Download Brazil - A.M. Best

AMB Country Risk Report
August 24, 2016
Our Insight, Your Advantage.
Country Risk Tier
CRT-4
Brazil
• The Country Risk Tier (CRT) reflects A.M. Best’s assessment of three
categories of risk: Economic, Political and Financial System Risk.
• Brazil, a CRT-4 country, is the largest economy in Latin America and
home to the largest insurance market in the region. The country
has moderate levels of economic and financial system risk and high
levels of political risk.
Very
High
Very
High
Very
High
High
High
High
Moderate
Moderate
Moderate
Low
Low
Low
• Gross domestic product (GDP) is expected to contract -3.8% in 2016
and again slightly in 2017 before returning to growth of 1.0% in
2018. Corruption, continued political uncertainty, lower commodity
prices and on-going social unrest will all drag on economic growth
near-term.
• Regional growth will rely, in part, upon U.S. and European growth rates
as well as domestic demand growth and improved economic policies.
As various factors will affect each country differently, the economic
expansion process will not be homogenous within the group.
Mexico
Bahamas
Dominican
Republic
Cuba
Puerto
Rico
Haiti
Cayman Islands
Belize
Jamaica
British
Virgin Anguilla
Islands
St. Maarten
St Kitts & Nevis
Honduras
Very
Low
Very
Low
Very
Low
Guatemala
El Salvador
St Vincent & the Grenadines
Curacao
Grenada
Costa Rica
Panama
Political
Risk
Financial
System
Risk
Cape Verde
St Lucia
Barbados
Trinidad & Tobago
Venezuela
Guyana
Colombia
Economic
Risk
Antigua & Barbuda
Dominica
Nicaragua
Suriname
French
Guiana
Ecuador
Peru
Brazil
Bolivia
Country Risk Tier 5 (CRT-5)
Very High Level of Country Risk
Country Risk Tier 4 (CRT-4)
High Level of Country Risk
Chile
Paraguay
Argentina
Uruguay
Country Risk Tier 3 (CRT-3)
Moderate Level of Country Risk
Country Risk Tier 2 (CRT-2)
Low Level of Country Risk
Country Risk Tier 1 (CRT-1)
Very Low Level of Country Risk
Falkland Islands
South Georgia
Tierra Del Fuego
Copyright © 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.
AMB Country Risk Report
Brazil
Regional Summary: Latin America
Vital Statistics 2015
Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Literacy Rate
Urbanization
Dependency Ratio
Life Expectancy
Median Age
USD bn
mil
USD
%
%
%
%
%
Years
Years
1772.59
204.5
8,670
-3.8
9.0
92.6
85.7
44.7
73.5
31.1
Insurance Statistics
Superintendencia de Seguros
Privados
Insurance Regulator
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2014 - 2015)
USD mil
USD mil
%
37,106
31,986
2.2
Regional Comparison
Country Risk Tier
CRT-4
CRT-5
CRT-2
CRT-4
CRT-3
CRT-5
Brazil
Argentina
Chile
Colombia
Mexico
Venezuela
• Economic growth is expected to remain
subdued over the medium term, particularly
for countries that are commodity exporters
and those countries that are experiencing
weak investment.
• Macroeconomic challenges affecting the
region include a slowdown in external
demand, exchange rate volatility, currency
depreciation, high levels of inflation, rising
income inequality, tightening financial
conditions and the need to address structural
problems in order to raise investment and
jobs creation.
• The weak economic outlook for commodity
exporters is exacerbating ongoing political
tensions for some countries in the region
including Brazil and Venezuela.
• Several countries (i.e. Mexico and Peru) have
been able to mitigate the economic downturn
by implementing credible fiscal and
monetary policies. External shocks to these
economies have been somewhat reduced by
countercyclical policies.
• Consumer and business confidence remains
subdued in the region due to slowing
economic growth and political uncertainties.
Improved transparency and reduced levels of
corruption could boost growth long-term.
Source: IMF, World Bank, Swiss Re, Axco and A.M. Best
Economic Risk: Moderate
Economic Growth
• Lower commodity prices, political
uncertainty and rising debt levels has put the
economy in its worst recession for decades.
Consumer and business sentiment is weak
and as a result, foreign direct investment has
decreased and consumer spending is down.
10
Real GDP
CPI Inflation
8
6
4
%
2
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-2
-4
2020
2021
• Current levels of inflation are above the
Central Bank of Brazil’s official target of 4.5%.
In the beginning of 2016, inflation hit over
10%. In order to contain inflation, the central
bank raised its policy rate to 14.25%. The high
interest rate is adversely impacting growth.
• Due to economic and political challenges,
Brazil lost its sovereign investment grade
rating in 2015 and 2016.
-6
Source: IMF World Economic Outlook and A.M. Best
2
AMB Country Risk Report
Brazil
Political Risk Summary
Political Risk: High
Score 1 (best) to 5 (worst)
Brazil
World Average
• Presidential power was transferred to Vice
President Michel Temer after the Senate
approved formally opening impeachment
procedures against President Rousseff.
International Transactions
Policy
5
4
Legal System
Monetary Policy
• If Rousseff is impeached, Temer will take
over the remainder of Rousseff’s term
to October 2018. If the Senate does not
impeach her, she will continue with her
presidency.
3
2
1
Regional Stability
Fiscal Policy
0
Social Stability
• Temer’s government has proposed an
amendment to the constitution that
would limit the growth of government’s
expenditures to the previous year’s rate of
inflation. Government debt has increased
dramatically and fiscal consolidation
efforts are needed to stabilize government
accounts and improve investor confidence.
Business Environment
Government Stability
Labor Flexibility
Source: A.M. Best
• The on-going corruption scandals have
caused great political uncertainty and
policy paralysis. Reform measures that
are needed will be difficult to pass in the
current political environment.
• Social unrest and protests have increased
due to the economic and political climate.
There is also an increase in the terror threat.
Financial System Risk: Moderate
GDP Per Capita and Population
for Selected Countries
250
16,000
GDP Per Capita
Population
14,000
• The insurance industry is subject to
supervision and regulation by the National
Council for Private Insurance (CNSP), and
its executive arm, the Superintendency of
Private Insurance (SUSEP).
200
12,000
150
Millions
USD
10,000
8,000
100
6,000
4,000
50
2,000
0
Brazil
Argentina
Chile
Colombia
Mexico
Venezuela
Source: IMF and A.M. Best
3
0
• Brazil has the largest insurance market in
Latin America and has more than twice as
many premiums written as the next largest
market, Mexico.
• Financial vulnerabilities for the banking
sector have increased due to the economic
recession, currency depreciation and a
further tightening of financial conditions.
• The financial sector is exposed to the effects
of volatility in international markets for capital
and commodities. However, progress has
been made to regulation and supervision.
AMB Country Risk Report
Brazil
GUIDE TO BEST’S COUnTry rISk TIErS
A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims-paying ability of an insurer. Country risk is
evaluated and factored into all Best’s Credit Ratings. Countries are placed into one of five tiers, ranging from “CRT-1” (Country Risk Tier 1), denoting
a stable environment with the least amount of risk, to “CRT-5” (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest
challenge to an insurer’s financial stability, strength and performance.
A.M. Best’s Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.
Country risk Tiers
Country risk Tier
Definition
CRT-1
Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.
CRT-2
Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.
CRT-3
Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.
CRT-4
Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.
CRT-5
Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.
Country risk reports
A.M. Best Country Risk Reports are designed to provide a brief, high-level explanation of some of the key factors that determine a country’s Country
Risk Tier assignment. It is not intended to summarize A.M. Best’s opinion on any particular insurance market or the prospects for that market.
Categories of risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are (1) Very Low; (2) Low; (3) Moderate; (4) High
and (5) Very High.
Category of risk
Definition
Economic Risk
The likelihood that fundamental weaknesses in a country’s economy will cause adverse developments for an insurer.
A.M. Best’s assessment of economic risk evaluates the state of the domestic economy, government finances and
international transactions, as well as prospects for growth and stability.
Political Risk
The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity
of the legal system and of the business infrastructure, the efficiency of the government bureaucracy, and the
appropriateness and effectiveness of the government’s economic policies.
Financial System Risk
Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial
volatility may erupt due to inadequate reporting standards, weak banking system or asset markets, and/or poor
regulatory structure. In addition, it includes an evaluation of whether the insurance industry’s level of development and
public awareness, transparent and effective regulation and reporting standards, and sophisticated regulatory body will
contribute to a volatile financial system and compromise the ability of an insurer to pay claims.
Political risk Summary
To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of one to five with one being the least
amount of risk and five being the highest amount of risk.
Category
Definition
International Transactions
Policy
Measures the effectiveness of the exchange rate regime and currency management.
Monetary Policy
Measures the ability of a country to effectively implement monetary policy.
Fiscal Policy
Measures the ability of a country to effectively implement fiscal policy.
Business Environment
Measures the overall quality of the business environment and ease of doing business.
Labor Flexibility
Measures the flexibility of the labor market, including the company’s ability to hire and fire employees.
Government Stability
Measures the degree of stability in a government.
Social Stability
Measures the degree of social stability, including human development and political rights.
Regional Stability
Measures the degree of stability in the region.
Legal System
Measures the transparency and level of corruption in the legal system.
Country risk Tier Disclosure
A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Best’s Credit Rating Methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor does it address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.
Version 091714
Copyright © 2016 by A.M. Best Company, Inc.
Copyright © 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.
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