Brazilians are seeking to secure their future
RAPID RISE THE MAJOR LATIN AMERICAN INSURANCE MARKET IS GROWING FAST AS NEW PRODUCTS ARE INTRODUCED. SAO PAULO-BASED BRASILPREV HAS BECOME THE COUNTRY'S SECOND LARGEST INSURANCE INSTITUTION IN JUST SEVEN YEARS

THE INSURANCE sector in Brazil has grown phenomenally in recent years and the market is now worth nearly $5.2 billion in premiums annually. Overall growth this year alone is estimated to be close to 22.5 percent.
The fastest growing segment in 2002 has been life insurance. This year it was equal to 27.9 percent of the premiums in the industry, compared to 17.6 percent last year. This is thanks largely to the launch of the new VGBL (Vida Gerador de Beneficios Livres) pension plans, which are usually sold with an accompanying life insurance policy.

Brazilians are increasingly aware that—as in many other countries—their public social security system is no longer able to assure everyone of a retirement pension commensurate with their standard of living as taxpayers.
Nearly a decade ago, Banco do Brasil recognized the problem and, together with several large institutions, created Brasilprev Seguros e Previdência S.A.. Just seven years later, the São Paulo-based company has become the country’s second-largest insurance institution providing pensions—after the much longer-established Bradesco—and manages funds of more than $1 billion. Revenues at Brasilprev, which has more than 860,000 clients, grew a staggering 67 percent to $345 million last year.

Earlier this year, a Brazilian magazine reported that the three top priorities for the country’s growing middle class are health, education and a private pension. As Brasilprev’s President, Fuad Noman points out, “In just five years a product which almost nobody had heard about has become one of their three most important desires.”
Nevertheless, there is still a long way to go in developing a culture where people plan for their retirement. “Teaching people how to manage their retirement is a big effort, which is being made by the market, the government and us,” says Mr. Noman.

FUAD NOMAN President of BrasilPrev

From next year, life insurance will be tax redeemable, which will encourage even more people to make financial provisions for their future. Mr. Noman expects to see the life insurance market increase even more rapidly as new legislation comes into effect.
Brasilprev offers two essentially similar types of insurance, full income (PGBL) and guaranteed income, for pension provision. PGBL offers an income based on premiums paid into a fund, but carries a risk as funds can go down as well as up in value. Guaranteed income is for those who are not willing to take the risk and prefer a minimum guaranteed pension.

One of the most important factors that has contributed to the rapid growth of Brasilprev is the fact that the retirement pension schemes are marketed through a readymade distribution system—Banco do Brasil’s nationwide branch office network.
Brazil was a pioneer in Latin America in this type of private pension marketing, and now other countries are adopting similar schemes. However, Mr. Noman says, “Private pensions are still not a product which is demanded, they are a product that has to be offered.”

To further encourage the habit of pension provision and saving for the future, Brasilprev introduced Clube Junior for children and teenagers, who will benefit from Brasilprev’s Junior Pension Plan. This is a form of saving, usually with a parent paying the premium, which will provide a sum to help to pay for further education, for example. “It makes young people aware of the importance of the private security concept,” says Mr. Noman.
A second major factor in the expansion of Brasilprev is the fact that one of its major shareholders is the Principal Financial Group, one of the leading private pension, insurance and financial services companies in the United States, founded in 1879. Principal brought new technology to Brasilprev.

“This technology was transferred very fast, and today it is a very positive partnership for both of us. It was very good for Brasilprev to enter the market with U.S. high technology and to be seen in the U.S. market as a partner of the company,” says Mr. Noman. “It was also good for Principal, in that they entered the market in second position and with the strong brand presence of Banco do Brasil.”
Horácio Cata Preta, Executive Director of Federação Nacional das Empresas de Seguros Privados e de Capitalização (Fenaseg), the national insurance companies federation, says providing for retirement is still a relatively new concept in Brazil.

“Before 1995, Brazilians didn’t buy insurance because they didn’t have the money,” he says. “Saving was a risk for them as their money lost value overnight. The best thing to do at the time was to spend money as quickly as possible, or invest it in a new car or house. Since inflation was finally brought under control in 1996, Brazilians have discovered they do have a savings capability.”