Boston, MA -- (SBWIRE) -- 05/13/2013 -- Key Insights and Key Risks

As of early 2013, it appears that some of the structural weaknesses of Argentina's insurance sector are being addressed. In particular, both major segments appear to be at the early stages of consolidation - as various companies strengthen their positions across Latin America as a whole. Many of the positive trends that are visible in other markets across the region are evident in Argentina. However, the overall business environment, and the history of financial instability, are major constraints on the development of life insurance.

At first glance, the newsflow from Argentina's insurance sector through late 2012 looks good. There has been strong growth in premiums in both the non-life and the life segments. Several companies have highlighted that their Argentine businesses are contributing meaningfully to the development of their regional operations. Some players have confirmed that profitability has been improving. Unlike in other parts of the world in 2011, or Chile in 2010, there have not been major catastrophe losses. In the non-life segment, Australia's QBE has emerged as a major player in early 2012. QBE bought HSBC La Buenos Aires Seguros from HSBC and has entered into a 10-year bancassurance deal with the latter's bank in Argentina. Meanwhile, many of the leading local groups continue to benefit from their associations with government-backed financial institutions, from the support of policy-holders who see their own interests as being closely aligned with mutual insurers, and/or strong brand names.

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Nevertheless, we continue to highlight the structural weaknesses of Argentina's insurance sector. Both of the main segments are under-developed by most metrics. In particular, Argentina's long history of financial instability means that households tend to be reluctant to use life insurance which, by definition, requires a long-term contract between the client and the underwriter of the risk. As we explain, life density rose very strongly over the year to June 30, 2012: however, we believe that it is premature to suggest that the life companies have built (potential) customers' trust in the product.

The competitive landscape is fragmented: many of the largest local groups lack scale in anything other than a purely Argentine context. In past reports, we have suggested that multinational companies with operations in Argentina face barriers to exit. In view of the QBE/HSBC deal (and others) we would describe this aspect differently: multinationals can exit the Argentine market, but most easily if they have a business that another multinational wants to buy and/or can assist with distribution. Meanwhile, regulatory changes and policy shifts in the insurance sector - as in the broader financial services industry - are often motivated by politics rather than economic rationalism.

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