Panama’s insurance sector grew 5.6% in 2015, reaching a value of $1.25 billion, according to the Seguros y Reaseguros de Panamá, or Superintendency of Insurance and Reinsurance, the industry watchdog. The number of policies expanded 9.2% to 1.18 million over the same period. In a recent interview, the Superintendent of Insurance and Reinsurance, Joaquín Riesen, told TBY that the institution expects premium growth of 3-4% in 2016, the slowdown attributable to a “soft“ market for reinsurance as projects become less expensive, such as the new Panama City metro line, the contractors’ all risk (CAR) policy of which cost $3 million compared to $12 million when the first line was constructed. That said, he was keen to point out that when measuring policies alone, growth is more likely to come in at around 9%, painting a rosy picture of the sector in general.
In 2015, insurance premiums taken out by the finance sector grew 50%, followed by auto insurance, which grew 21%, and hull coverage, which grew 18%. Auto insurance was worth $246.5 million at end 2015, up $43 million on 2014, making it the largest insurance line in the country. Growth in this area is driven by Panama’s large new auto market, with 50,000 vehicles sold a year on average. According to the Superintendency of Insurance and Reinsurance, auto represents 14% of total premiums. Other significant sectors include fire, life, and health. Health insurance premiums also went up over 2015, growing by 0.6% to $205.7 million. That said, claims were also up, by 12.9%, threatening profitability. In the overall sector, claims were up 7.5% over the year when compared to 2014.
There are a total of over 30 firms fighting for market share, and the sector is relatively easy to enter with cheaper running costs than Miami, Mexico, or Colombia. On top of that, the watchdog is also working to modify the reinsurance Laws of 63 and 19 of 1996 to provide tax benefits and other perks, such as removing the cap on the number of employees that companies can bring to the country. On the subject of competition, Superintendent Riesen told TBY that the institution is “not targeting to increase the number of players,“ but is focusing more on increasing “the level of quality of the reinsurance market.“ Panama’s long-term goal is to transform itself into a reinsurance hub, based on the reinsurers already in the country.
In the medium term, as the Panama Canal expansion project draws to a close, business is likely to be replaced somewhat by growth in maritime insurance policies, as LPG from the US travels through the waterway to Asia, with extant potential for Panama to “become a hub to transport and create distribution centers for LPG, machinery, and many other goods that can be re-exported to other Latin America and Caribbean countries,“ claimed Riesen. The increased traffic that the expansion will bring—the widening effectively doubles the cargo-carrying capacity of vessels passing through—could bring with it some challenges, however. At the back end of 2014, Allianz Global Corporate & Specialty, in time for the 100th Anniversary of the waterway, published a report titled Panama Canal 100: Shipping Safety and Future Risks, which suggests that the value of insured goods transiting the canal may increase to over $1 billion per day. And that’s no surprise considering the completion of works will boost the number of ships traversing the canal by 4,750 per year, on top of the 12,000 prior. The risk itself comes from the greater risks associated with the increased traffic, which threatens the canal’s improved safety record. In that regard, an accident could prove costly, bringing operations to a halt as salvagers swing into action.
But in terms of infrastructure construction, the buck doesn’t stop with the canal, with a number of other construction projects lending themselves to insurance sector growth—the Cinta Costera, a land reclamation project in Panama City, the extension of the Via Brasil area also in Panama City, bridges, and the Ciudad de la Salud health complex were all highlighted as examples by Emanuel Abadia, Managing Director and Country Head of Marsh Semusa, in an interview with TBY. Abadia is also bullish about prospects in the mining sector, suggesting that, “with the Minera Panamá project, which is going to provide copper for future generations… more insurance is needed.“
The authorities in Panama are reluctant to highlight an overall insurance penetration rate, but that could change over the coming year. The Superintendency is working hard to bring its watchdoggery to international standards, including Solvency II, an EU directive that harmonizes EU insurance regulation. In terms of penetration, mandatory lines tie consumers to the banking system as fire and life insurance are compulsory when taking on a mortgage. In life insurance, Panama sits behind Peru, Venezuela, Chile, and some other Latin American countries. Going forward, the Superintendency is looking to “improve the quality of data we require from the market“ via separating premiums issued in Panama to those issues elsewhere, revealing a true penetration rate. As for the current situation, it “looks like Panama is the third Latin country per capita on insurance penetration, but after next year we will have a clearer, more honest picture,“ concluded Riesen. The authorities are also keen to boost insurance awareness, looking to take advantage of Panama’s hefty middle class. The middle class is the engine of the national economy, and a 2010 census revealed a ratio of 32% of the population, or just over a million citizens, in that social bracket. According to data, the middle class represents 40% of workers at companies providing goods and services and around 15% of the public sector. The middle class have typically been the driver of insurance penetration growth around the world, with more disposable income and a desire to protect hard-earned assets from a multitude of possible eventualities including fire, theft, or worse. Around 126,000 (or 14%) of Panamanian households today are paying a mortgage, or own cars, have personal savings, and even investments, opening up much potential going forward.
Overall, Panama’s insurance industry is sitting pretty, and its stability has been underlined by a Fitch Ratings report from January 2016 that set the outlook for the insurance sector in central America and the Dominican Republic as stable, based on a number of factors including solid sector growth rates in alignment with overall economic growth, as well as solid capitalization and liquidity. A caveat was inserted relating to the possibility of catastrophic natural disasters, as well as the risk of inflation and currency devaluation, although that is less likely to impact Panama due to the dollarized nature of its economy—inflation was just 0.6% in April 2016. There is no reason to doubt the continued growth of the sector with an especially solid expansion in policy making, which will be backed up by construction, high disposable incomes, and the generally high penetration of financial services.