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Insurance Industry And Country Risk Assessment: Brazil Health

Insurance Industry And Country Risk Assessment: Brazil Health


S&P Global Ratings assesses the industry and country risk of Brazil's (BB-/Stable/B) health insurance sector as moderately high, the same assessment as South Africa's health sector.

Country Risk: Moderately High

Brazil's country risk reflects the challenging political and economic scenario in the country, in light of its sluggish economic prospects and the longstanding challenges of advancing difficult structural fiscal measures.

Although the market reacted positively after the election of Jair Bolsonaro last year, the first semester of 2019 has highlighted how the new administration has struggled to pass controversial pieces of legislation in a fragmented Congress in order to correct structural fiscal slippage and an increasing debt burden, as well as to bolster economic growth. The recent approval of the basic text of pension reform has been the first step in Brazil regaining business optimism and reverting the current weakening expectation of economic growth.

In terms of business conditions, all Brazil's insurance industries have suffered to different degrees because of the recession that hit the country in the past few years. Although prospects have improved, they've been weaker than anticipated and uncertainty about the timing and degree of improvement remains. Despite still high unemployment rates in Brazil and stagnation of the number of beneficiaries in the health sector, the segment has been able to continue growing premiums and improving its profitability metrics.

Table 1

Brazil Sovereign Risk Indicators -- Economic Data
% 2015 2016 2017 2018 2019F 2020F
GDP (3.6) (3.3) 1.1 1.0 1.0 2.2
CPI 9.0 8.7 3.4 3.7 4.0 4.0
Unemployment 8.5 11.5 12.7 12.3 11.5 10.3
Policy rate 14.3 14.0 7.6 6.5 6.0 6.0

Industry Risk: Moderately High

Our view of the health insurance sector considers the segment's satisfactory profitability metrics, supported by its positive growth prospects and the sector's characteristics that sustain the current competitive dynamic. Still, we also believe that the sector's profitability could face potential volatility due to the high product risk in this segment, and a regulatory framework that still needs to implement more sophisticated processes. Nonetheless, we expect profitability metrics to remain stable over the next few years, with return on equity (ROE) averaging 11% and the combined ratio slightly improving to 96% in the next three years.

Chart 1


Factors supporting profitability
  • Despite the contracting number of affiliates and sluggish economic prospects, the sector has been able to continue growing its premiums, although more slowly than before. The sector grew 10% on average in the past two years, and we expect the sector's growth to remain relatively stable at about 9% over the next three years, which should continue supporting profitability.
  • In our view, the competitive dynamic of the sector is somewhat unattractive for new entrants. We believe that the large number of insurers, about 700 entities, make the sector highly competitive. The number of entities operating in the market have been decreasing consistently over the last few years. We don't believe the sector has low barriers to entry that encourage new entrants that could disrupt the current competitive dynamics.

Chart 2


Factors limiting profitability
  • Health insurance companies are very susceptible to judicial decisions regarding the payment of claims, and the judicial systems tend to be more biased to benefit policyholders, which brings additional unpredictability to the industry. In addition, there is regulation over pricing of individual insurance policies: the regulator must authorize prices increases at pre-established maximum levels, making price adjustments less flexible for health insurers. Those policies represent about 20% of affiliates, and a relevant portion of premiums.
  • At the same time, we believe ANS (National Regulatory Agency for Private Health Insurance and Plans), the health insurance regulator in Brazil, could implement more sophisticated supervision processes compared to other regulators in Latin America. ANS is still developing rules for financial quality and solvency and we believe more timely and meaningful information about the sector could be available to increase transparency. In addition, the regulator is more biased to maintain insurance service for the population, rather than the solvency of the regulated entities, which has resulted in many of them continuing to operate despite serious financial problems.

Related Criteria

  • Insurers Rating Methodology, July 1, 2019
  • Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

Related Research

  • Insurance Industry And Country Risk Assessments Under Our Revised Criteria, July 5, 2019

This report does not constitute a rating action.

Primary Credit Analyst:Mariana Gomes, CFA, Sao Paulo (55)-11-3039-9728;
Secondary Contact:Pedro Breviglieri, Sao Paulo +55 (11) 3039-9725;

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