Latin America as a whole has seen average insurance premium growth in the double-digits since 2012, well above the rate recorded in most other regions and outpacing regional economic growth. Even against this backdrop, Peru’s performance stands out, with net insurance premium growth of 15% in 2013, compared to 8% and 11% in Colombia and Mexico, respectively. Gross premiums to GDP, however, which stood at 1.5% at the end of 2012, demonstrate the weak penetration of Peru’s market, at half the regional average of 3%. Following the passage of significant domestic regulatory reforms in 2012, Peru’s insurance industry now faces the challenge of modernising its practices in preparation for the Solvency II standards, while also coming up with novel ways to engage first-time customers in what remains a severely underpenetrated market.


As of September 2014, Peru’s insurance sector comprised 18 companies. ACE, Cardif, Interseguro, Rimac and Protecta were operating in general and life insurance; Pacífico Seguros, La Positiva, MAPFRE Perú, SECREX, InSur and Magallanes were active only in general insurance; while El Pacífico Vida, Seguros SURA, La Positiva Vida, MAPFRE Perú Vida, Rigel, Vida Cámara and Ohio National sold only life insurance products. The largest company is Rimac, with 32.4% of total net premiums as of September 2014, followed by Pací- fico Seguros, with 12.5% market share, and El Pacífico Vida, at 11%. The most recent entrants to the sector are Vida Cámara and Magallanes, which both secured authorisation to start operating in April 2014, and Ohio National, which gained authorisation in June 2014.

Market Concentration

Although Peru’s insurance market is concentrated in the hands of a few large firms, Mario Ventura, CEO of Seguros SURA, told OBG that “this impression of overall market concentration is not replicated across all product lines. For example, the emphasis of companies such as SURA and Interseguro, which have particular strengths in annuities, differs from that of firms that are stronger in general insurance, such as MAPFRE”, thus making side-by-side comparison of individual companies’ financial results potentially misleading, due to the variation in operating costs associated with different insurance products.

Movers & Shakers

In September 2014 financial services group Credicorp announced it would merge the healthcare operations of its subsidiary Pacífico Seguros with Banmédica, a Chilean health insurer that operates two clinics in Peru, giving rise to a group with combined annual revenues of $620m. This move reflects the growing trend of vertical integration of health insurers and hospital operators in recent years. Despite the market’s potential, relatively few foreign insurers have entered Peru and sought to challenge the dominance of established players. Ventura explained to OBG that high barriers to entry meant that foreign companies with operations in Peru tended to be niche players.

Product Mix

General insurance accounted for 38% of premiums as of September 2014; pension insurance for 27.2%; life insurance for 21.8%; and accident and illness for the remaining 13%. These figures have remained relatively constant, with life insurance having slightly increased its market share from 19.6% in September 2011, primarily at the expense of pensions. New insurance premiums reached PEN7.44bn ($2.66bn) in September 2014, a 12.1% year-on-year (y-o-y) increase, driven principally by growth in premiums for general insurance, life insurance and pensions, which increased by 9.9%, 14.4% and 16.5%, respectively.

Accident and disability insurance has proven particularly challenging for Peruvian insurers in recent years. Ventura told OBG that pressure from the regulator to reduce premiums in this area has coincided with a rise in wages, thereby increasing payouts – a recipe for unprofitability. Some insurers have mitigated losses through reinsurance; however, as this is not sustainable, Ventura predicts that a correction in the pricing of accident and disability insurance policies is on the horizon.

Non-Life Insurance

Within the general insurance area, earthquake insurance premiums saw the greatest y-o-y growth as of September 2014, rising 16.6% from PEN441.7m ($157.7m) to PEN515.1m ($183.9m). Meanwhile, categories such as fire protection and automobiles grew by PEN56m ($20m) and PEN54m ($19.3m) y-o-y, respectively, while aviation and fire and allied lines insurance saw PEN15.1m ($5.4m) and PEN6.6m ($2.4m) drops in premium sales, respectively. Accident and illness premiums grew by 6% y-o-y from PEN915.7m ($326.9m) to PEN970.8m ($346.6m) in September 2014, led by a PEN28.5m ($10.2m) rise in premiums for third-party automobile insurance and PEN22.6m ($8.1m) growth in medical assistance premiums.

Key Indicators

The sector’s liquidity as seen through the ratio of current assets to current liabilities fell y-oy from 1.27 to 1.22 by September 2014. Nevertheless, its attractiveness from an investment standpoint is illustrated by 19.3% average return on equity as of September 2014, up from 14.8% the previous year.

The overall claims ratio fell from 45.4% to 42.9% yo-y in September 2014, while the general insurance claims ratio dropped from 41.7% to 36.5%, driven by fewer claims for the breakdown of machinery, which were down 85.5 percentage points. Meanwhile, the accident and illness insurance claims ratio rose from 54.8% to 56.2% on 2.8% and 1.5% increases in medical assistance and personal accident claims, respectively.


As of August 2014, the industry had amassed PEN4.08bn ($1.46bn) in capital, a 19% y-o-y increase. Required capital was up 12.9% over the period at PEN3.19bn ($1.14bn). Together these figures produced a modest increase in the sector’s solvency, as seen through the uptick in the capital-to-required-capital ratio, which rose from 1.22 to 1.28.

Peru’s insurance regulator, the Superintendence of Banking, Insurance and Pension Funds ( Superintendencia de Banca, Seguros y Administradora de Fondos de Pensiones, SBS), is encouraging insurance companies to work towards compliance with the Solvency II international standards. With a similar three-pillar structure to the Basel II requirements for banks – comprising quantitative requirements, supervisory review and market discipline – Solvency II additionally requires insurers to disclose their capital and risk frameworks and demonstrate how they are implementing the requirements in their broader activities.

Although some companies have complained about the additional reporting burden, the industry ultimately stands to benefit from potentially reduced capital requirements, enhanced risk management systems and improved internal controls. “Insurance companies that comply with Solvency II will gain a competitive advantage over those that do not,” Ventura told OBG. While less demanding than the Mexican regulator’s approach, which set a 2015 deadline for firms to comply, the Peruvian regulator’s efforts to prepare companies for the new standards nevertheless represent a significant step forward for the insurance industry.

Growth Opportunities

Bancassurance, which typically accounts for up to 25% of sales in more developed markets, remains an underdeveloped sub-sector with strong potential in Peru. The agent-based sales model is also less prevalent than elsewhere, as Peru relies more on direct sales and brokers, but could play a greater role in the future, while also providing more opportunities for entrepreneurial individuals to set up their own insurance sales agencies.

Insurance companies have arguably been too focused on Lima to date, at the expense of other regions. “By making more of an effort to understand the businesses, needs and customs of rural people, we will be more successful in designing products that these people understand and find attractive, thereby uncovering new sources of growth,” Ventura told OBG. One challenge for insurers is that, unlike banks, there is a lack of branches in rural areas, making the development of alternative distribution channels all the more critical.

Data also suggests that economic growth will offer insurers further opportunities to extend services to additional segments of the population. For example, 24% and 26% of those in the lower-income D and E socioeconomic categories, respectively, view insurance primarily in connection with the Peruvian government’s public health insurance service. Meanwhile, only 9% of people in category D and 8% in category E associate insurance with a form of protection against loss, in contrast to 23% and 21% of consumers in upper- and middle-income categories A/B and C, respectively, who view it as a loss-protection product. This suggests that as those in category D and E become wealthier, they may be more receptive to new insurance products.

Penetration Rates

Despite sustained economic growth and falling poverty levels, insurance penetration rates have remained low in many Latin American countries, particularly for life insurance. As Juan Carlos Puyó, country president at ACE Seguros, told OBG, “The Peruvian market presents important growth potential in the future as the insurance penetration rate ( premiums/GDP) still remains very low. Despite continued economic growth and reduced poverty levels, other countries in the region like Chile and Colombia have insurance penetration rates that are much higher.”

The issue in Peru is partly a cultural one, which will take time to overcome. “Given that we have some way to go to foster more of a banking culture in Peru, imagine how much we still have left to do to develop an insurance culture,” Ventura told OBG. An ongoing challenge is the reluctance of Peruvian consumers to adopt insurance products aside from mandatory ones, such as car insurance. This requires the insurance industry to build greater awareness of products and gain customers’ trust. Compared to more developed insurance markets in North America and Europe, the degree of collaboration amongst insurance providers in this respect remains much more limited in Peru, according to EY.

Public Perception

Indeed, EY highlights “a pronounced lack of insurance product awareness and questions over the perceived value [of insurance products] among potential customers” as critical issues hindering the development of the country’s insurance market. This is reflected in polling data showing that 53% of Peruvians feel that insurance premiums are excessive for the benefits that they receive.

In a 2013 study on public perceptions and awareness of insurance, the SBS found that 54% of those surveyed had purchased an insurance product at some point, either for themselves or someone else; however, when asked which type of product they had purchased, 64% indicated social security. The next most popular product was life insurance, at 25%, followed by third-party vehicle insurance, with 15%.

Trust Issues

The same survey revealed a mixture of public confusion and distrust towards the role of insurance providers. While 75% believed insurance could help them deal with economic losses in the event of an accident, at the same time 66% said they would prefer to deal with the consequences of such a situation on their own rather than having to pay for insurance. This is partly explained by the 50% of respondents who said they found policy conditions difficult to understand, and the 43% who felt that even insurance company employees did not understand how insurance actually works.

Perhaps surprisingly, cost is generally not the most important factor for customers choosing an insurance policy. Rather, the risks covered and the policy conditions were cited as the overriding considerations when buying insurance by 29% and 28% of those surveyed, respectively. Indeed, cost was the most important factor for only 15% of respondents, narrowly bypassing the perceived prestige of the company, at 14%.

Human Capital

One common challenge facing the industry is the development and up-skilling of its people. For instance, there is no actuarial college in Peru at present. Consequently insurance companies must look to other sectors, such as the banking industry, to fill skills gaps in their organisations, while relying on international reinsurance companies to provide more advanced training to staff. The Peruvian insurance industry is by no means alone in the region in suffering from a shortage of talent. EY found that both analytical and underwriting skills were in short supply across Latin America. “A key factor in the hunt for underwriting talent is the opening of the reinsurance market less than a decade ago, which fostered profound changes in how insurers underwrite business,” EY notes. This has led to rising costs, as insurers increasingly find themselves competing with brokers for qualified candidates.

Systems Overhaul

Insurers face similar pressures over hiring the necessary technology talent to modernise their operations. As new solvency regulations force the industry to consider wide use of advanced risk and capital management systems, the implementation of new IT and data management systems will become unavoidable. EY notes that “effective analytic capabilities in market segmentation and predictive modelling are critical to gaining digital success”, projecting that future successful insurance companies will be “highly digital, intensely focused on the customer and pursuing an enterprise-wide analytics approach that takes into account strategic, operational and cultural factors.” However, a lack of customer profile information is a major challenge for insurers in Peru, hampering their ability to employ more advanced ratemaking and customer persistency modelling.


While the industry continues to develop its analytical capabilities, one area of concern is a general lack of pricing discipline, with some companies pursuing growth at all costs – even sometimes willing to incur heavy losses to gain market share. Despite consumer reports that cost is not the primary factor influencing buyers, price has become a key battleground in the industry, particularly in the absence of other differentiating factors like customer service quality. Although this helps to dispel the accusations of lack of competitiveness in the industry, it is unsustainable in the medium term and stifles investment in the long run.


“Our time to market as an industry is terrible,” said Ventura. “No insurance company is presently able to introduce new products quickly enough, so this is a structural change that the industry will need to undergo. Fundamentally, the insurance industry should be capable of innovating much in the same way that the banks do in order to respond to customers’ needs.” Puyó attributes the lack of innovation to the highly concentrated nature of the industry. “A market clearly dominated by four companies has led to an industry that has not changed its strategy in the past decade or more,” he explained to OBG.

“The insurance industry needs to go through the kind of overhaul in its culture and practices that Peruvian banks underwent 15 years ago,” Ventura told OBG. The banks, he argues, now operate at a higher level when it comes to the technology they employ, their approach to risk management and capital allocation, and their acceptance of external scrutiny of their activities.


Peru’s insurance sector is particularly underdeveloped with respect to the use of electronic distribution channels. Changing systems and attitudes to e-commerce requires cultural adaptation. Nevertheless, Ventura expects these changes will happen “sooner rather than later.” He believes that the enthusiastic uptake of mobile technology, driven by Latin America’s relatively young demographics, will force an accelerated shift to electronic distribution channels for products and services more generally, including insurance. This in turn will bring pressure to bear on firms that remain dependent on old, inefficient practices, such as reliance on broker distribution networks.

Innovation requires a change in the way people in the industry think – more outside-the-box thinkers are needed, in addition to people with experience in sales and marketing techniques, such as cross-selling, which have been developed in the banking industry but remain uncommon in insurance. Siloisation of teams in insurance companies is another practice that holds back product development innovation.

Regulatory Burden

The government has an important role to play in encouraging innovation, with insurance companies saying they need to be granted the necessary regulatory freedom to invest in technology and operations. “The sector needs more flexible regulations that allow more players with different products to apply new strategies and create more of an insurance culture,” Puyó told OBG. Ventura identifies client confidentiality regulation reform as one area where the regulator could take action to lighten the bureaucratic burden without putting customers at risk. He also suggests that the relevant SBS section could learn from its banking counterpart, which has benefitted over the years from hiring a mix of capable people with both public and – crucially – private sector experience.

Stronger partnerships between the public sector and the industry more generally will also help improve the workings of the sector. “Insurers need to share data capabilities and interact with governments through trade associations to achieve positive regulatory change while obstructing more burdensome regulations,” noted EY. “A vibrant insurance marketplace with robust risk protection for growing consumer and business economies requires stronger industry and government and private and public partnerships.”

Pension Funds

Private pension fund administrators (Administradoras de Fondos de Pensiones, AFPs) have seen perhaps the greatest changes in regulation since 2012, the year when Peru introduced a type of auction system among AFPs, whereby the company that bids to charge its customers the lowest commission rates wins, entitling that company to receive all new business for the following two years. The last auction of this kind took place in December 2012 and was won by AFP Habitat, a new Chilean entrant to the market. The next auction is due in December 2014.

As of October 2014, the pension fund market consisted of four providers: Prima, owned by financial services group Credicorp; Integra, controlled by Colombia’s Grupo SURA; Profuturo, Scotiabank’s local AFP; and AFP Habitat. In the year to September 2014, the four AFPs saw their combined net profits rise by 43% y-o-y to PEN314m ($112.1m). Prima accounted for 37% of these profits, with PEN116.2m ($41.5m), followed by Integra and Profuturo with 37.6% and 29.3%, respectively. AFP Habitat posted a loss of PEN12.2m ($4.4m).


The regulator has sought to drive down costs for customers by attracting new entrants to the market; however, as Aldo Ferrini, deputy CEO at AFP Integra, told OBG, “It is unlikely that a fifth company will enter the market soon, as this is a business where scale is important. Setting up operations and building a brand implies significant costs.” If a new player were interested in entering the market, there would be a strong rationale for joining forces with AFP Habitat, which would keep the number of providers at four. Indeed, when AFP Habitat entered the market in 2012, there briefly were five before Horizonte was acquired by Profuturo and Integra. As things stand, Ferrini believes four is a reasonable number of providers given the size of the market. “We already have a healthy level of competition in our sector today, with customers being offered a range of services at different prices,” Ferrini told OBG. One supposed advantage of the auction system, Ferrini noted, is that it effectively eliminates providers’ customer acquisition costs.

Pension Participation

As with the rest of the market, finding ways to increase penetration is a challenge that the AFPs and the regulator face with regard to pensions. “In order to bring people into the pension system, they first need to become part of the regular labour market. Therefore reducing informality in the labour force is critical to increasing pension coverage,” Ferrini told OBG. Self-employed workers were required to make pension contributions as of August 2014; however, given the practical difficulties of forcing self-employed people to make pension deductions from their own salary, Ferrini argues that government measures such as tax incentives or contribution-matching schemes would be a more effective way of widening coverage for this important segment of the population.

Investment Choices

The introduction of new rules in 2014 was another significant regulatory development, allowing AFPs to invest a greater proportion of assets abroad, to purchase derivatives and to invest in new asset classes, such as private equity. Ferrini told OBG the ability to purchase derivatives will enable pension funds to hedge risks more cheaply. “For example, when we expected interest rates to rise in 2013, in order to protect ourselves we had to reduce our position in bonds. However, purchasing a derivative would have been a more efficient way to hedge this interest rate risk, which the new rules will allow,” explained Ferrini.


EY projects that double-digit growth will continue in insurance in the region through 2014, propelled by small businesses and the modernisation of mature industries and infrastructure – both of which drive demand for insurance. The sector’s broader economic significance will persist, with insurance companies collectively constituting the second-largest institutional investor in Peru with approximately $9bn in assets under management, behind pension funds.

As the industry becomes increasingly sophisticated, both in its approach to capital management and in terms of analytical capabilities, greater non-price competition will emerge. Firms that benefit from new capital adequacy compliance and successfully modernise their operations will be best placed to pursue the Peruvian market’s considerable untapped opportunities.