ratio, at 1.29x, had slipped YoY from 1.26x. Yet in terms of the system's long-term health, insurance sector solvency ratio had risen from 1.23x to 1.32x between November 2013 and November 2014. Total production of net insurance premiums had reached $3.2 billion in December 2014, nominally up by 12.0 % YoY. The key contributor was growth of general and life insurance premiums, respectively up YoY by 7.0% and 13.7 %. In the general insurance segment, vehicle insurance grew 6.4 % on premiums of $285.8 million. Net premiums posted for general insurance climbed 7.0 % YoY as at December 2014 to $1.2 billion, accounting to 38.6% of total net premiums. And reflecting the real and present risk of natural disaster, earthquake and fire premiums also climbed to $247.8 million and $12.8 million, respectively. Additionally, the industry segments most susceptible to catastrophe (property) are adequately protected, according to official data, having a catastrophic reserve-to-probable maximum loss ratio of 1.73x for the entire industry as of June 2014.

On a more prosaic level, for 2014, coverage against accidents and illnesses rose 6.8%, where most business was generated by health care and mandatory motor insurance (SOAT). Between December 2013 and December 2014, the rate of direct claims declined from 45.9% to 42.6%.


Fitch Ratings Rating maintains a 'Stable' outlook for the Peruvian insurance sector, based in short, on the adequate capital positions and robust profitability in evidence, despite volatile financial income; in short, prudent management. It also voices its confidence in sustained economic performance. Fitch anticipates gross written premium (GWP) growth of 11% to 12% (non-life 9% to 10% and life 12% to 13%) for 2015.

Confirming the concentrated nature of the beast, currently just two providers Rimac and Pacifico account for 55% of total gross premiums written (GPW) and 58% of the market's total net income. Meanwhile, the top four firms hold 78% of GPW. Yet given the convenient legal framework, Fitch foresees a less concentrated industry going forward. Indeed, since 2013, five foreign insurers have entered the market, four of which are Chilean.

And as EY concludes, the wise insurer in the Peruvian market in 2015 will be paying attention to alternative promotional channels, with product design shaped by local realities. And meanwhile, the government, taking the wider view regarding the financial industry, is working to homogenize access to information and product as the average Peruvian's lot improves and the concept of wealth management takes root.