Despite facing economic headwinds, the insurance market in Latin America remains healthy with premium levels close to those last seen in 2019, the credit rating agency “AM Best” said in a report.
With “tighter financial conditions, political polarization, and stubborn inflation,” the report found that the region’s gross domestic product grew 4.0% in 2022, which followed 7.0% growth the previous year.
Latin America has successfully weathered the major external shocks since 2020 caused by COVID-19, the Russia-Ukraine conflict, and the tightening of global financial conditions.
Key issues driving economic conditions for insurance companies in Latin America according to the report include slumping domestic demand due to lower real wages and weak consumer budgets; Higher operating expenses, sluggish sales, and narrow profit margins also took a toll on the companies.
In addition, rising government debt burdens due to pandemic crisis spending has reduced fiscal space and the ability of governments to spend in the future.
Economic activity in Latin America is expected to slow to 1.6%. This percentage is lower than the 2.8% estimate for global economic growth, According to the International Monetary Fund.
The report is divided into three main categories: economic, political, and financial. The report also highlights how country risks are assessed and included in the best ratings.
As part of a country risk assessment, the rating agency identifies various factors within the country that may directly or indirectly affect the insurance company.
As part of the highlights, the report found that premium growth in the region peaked at $203 billion in 2016, and has fallen every year since.
2021 was the exception, when insurance premiums rebounded to $116 billion from $103 billion in 2020, as the market benefited from an economic recovery after a slowdown due to the pandemic.
from 2019 to 2020, premiums fell by about $15 billion. Most Latin American countries experienced a decline, but five saw double-digit contractions: Chile (22.6%), Brazil (20.5%), Suriname (14.9%), Mexico (10.5%) and Colombia (10.2%).
