The insurance industry in Puerto Rico had a compound-annual-growth-rate of 5.8 percent between 2007 and 2011, despite a contracting national economy, according to a report from Timetric, a provider of online data, analysis and advisory services on the financial services industry. However, opportunities for further foreign investment and sustained growth in Puerto Rico are limited, due to the high rate of insurance penetration, according to Timetric’s “The Insurance Industry in Puerto Rico, Key Trends and Opportunities to 2017.”
The growth of the Puerto Rican insurance industry is the result of the government’s health care reforms, the implementation of a Medicare program and compulsory third-party motor insurance, Timetric said. In contrast, Puerto Rico’s annual gross domestic product, at constant prices, fell between 1.9 and 2.3 percent from 2007 to 2011, due to a decline in exports, the global financial crisis, falling investment in construction and declines in government spending.
To boost investor confidence, legislation was enacted in 2011 as part of a collaboration between the government and the office of the Commissioner of Insurance. The law placed a flat 4-percent tax rate for 15 years on all overseas insurers starting business in the 2012 tax year. Companies receive and option to renew the contract for two more 15-year terms.
Puerto Rico’s proximity to Latin America and the United States is another factor contributing to growth, Timetric said, as global insurers are able to underwrite policies directly from both those areas.
High levels of insurance penetration, however, have dissuaded investment from new market entrants. At 11.3 percent, Puerto Rico’s insurance penetration was the highest in Latin America. By comparison, Costa Rica’s is 1.9 percent, Guatemala’s 1.3 percent, the Dominican Republic’s 1.2 percent, and the world average is 6.8 percent, Timetric said. As a result insurers considering ventures into Puerto Rico likely will opt for countries with lower penetration levels.
In a recent PwC survey, CEOs identified Latin America as the region that holds the most business growth potential in 2013.
For more views on the Latin America market, click here.
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