Insurance premiums and claims payments are on the up in Panama

Most companies in Panama’s insurance sector, which is open to regional and global multinational firms, are composite insurers (i.e., active in both life, health and general insurance). Collectively, they provide a wide variety of products. Total written premiums have been growing at high single-digit rates, while insurance penetration (i.e., premiums as a percentage of GDP) and density (premiums per capita), are well developed by the standards of Central America, but under-developed by the standards of OECD countries.

A Fragmented Market

The weaknesses include the sector’s small absolute size and the fragmentation of both the life/health and the general insurance markets. Few of the players have pricing power – particularly in relation to motor vehicle and fire and allied risk covers. In part because of this reason, and in part because of the shortage of skilled staff, the insurers have not been able to exploit all the opportunities made available by Law 12 of 2012, which liberalised distribution and strengthened the regulator, the Superintendency of Insurance and Reinsurance of Panama (Superintendencia de Seguros y Reaseguros de Panamá, SSRP) (see analysis). For this reason, gross written premiums have been growing broadly in line with GDP over the last two years or so.

However, penetration would have been falling but for the rapid growth of life/health premiums. Lack of capital has prevented the insurers from underwriting risks associated with large-scale infrastructure projects such as the widening of the Panama Canal, the fourth bridge over the canal, the development of the Port of Corozal and the extension of Panama City’s metro system. In the past, some insurers have benefitted from growth in demand for surety bonds from firms whose businesses are associated in some way with the projects. Through 2014, though, sales of surety bonds fell by 7.1% to $109m, according to SSRP data.

Opportunities come from the continuing growth of the economy thanks in part to increased trade in terms of the number of ships passing through the Panama Canal, the level of activity in the Colón Free Zone and the number of aircraft movements at the Tocumen International Airport. There is also, at least in theory, the potential for the insurers to achieve good growth through educating and reaching first-time users of their products. One of the obstacles to this is low profitability, which is due to rising claims costs and high brokerage commissions. The main threat, however, is poor price planning and the fact that players are lowering prices due to a competitive market. Mergers and acquisitions are likely as insurers seek economies of scale.

Market Size

In global terms, Panama ranks as a small and well established national market for insurers. General insurers wrote gross premiums of $791m in 2014 (or 6.2% more than in 2013), while life/health insurers wrote gross premiums of $552m (up 10.8%), according to the SSRP. According to Swiss Re, non-life insurance premiums written in Latin America and the Caribbean in 2013 were $103.44bn, having risen by 7.2%. Life insurance premiums were 12% higher at $80.36bn.

According to the IMF, Panama’s GDP in 2014 amounted to $43.78bn, and the country’s population was 3.93m. This means that total insurance penetration was 3.07% (including 1.81% for general insurance and 1.26% for life/health insurance) and that total density was $342 per capita (including $202 for general insurance and $141 for life insurance). These figures are high in the context of Central America. Elsewhere in the region, penetration varies from a low of 1.2% per capita in Guatemala to 2.2% in El Salvador. However, the figures are low by the standards of OECD member states such as Chile (penetration of 4.2% of GDP and density of $678 per capita), Spain (5.6% and $1591), Portugal (6% and $1716) and the US (11.6% and $5499).

Main Players

According to Panama’s insurance association, Asociación Panameña de Aseguradores (APADEA), the sector includes 30 insurance firms. Some 25 of these are active in all three of the main areas of business identified by the regulator – general insurance, life insurance and surety bonds. Some 13 of the companies also have licences to operate as reinsurers. The 24 members of APADEA accounted for around 97% of all activity in the segment in 2014. Over the course of 2013, the sector paid $92m in taxes. In 2013 the insurers’ investments increased by 8.6% to $1.44bn. Total reserves rose by 4.6% to $720m. The regulator also identifies eight foreign reinsurance companies – Alliance Re, Americana Re, Arsen Re, Barents Re, Mitsui Sumitomo Insurance, Provincial Re Panamá, QBE del Istmo Reinsurance and Delta International. In addition, there are 12 captive insurance companies, and seven captive insurance managers. The insurers employ approximately 3000 people directly. Another 10,000 are employed elsewhere in the insurance sector. Other actors include 2504 individual insurance brokers, 350 insurance broking companies and nine reinsurance brokers. There are also five individuals and 28 companies that are licensed to operate as loss adjusters.

Life/Health Insurance

Both life insurance and health insurance are growing faster than the sector as a whole. In 2014 total individual life insurance premiums rose by 13.9% to $149m. First-year premiums soared by 28.1% to $40m, and renewal premiums increased by 9.5% to $110m. The total number of inforce policies rose by 4.5% to 184,000. Group life premiums were 9.2% higher at $162m, even as the number of in-force group life policies fell by 27.3% to 19,626. Meanwhile, health insurance premiums in 2014 amounted to $222m, or 11.1% more than in 2013. This happened even as the number of in-force policies dropped from 64,461 to 50,309. Personal accident insurance is a minor line for life/health insurers; premiums fell by 2.7% to $18m in 2014. The numbers of policies need to be considered in the context of the size of the economically active population – some 1.7m people.

Tony Eskildsen, president of ERMA Enterprise Risk Management, a consultancy, told OBG the life insurance segment has been shaped by the lack of a savings culture. “Of a total population of just under 4m, there are only 500,000 who enjoy a standard of living that would make them ‘upper middle class’. Therefore, around 40% of these people are covered by life insurance, most of which is credit related with financial institutions. The challenge, and also the opportunity, for the life insurers is to engage with the 60% of these wealthier people who are not currently using life insurance.”

Carlos Berguido, the executive director of APADEA, told OBG that, as is the case in other countries, life insurance is a product that needs to be actively sold to the customer. He noted that many the wealthier Panamanians, who can afford to buy life insurance, tend to prefer US dollar-denominated bank deposits which, over the long-term, have provided acceptable returns. Some have looked for opportunities in real estate. Because the local stock market is small and fairly illiquid, it has generally not played an important role as a conduit for organised savings. Mutual funds and direct investments in foreign stocks are of interest to some of the wealthiest Panamanian investors. Therefore, it appears that there is potential for the insurers to develop the market for life insurance through a process of education. José Joaquín Riesen, the superintendent of Insurance and Reinsurance, has noted that the industry as a whole (i.e., not just in relation to life insurance) needs to teach Panamanians about the benefits of insurance in a country where the total number of in-force policies – at 1,088,168 at the end of 2014 – is about a quarter the number of cellular phones.

Both the life/health and the general insurance markets are fragmented. Across all 32 firms that are active in the life/health segment according to the SSRP, the average premiums written totalled just $17m in 2014. As noted above, life/health insurance accounts for around 40% of the total. Four companies each accounted for between 15% and 17% of life/health premiums written. These include Pan American Life Insurance de Panamá, the local element of New Orleans-based regional life/health insurer Pan-American Life Insurance Group, whose regional footprint covers the Caribbean and nearby countries in Central and South America; Compañía Internacional de Seguros, owned by IS Holding Group; the local element of Spanish multinational giant MAPFRE; and Assa Compañía de Seguros, a part of the Panamanian-based Assa group, whose regional footprint spans Central America.

Only two other companies have shares of the life/health insurance market that exceeds 5%. They are the local operation of Italian multinational Generali and Worldwide Medical Assurance, whose shareholders are investment group Landshut Holding and KfW Bank, a development bank owned by the German government. Three other insurance companies each have market shares of 3-4%: Seguros Banistmo, a subsidiary of the eponymous bank, which is in turn owned by Ban-colombia; Aseguradora Ancón, a part of Venezuelan-based Multinacional de Seguros group; Seguros Suramericana, which is the insurance element of Colombian conglomerate Grupo Sura; and General de Seguros, a part of Panama’s Banco General group. Collectively, the remaining 22 companies accounted for just under 9% of life/health premiums written in 2014.

Private Pensions

There are three elements to Panama’s pensions system. The first includes mandatory public pensions, which are delivered through the Social Security Fund (Caja de Seguro Social) and which cover all workers. There are defined benefit and defined contribution elements to the pensions. The second element includes mandatory occupational pensions delivered through the Savings and Retirement Account System for Public Servants (Sistema de Ahorro y Capitalización de Pensiones de los Servidores Públicos) for all civil servants. The third part includes voluntary occupational pension funds for private sector workers: these funds can be operated by banks, trust companies or insurance companies. Insurance firms are active in this market as providers of savings policies, such as universal life products. Pensions are regulated primarily by the Superintendency of the Securities Market ( Superintendencia del Mercado de Valores).

There are two private sector pension fund managers: Progreso, a subsidiary of Banco Panameño de la Vivienda, and ProFuturo, which is a part of the Banco General group. Each of these companies served around 32,000 clients at the end of April 2015. At that time, Progreso’s assets under management amounted to $165m, while those of ProFuturo amounted to $235m.

General Insurance

Panama’s general insurance market has evolved beyond the provision of basic motor and property lines. Motor insurance accounted for a little under one-third of general insurance premiums in 2014. Fire and allied risks and surety bonds accounted for 16% and 14% of premiums written, respectively, while civil liability covers represented around 9% of premiums written in 2014.

Of the “all others” component, the largest lines that are identified by the regulator included transport (4% of all general insurance premiums), shipping and aviation hull (3%) and robbery (3%).

Many of the insurance companies which are among the 10 largest in the life/health insurance market in terms of premiums are also among the leaders in the larger general insurance market (if at different rankings). Compañía Internacional de Seguros and Assa Compañía de Seguros each accounted for around 16% of general insurance premiums written in 2014.

MAPFRE Panamá was the third-largest insurer by this measure, with a 12% market share. MAPFRE was followed by Aseguradora Ancón, an element of Venezuela’s Multinacional de Seguros group (7%), Seguros Suramericana (6%) and Nacional de Seguros de Panamá y Centroamérica (a part of the local NASE group, which includes Canal Bank – also 6%).

Three companies had market shares of 3-4% in 2014: Seguros Banistmo; Banesco Seguros, whose ultimate shareholder is the Venezuelan financial holding group Banesco; and Aliado Seguros, a subsidiary of the local Banco Aliado. Another 16 companies accounted for the remaining 20% of premiums written. Most of these companies are small local or regional companies, although they include the Panamanian units of global giants AIG and ACE. Across the 26 companies that are active in general insurance, average premiums written in 2014 amounted to $30m. Among the 16 companies which were not among the top 10, the average premiums written during 2014 amounted to just over $10m.

Libralisation of Distribution

As of mid-2015, Panama’s insurance companies are still adjusting to the challenges and opportunities arising from the passage by the National Assembly on April 3, 2012 of the new law (Law 12 of 2012) that regulates the insurance sector in the country. The new law replaced Law 59 of 1996, which had been seen by many key players in the sector as being outdated. One change brought by the new law was an increase in the minimum required capital, from $2m to $5m. A second change was a liberalisation of distribution. Previously, insurance had been sold mainly through tied agents and third-party brokers. The new law makes it possible for insurers to sell directly to clients through the internet and indirectly through non-traditional channels such as supermarkets and pharmacies. The new law should make it easier for insurance companies to distribute products to the significant majority of the population that does not use insurance at all. The law also strengthened the SSRP as an autonomous agency, in part because it has greater powers to deal with consumer complaints.

Micro-Insurance Products

In theory, the new law has provided an environment in which micro-insurance should flourish. The reality is different. One issue, according to Riesen, is the geographical isolation of potential first-time users of insurance. Living in remote parts of Panama, they are not served by insurance agents or brokers. Eskildsen told OBG that, to date, the main players in micro-insurance have been “retail-focused organisations such as banks and telephone companies”. He notes that funeral plans have been popular. According to Eskildsen, a major reason for the slow development of new products in the three years since the introduction of the new law is a shortage of systems and staff for call centres.

Nevertheless, some of the insurers have made progress in reducing their reliance on tied agents and third-party brokers for distribution. As of May 2015, the SSRP notes that Del Istmo is distributing covers for accidental death through mobile devices. Companies that are distributing products via banks include ACE (accidental death covers via Bac International Bank), Seguros Banistmo (life and home/multi-risk covers via the bank of the same name), Multibank Seguros (a wide range of personal lines through bank branches), Optima (a wide range of personal lines through Capital Bank), AIG (international travel insurance through Citibank), Aseguradora Global (life and credit card protection products via the eponymous bank), and Internacional de Seguros (personal accident, domestic fire, individual life and term life products through Credicorp Bank). Internacional de Seguros is also distributing motor insurance through auto repair shops.


Looking forward, APADEA is confident that premiums will continue to grow steadily thanks to the general growth of the economy. Insurers should benefit from the further development of Panama as a regional logistics hub (thanks to further economic growth in the US and many countries in Latin America) and, at the margin, from new infrastructure projects. APADEA is also confident that official measures to boost inwards foreign investment and the establishment of regional offices by multinational corporations will also help. In addition, according to the trade association, efforts by its members to educate consumers will lift the number of first-time users and/or usage of insurance by existing customers, and penetration is likely to rise. APADEA anticipates that the best opportunities will be micro-insurance, health insurance and life insurance. It is also reasonable to expect that some insurers will take steps to develop new distribution channels such as bancassurance, mobile devices or affinity partners (such as auto workshops in relation to motor insurance). Other priorities for the insurers in the coming year or so will include the continuing movement towards International Financial Reporting Standards, and the introduction of the new anti-money laundering and counter financing of terrorism (AML CFT) legislation – a part of official measures to have Panama removed from the grey list of the Financial Action Task Force. The insurers will also be implementing changes in accordance with their obligations under the US Foreign Account Tax Compliance Act (FATCA). Panama was added to the list of jurisdictions that have reached an “agreement of substance” with the US government in relation to FATCA on May 2, 2014.

Nevertheless, a number of challenges remain. Most of these relate to poor and deteriorating profitability in major lines such as motor insurance. Competitive conditions have ensured that premiums have not risen as fast as the costs of repairing cars (see analysis). Other factors have also contributed to a decline in profitability over recent years. The shortage of skilled labour will likely hamper the development of Panama as an offshore insurance hub. In any event, the country will face competition from international reinsurers that are operating out of Miami and which have the advantages of being within the vast US market. An obvious solution is further consolidation within a fragmented market. In February 2015, Sura Panamá announced that it would buy Seguros Banistmo. Other deals will likely follow.

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The Report: Panama 2015

Insurance chapter from The Report: Panama 2015

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