Insurance in the frontier markets conomic deeloment ˆhe ma“or ‘ndean economies are ˆhe near†term economic outook is mixed… refectin the ‘ndean countries’ diverse outacin their reiona eers‡ economic oicy frameworks… oitica cimates and macroeconomic fundamentas‡ ‘ four countries rey heaviy on commodity exorts and are exosed to the current o a commodity rice down†cyce‡ £owever… Œoom ia and ƒeru have sound oicy frameworks in ace… fexi e exchane rates… and sta e infows of forein direct investment and soid currency reserves to finance the current account deficit… that wi he cushion the imact of softer commodity rices‡ ˆheir economies are ro“ected to exand y ¡‡0 and ¡‡¡… resectivey… in 2016… sower than the annua averaes of the ast decade ut we a ove the reiona averae 0‡’„‡ ‰oivia and Ecuador… y contrast… have ess oicy fexi iity as a consešuence of the hih of eve state invovement in the economy and fixed exchane rates‡ —urthermore… fu Ecuador„ and eevated ‰oivia„ doariŠation renders their exorts ess cometitive in a stron ¥Ž doar environment… and increases their vunera iity to externa financia shocks‡ Insurance market outlook Insurance rowth has een ro ust… ƒremiums written in the ‘ndean reion totaed ¥Ž‚ 1™ iion in 2014… of which ut enetration remains ow‡ two†thirds came from Œoom ia‡ ˆhis amounts to ony ’ of remium voumes in ›atin ‘merica overa… in which ‰raŠi and ˜exico dominate‡ £owever… the ‘ndean insurance markets — with the excetion of ‰oivia — have recorded some of the fastest rowth rates in the ast decade… toether averain ‡ er year in rea terms… comared to ¢‡¢ for ›atin ‘merica‡ ˆhere have aso een sinificant strides in deeenin insurance enetration… a eit off very ow ases‡ ƒenetration rates… however… remain reativey ow… ranin from 1‡4 of €‚ƒ in ‰oivia to 2‡™ in Œoom ia… comared with ¡‡4 in ‰raŠi and 4‡2 in Œhie‡ ˆhe common rowth constraints for the ‘ndean markets have een: ̤ ow income eves… eseciay in rura areas° ̤ reativey hih market concentrations… refectin the oiooistic dominance of are financia conomerates such as Œoom ia’s €ruo Emresaria ‘ntiošueno Žuramericana„ and ƒeru’s ‰reca €rou ‹imac„ and Œredicor E ƒacifico„° ̤ a recent history of state monooies and rotectionism… incudin a rohi ition on forein investment in Œ‘N mem er countries unti 1’¢° and ̤ recent eriods of macroeconomic and oitica insta iity… incudin hyerinfation and interna conficts in Œoom ia and ƒeru‡ ˆhe usiness environment is more ƒeru and Œoom ia have made etter roress overcomin these constraints than favoura e in ƒeru and Œoom ia than ‰oivia and Ecuador… mainy y undertakin i eraiŠin structura and institutiona in ‰oivia and Ecuador‡ reforms in the 1’’0s and eary 2000s‡ ˆhe reuatory and oeratin environments in these markets have imroved considera y and have encouraed forein insurers to increase their articiation‡ —or exame… the market share of forein insurers in Œoom ia increased from ¡4 in 200¡ to 41 in 2014‡ In contrast… forein articiation in the ‰oivian market has racticay disaeared and the usiness environment in Ecuador has rown more chaenin with the worsenin economic cimate and steady encroachment of the state into the oca re/insurance markets‡ ˆhe u ic sector is a ma“or uyer of insurance in Ecuador… and the two state†owned insurers Žucre and ‹ocafuerte„ have first riht of refusa on a overnment insurance transactions‡ Žince this rue was imemented in 200’… the two insurers have rown their market share to 16 from ™‡ 16 Swiss Re sigma No 2/2016
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