Lifting The Cover


Economic stability has allowed Colombia to shore up its financial markets including insurance. In January 2014 rating agency Fitch maintained its stable outlook for the Colombian insurance market for 2014 […]

Economic stability has allowed Colombia to shore up its financial markets including insurance. In January 2014 rating agency Fitch maintained its stable outlook for the Colombian insurance market for 2014 anticipating no rating change, ceteris paribus. An encouraging economy—2014 forecast GDP growth of 4.4%—and adequate liquidity and capital levels, as well as solid operating performance, underpinned its decision. The agency forecasts successful adaptation to the regulatory initiatives toward best international practices on solvency. The insurance sector has leverage and liquidity ratios in line with the regional average. And since 2012, insurance premiums have on average seen double-digit growth, which has been the case for Latin America overall. In 2014, Colombian insurance companies are required to adapt to potential rises in reserve requirements, and face the implementation of international accounting standards due to take effect in 2015.

In 2013 Colombia saw total premium growth of 8%, according to Ernst & Young (EY) data. For 2014, Fitch forecasts industry growth of between 12% and 14% fueled by the auto, social security, and life segments. It also foresees the government’s ongoing infrastructure commitments supporting surety bond and third party liability performance. Fitch also noted, “…an improvement on its (Colombia’s) combined ratio because of a downward trend in the loss ratio and better operational cost absorption.”

The performance of Colombia’s insurance sector—the sixth largest in Latin America, accounting for 2.6% of GDP (2.2% in 2010)—is determined by factors that include natural events (flooding in 4Q2010 saw insurers haemorrhage $600 million), demographics, and largely by economic performance. Close to 30% of the population of 42 million is aged below 15 year, hence a growing pool of potential conversions. EY’s 2013 Latin America insurance outlook states that 6.3% of the population is over 65 years, with a further 10 million in the pension system soon to be eligible. AM Best forecasts total premiums of $11.1 billion by 2016. A rising middle class and lower unemployment, plus easier access to credit, and rising FDI levels, at $15 billion in 2012, up from $13 billion YoY also fuel the momentum. Agriculture accounts for 5.1% of Colombia’s GDP, and the government has subsidized agricultural insurance to raise the rural penetration rate.

The insurance sector overall generates around $7.5 billion annually, the bulk, at over $5 billion, stemming from non-life premiums. Chubb de Colombia Compañí­a de Seguros S.A has been in Colombia for over 40 years, and is the oldest operation in Latin America. President Manuel Francisco Obregón Trillos told TBY that, “The opportunity for sector growth in Colombia is such that for each 1% growth in GDP the sector can grow by 3 to 5% depending on the type of coverage.”

A key sector engine is the individual segment, at close to 50% of total premiums, with half again derived from social security, catering to around 8 million Colombian workers. Health reform also stands to spur insurance take-up over the coming years. Five lines account for over 60% of total premiums, including auto, group life, professional risk, retirement, and health insurance. The insurance sector’s combined ratio, at a high 111% at end-2011, indicated curbed underwriting profitability. The non-life insurance sector’s combined ratio of 101% had dropped to 61.9% a year later according to OECD data.


A key moment for Colombia’s insurance universe came on July 15, 2013 when Article 101 of Law No. 1328 of 2009 liberalized the market. Accordingly, citizens became free to purchase insurance coverage abroad with the exception of, among others, social security-related or compulsory insurance products. State entities, too, are ineligible. Moreover, foreign insurance companies may establish branches in Colombia, with equal rights and obligations to their Colombian counterparts. The reform was a prudent means of spreading risk given the domestic sector’s limited scope to do so independently.

Lloyds of London, an international byword for insurance, is considering entry into Colombia through a franchise. In June 2013 its Colombia Insurance Day showcased the market’s post-liberalization potential. Lloyd’s also signed a memorandum of understanding with the Colombian Insurers Association and British and Colombian Chamber of Commerce to boost information exchange. According to its event presentation, free competition and pricing, “…implied the adoption of a Solvency I regime, with capital requirements depending on technical risks.” Subsequently, during 2010, its insurance market regulatory environment was tightened in terms of solvency and investment regimes, as additional capital requirements were introduced to mitigate against credit risk.


Colombia still has a substantial informal economy of over 50%, with an estimated 59% of workers in Bogotá alone below the radar, which denies the capital markets and broader economy precious liquidity. Industry watchdog, the Financial Superintendency of Colombia (SFC), therefore, is determined to tap further into those citizens on the radar screen with the potential to take out policies. Therefore, in a further bid to the spread sector risk and inculcate financial instrument awareness in June of 2014 the SFC urged local pension fund administrators (AFPs) to galvanize their promotional activities. Specifically, the agency—a technical organ within the finance and public credit ministry that comprehensively regulates financial, insurance, and pension services—urged the promotion of the multi-fund pension system that bears a mixed portfolio of risk. Currently, most Colombian AFPs and clients favor moderate risk funds. The watchdog particularly urged a targeting of citizens younger than 34 years, who comprise close to 80% of Colombia’s 11.8 million pension holders, and who therefore, given financial knowledge, represent a vast pool of untapped potential for high-risk policies. As of February 2014 just 43,500 individuals, or 0.4% of total pension holders, had opted for them. In 2014 Euromoney voted the SFC the most innovative regulatory body in Latin America.


According to SFC data the top-five performers in general insurance for the January to April 2014 period accounted for 46% of total premiums generated. First was Suramericana de Seguros, the property and casualty (P&C) subsidiary of local financial holding Sura, with a 13.7% stake, at $221 million. State-entity Seguros del Estado was second on an 8.5% share, closely followed by the Colombian division of Spanish insurer Mapfre on 8.37%. Fourth and fifth were Liberty Seguros, a unit of US insurer Liberty Mutual on 7.81% of premiums, and the Colombian arm of German insurer Allianz on 7.67%. SFC data puts total premiums in the P&C segment for the period at $1.6 billion on a 5.38% YoY hike.


As a vehicle for national growth an alternative channel for foreign investment, Colombia’s 29-player fiduciary sector has become the fourth largest in Latin America. SFC data as of September 2013 puts Colombian trustee companies’ assets at $144 billion as of September 2013. Fiduciaria Bancolombia, on a 17% stake, managed $24 billion of that sum. As Vice-President, of the Strategic Unit of Trustee Business, Juan David Correa Solorzano, told TBY, “These numbers show that, overall, confidence in the Colombian society and the trustee culture is increasing thanks to the efforts of many companies in the industry, as well as the government, which is one of the most active users of the products and services of our business.”