The Latin American reinsurance sector's technical profitability improved, as economic and insured losses from natural catastrophes reduced considerably in 2018, a new report from Fitch Ratings stated.
The rating agency noted that the region experienced catastrophe economic losses just above $5.8 billion in 2018, significantly lower than 2017's record-high losses of $104 billion.
According to Fitch, "these losses were mainly due to three large catastrophe events consisting of an extended drought in Argentina, Hurricane Willa in Mexico and a volcanic eruption in Guatemala, which altogether accounted for insured losses of more than $500 million."
Due to low catastrophe insured losses, Fitch-rated Latin American reinsurers registered an overall improvement in technical profitability of 97.5% by 2018 year-end, down from 103% in the previous year.
However, Fitch highlighted that the reinsurers' investment portfolio performance, global pricing conditions, challenging macroeconomic environments and the periodic occurrence of natural catastrophes will keep affecting the overall profitability.
Moreover, the rating agency pointed to the relatively small size of the Latin American reinsurance market which subjects it to global pricing conditions. Fitch believes competition will remain intense with pricing still not exceeding record highs.
Fitch expects to affirm most of the ratings of the region's reinsurers, except for specific companies that could be downgraded or given negative outlooks due to their deteriorating business profiles.