Brazilian HealthCare & Reinsurance Markets August, 2012

1. Brazilian HealthCare & Reinsurance Markets August, 2012

2. Introduction • 2010, Brazilian Private Health Care premium - US$ 48 b • Largest health care market Latin America’s & – 6th in the world ranking • Health Care is the second most desired product for the growing middle class • BTG Pactual project a CAGR (Compund Annual Growth Rate) between 9% to 12%

3. HeathCare is a heavily regulated market by government agency (ANS – AgênciaNacional de SaúdeSuplementar) • ANS defines minimum coverage, plan rules, general policies, transfer of plan members rights between Health Care plans • Brazilian regulation prohibits lifetime annual aggregate limits. Also Individual policyholders and senior citizens rights are protected

4. Quick overview • 23% of the population (46 million people) have private Health Care insurance • There are more than 1 thousand providers but 37 companies have 50% of market share. Corprate plans dominate. Health Care market growing, but still concentrated (in 000’s). Source: ANS Corporate Health Care plans reached 75% of total market in 2009Source: ANS, 2010

5. Capital Markets • Health Care companies have impressive growth compared with the local stock market (Ibovespa) index Health Care companies and Ibovespa. Source: Bloomberg and BTG.

6. Employment • There’s a 93% correlation between formal job creation with Health Care plan membership Formal jobs: a key factor to growth in HC plan membersSource: Caged and BTG Pactual. .

7. Socio-Economic driver • Growth of middle class consumers Emerging middle class consumersSource: Raymond James

8. Demography • Aditional 2% contribution on CAGR Health Care premium in real terms • The over 60s represents 10% of the population. This group is projected to rise 14% by 2020 • Improvement of life expectancy from 73 to 81 years by 2050 Increasing share of elderly people in total populationSource: IBGE Brazilian population growth expectationSource: Raymond James

9. Market is not saturated • Percentage of population with Health Care coverage: • Brazil – 23% • Mexico – 60% • US – 77% • Potential growth in the interior Distribution per Brazilian region. Source: ANS, 2010.

10. Underreserved in comparison with international standards • Simplistic technical pricing models and undocumented underwriting standards • Large players has preferential discounts with Health Care providers • “Vertically integrated” Health Care plans suffer from lacks of maintenance investment and professional management. • ANS stifles creativity in product development and limits cost-reduction by minimum coverages • High costs in Brazil

11. Final thoughts • Brazil presents opportunities greatly outweigh the challenges • Investment Opportunities include: • Health Care Providers, Health Insurance Companies, HMOs and specialized dental companies • Distribution Channels • Service Providers • Pharmaceuticals • Hospitals

12. Reinsurance Market Overview

13. History • 1939, the Brazilian Reinsurance market was closed to direct access by international reinsurers. • Instituto de Resseguros do Brasil (IRB Re) was established • Officially reopened in April 2008 • Now home to 87 multinational reinsurers including the State Reinsurer, Instituto de Resseguros do Brasil (IRB Re).

14. Market Volume and Potential • 2009 reinsurance market US$2.1b • Total ‘insurance’ market of US$29.7b • 3 P&C projects at least US$2.5b (next 6 years) • World Cup 2014, US$29m, • Olympics 2016 US$324m, • “Growth Acceleration Program” R$2 billion

15. Quick facts • 87 reinsurers authorized by SUSEP • 33 Reinsurance brokers • IRB still has almost 25% market share. By far the most profitable

16. Who’s here

17. Market Share

18. Show me the $

19. What’s the attraction • Part of booming BRIC • Mature market; all lines of business • 8th largest economy . Ranked 18th in terms of insurance • Low risk of earthquakes and hurricanes • Lots of potential to innovate • The guy to beat is still the state reinsurer. • The entire health market is up for grabs • Potential to earn very high rates of investment return. Interest rates are 8% percent

20. Main Challenges Brazil is not really an open market. It is kind of like a three-ring circus Brazilian government keeps changing its mind regarding the regulation of reinsurers. Low level of Brazilian underwriting standards and the scarcity of claims data. Brazil is a very expensive place to do business

21. Main Challenges Brazil is not really an open market. It is kind of like a three-ring circus Brazilian government keeps changing its mind regarding the regulation of reinsurers. Low level of Brazilian underwriting standards and the scarcity of claims data. Brazil is a very expensive place to do business

22. Final thoughts • Need to consider Capital injection as investment and not cost of capital • Lobby Lobby Lobby the government • Offer Actuarial analyses (reserving, pricing, capital models) in exchange for claims data • Recruit local ‘technical’ talent • Get to know your clients’ underwriter

23. Ronald Poon Affat FSA FIA CFA MAAA ronald.poon@tempoassist.com.br

24. Ronald Poon Affat FSA FIA CFA MAAA ronald.poon@tempoassist.com.br