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Fitch: Mexican insurers to endure economic, political shifts

Mexican insurers are strong enough to weather possible challenges that could come with the government shift following the recent presidential election as well as changes in the country's general macroeconomic conditions, Fitch Ratings said.

Although the impact of these developments is still unknown, Fitch expects the country's insurers to be supported by the sector's expected moderate growth and sufficient capital and reserves. Fitch added that economic and potential political risks will be manageable even for institutions that will be most affected by these risks.

A major downside for Mexican insurers is the liquidity risk from policy cancellations and potential savings withdrawals, which could hit premium growth and reserve levels. However, Fitch said that the sector's growth trends are within its expectations for the first half of 2018.

Meanwhile, the incoming government's plan to significantly reduce its costs could lead to canceled life and health insurance for senior government executives, which would have a large negative impact on insurers. However, Fitch does not expect changes to the ratings or outlooks of its rated entities if ever the plan is implemented, given that it would also reduce additional benefits like separation individual insurance.

Fitch expects insurance penetration in Mexico will further develop innovation and customization of insurance products, which should aid in expanding industry coverage for the country's population. The rating agency also noted the efficacy of Mexico's regulatory risk-based framework in addressing past market downturns.

Insurers' ratings will remain anchored by moderate growth, stable capital and reserves, Fitch said, although it noted that profitability will continue to be squeezed by claims linked to the natural disasters in 2017 and a rise in auto thefts.