Despite its contracting economy, measures taken by the government have spurred growth of Puerto Rico’s insurance industry.
|Government initiatives in Puerto Rico have seen its insurance industry grow by a CAGR of 5.8% between 2007 and 2011, despite its contracting economy.
A high rate of insurance penetration however – standing at 11.3% in 2012, compared to the global average of 6.8% – means opportunities for further foreign investment, and therefore the sustained growth of the insurance market in Puerto Rico, are limited.
Insurance unaffected by negative economic growth thanks to government initiatives
The Puerto Rican economy contracted between 2007 and 2011, with GDP at constant prices falling at annual rates of -1.9%, -2.3%, -2.1% and -2.2%. This has been primarily attributed to a decline in exports, the global financial crisis, falling investment in construction, and a significant decline in government spending. However, its insurance industry weathered this storm admirably, posting a CAGR of 5.8% during the same period. This is in part a consequence of the government’s healthcare reforms, the implementation of a Medicare program, and compulsory third-party motor insurance.
New legislation attracts global investors
A key factor in the Puerto Rican insurance industry’s continued growth is legislation enacted in 2011 as part of a collaboration between the government and the office of the Commissioner of Insurance. This placed a 4% flat tax rate on all overseas insurers starting business in Puerto Rico in the 2012 tax year, and will be given for 15 years, with an additional option to renew the contract for two more 15-year terms. This initiative boosted investors’ confidence, and sparked significant interest in the Puerto Rican insurance market from overseas insurers in 2012.
A gateway to the Latin American and US insurance industries
A further contributing factor to Puerto Rico’s recently expanded insurance sector is its proximity to both Latin America and the US, rendering it an attractive proposition for global insurers to underwrite policies directly from these areas.
High levels of insurance penetration discourage new entrants
Despite its significant recent growth, the high levels of insurance penetration in Puerto Rico damage its investment potential for new market entrants. In 2012, Puerto Rico’s insurance penetration was the highest in Latin America, standing at 11.3%: significantly higher than Costa Rica’s 1.9%, Guatemala’s 1.3%, the Dominican Republic’s 1.2%, and even the world average of 6.8%. Consequently, opportunities are comparatively few, and insurers considering ventures into Puerto Rico are instead likely to opt for other countries in the region with lower penetration levels. As such, despite healthy growth between 2007 and 2011, the growth forecast of the Puerto Rican insurance market to 2017 is limited.