Moody's holds stable outlooks on the insurance industries of four Latin American countries and negative outlooks on two other countries for 2020, the rating agency said in presentation materials.
The countries with stable outlooks — Brazil, Mexico, Peru and Uruguay — account for 65% of the region's $163 million in total premiums, Moody's said. Meanwhile, Argentina and Colombia, both of which have negative outlooks, make up 13% of premiums in the region.
In Brazil, economic recovery will anchor growth in the insurance sector, especially in the automobile segment, Moody's said. However, lower interest rates and concentration on government bonds will constrain investment returns and asset quality, prompting insurers to focus more on underwriting discipline.
For Mexican property and casualty insurers, Moody's expects the economic slowdown to dampen demand for products. Automobile insurers are also exposed to currency volatility and facing a decline in new car sales and a rise in loss frequency due to increased auto theft. On the other hand, insurers' asset quality and solvency will remain stable, the rating agency noted.
Asset quality and regulatory advances support the insurance industries in Peru and Uruguay, although insurers' profitability is more solid in the former, Moody's said.
The negative outlook on Argentina's insurance sector reflects a challenging operating environment, which is expected to weigh on premium growth, according to the rating agency. Underwriting results of P&C insurers will be impacted by high inflation and currency devaluation while profitability will remain anchored on volatile investment returns. A new regulatory framework, however, could somewhat reduce litigation risk for workers' compensation insurers, Moody's said.
Weaker economic growth forecasts in Chile also drive the outlook on the country's insurance industry, which will limit premiums growth, Moody's said.
Latin America lags most developed countries in terms of insurance market penetration, with significant differences in income and wealth among the population limiting growth potential, Moody's added.