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Moody's keeps stable outlook on Mexican insurance sector

Moody's on Sept. 2 said it maintains a stable outlook on Mexico's insurance industry despite its revision of the sovereign's outlook to negative last June.

Mexico's outlook has limited implications for local insurers in general, Moody's said, adding that its action on the sovereign will not likely dampen insurers' credit profiles. Local insurers exhibit strong premium revenue, solid liquidity as well as stable capitalization, the agency noted.

However, extended weakness in the demand for insurance products could knock insurers' profitability, given the possibility of increased competition and pressure on pricing and acquisition costs.

The effect of an economic slowdown varies for each insurance segment, with adverse conditions weighing more on the automobile business segment, Moody's said. The auto segment accounts for 20% of industry premiums, but the rating agency expects it to underperform in 2019 before slightly recovering next year.

Moody's also expects continued decline in the growth of the surety segment, which is highly sensitive to changes in government spending.

Although the accident and health insurance segment could face higher losses and repricing due to currency depreciation hitting medical costs, revenue will remain stable as the segment is linked to more essential needs, Moody's said. Meanwhile, life insurance will not have significant exposure to the weak economy as it is heavily concentrated among high-end clients, the rating agency added.

Moody's said it could revise its outlook on the Mexican insurance industry to positive if there is a material improvement in the country's government bond rating or its operating environment. On the other hand, a negative outlook could emerge if economic growth declines, leading to an extended period of weak profitability or a significant deterioration in the sovereign rating or operating environment.