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Economic Headwinds Will Limit Latin American Insurers' Growth Prospects And Profitability This Year


Although most major Latin American economies rebounded to their pre-pandemic GDP levels in mid-2021 or will do so by early 2022, high inflation and a weak labor market will keep risks for insurers in the region elevated this year. We believe downside risks to economic growth in Latin America will be high in 2022, stemming from tighter monetary policy amid persistently higher inflation, high unemployment, the removal of fiscal stimulus in most countries in the region, low policy predictability, less supportive global trade dynamics, and numerous election cycles that will likely keep investment subdued. Considering these factors, we expect real GDP aggregate growth for the six largest economies in Latin America to be about 2.0% in 2022--after the large rebound in 2021 of about 6.6%. After 2022, we forecast real GDP growth to return to its historically low levels (about 2.5%) due to structurally low productivity.

Given the strong link between economic growth and insurers' business and operating conditions, we expect Latin American insurers will navigate choppy waters in the next two years. In our opinion, insurers will remain supported by their healthy balance sheets, sound capitalization, and adequate liquidity. Maintaining prudent underwriting standards and strict cost containment measures should somewhat cushion them from pressure on profitability. A key challenge will be adjusting pricing strategies to release pressure on technical results while retaining customers and accessing new ones. We also expect insurers in the region to keep conservative investment policies in place to offset the negative effects of potentially high financial market volatility. In addition to the conservative stance that Latin American insurers have generally taken, we believe that lessons the insurers learned while operating during times of economic stress--with significant fluctuations in market conditions and foreign exchange rates--have allowed the insurance sectors in the region to remain resilient during the pandemic.

Insurers In The Region Have Limited Growth Prospects

In our view, the increased awareness of health and well-being following the pandemic that could support premium growth prospects--in particular for life and health--in Latin America will be overshadowed by the combination of slow economic growth, consistently high inflation, still weak labor market dynamics, and subdued investment in the region. We forecast gross premium written (GPW) in the region to grow 4%-6% in 2022-2023 in nominal terms, so we expect limited progress in terms of growing access to insurance, measured as GPW to GDP. Before the arrival of the pandemic, the small to midsize enterprises (SMEs) sector was becoming more attractive for insurers as part of their growth and risk diversification strategies. However, the pandemic severely hit Latin American SMEs, turning off this growth engine for insurers.

Chart 1


The recent rapid spread of the omicron variant highlights the inherent uncertainties of the pandemic as well as the importance and benefits of vaccines. While the risk of new, more severe variants displacing omicron and evading existing immunity cannot be ruled out, our current base case assumes that existing vaccines can continue to provide significant protection against severe illness. Furthermore, many governments, businesses, and households around the world are tailoring policies to limit the adverse economic impact of recurring COVID-19 waves. Consequently, we do not expect a repeat of the sharp global economic contraction of second-quarter 2020. Meanwhile, we continue to assess how well each issuer adapts to new waves in its geography or industry.

Outlooks Are Stabilizing, But Insurers' Creditworthiness Is Weaker Than Pre-Pandemic

The arrival of COVID-19 in Latin America, along with preexisting economic weaknesses, darkened the outlook for insurers there. At the peak of the crisis, about 70% of our global scale financial strength ratings (FSRs) on these entities had negative outlooks, and in some cases, the negative outlooks materialized in downgrades. Currently, about 60% of our global scale FSRs in the region have stable outlooks, but Latin American insurers' creditworthiness has weakened compared to pre-pandemic levels.

Chart 2


Chart 3


Most of our negative rating actions on insurers in the region since the pandemic began--whether they were downgrades or outlook revisions to negative--were triggered by the deterioration in the credit quality of some sovereigns in Latin America, where these insurers operate (see chart 4 below). More than 90% of our global scale FSRs on Latin American insurers are at--or above--the ratings on their respective sovereigns and, in our view, insurance companies in the region--which have significant exposure to the countries where they are domiciled--are affected by many of the same economic factors that cause sovereign stress. Therefore, we rarely rate financial institutions (including insurance companies) above their respective long-term foreign currency sovereign rating because, during sovereign stress, the latter's regulatory and supervisory powers may restrict a financial system's flexibility. However, we can rate entities that comply with our ratings above the sovereign criteria above their respective sovereign ratings. This is the case for several of our rated insurers in Latin America:

  • Cardif Colombia Seguros Generales S.A. (FSR local currency: BBB-/Stable/--);
  • AIG Seguros Mexico S.A. de C.V. (FSR local currency: A-/Stable/--);
  • AXA Seguros S.A. de C.V. (FSR local currency: A-/Negative/--);
  • ChubbSeguros Mexico S.A. (FSR local currency: BBB+/Negative/--);
  • SOMPO Seguros Mexico S.A. de C.V. (FSR local currency: A-/Negative/--);
  • Tokio Marine Compania de Seguros S.A. de C.V. (FSR local currency: A+/Stable/--); and
  • MetLife Seguros S.A. (FSR local currency: BBB+/Stable/--).

In our view, the sluggish economic recovery in Latin America could continue damaging sovereigns' credit quality, leading to further downgrades and potential negative rating actions, particularly on Mexican insurers.


As illustrated in the chart above, about 40% of our global scale FSRs on Latin American insurers have negative outlooks. This group is mostly composed of insurers domiciled in Mexico (foreign currency: BBB/Negative/A-2; local currency: BBB+/Negative/A-2). In our view, a potential downgrade of Mexico in the next 12 months could result from a weaker fiscal profile associated with contingent liabilities related to the magnitude of potential extraordinary support for state-owned companies Petróleos Mexicanos and Comisión Federal de Electricidad, in the context of a comparatively low non-oil tax base and fewer fiscal buffers. This would result in a similar action on our ratings on Mexican insurers that we cap by the sovereign rating. Similarly, if we revised the outlook on Mexico to stable, we would do the same on the outlooks on Mexican insurers with FSRs constrained by the sovereign.

Amid The Pandemic, Some Insurers Suffered, While Others Had Outstanding Performances

During the first year of the COVID-19 pandemic, nonlife insurance products--mainly auto, accident, and health--benefited from low levels of mobility and people deferring medical treatments to avoid COVID-19 infections in hospitals. This reflected in significantly lower claims in 2020 and higher awareness in the population about the importance of being insured. On the other hand, the pandemic severely hurt life insurers--COVID-19 is one of the most expensive catastrophic events in the history in Latin America--in particular those entities concentrated in group life businesses (which have lower margins) rather than individual lines, due to higher mortality rates and low interest rates pressuring investment income. Entities less exposed to life products were able to effectively navigate the pandemic challenges, with growth in nonlife products in the first year of the pandemic.

However, although Latin America's economy started recovering in 2021, business and operating conditions remained complicated for the entire insurance sector, even for those players that had outstanding performances in 2020 due to unusually low claims and higher awareness of insurance protection. Despite the progress in vaccination programs, the pandemic continued increasing mortality rates and weakening life insurers' technical results. In addition, people's mobility recovered, and as a result, nonlife claims rebounded to pre-pandemic levels, putting additional pressure on insurers' technical results. In our opinion, in 2022, Latin American insurers' profitability will remain stressed. However, we expect the insurance sector will keep leaning on its sound capitalization and will maintain conservative underwriting strategies. Reinsurance will keep providing flexibility to Latin American insurers' capital management, but will also squeeze margins because pricing continues to harden.

Considering the key risks that Latin American insurers will face in 2022 (summarized in table 1), we think that insurers with good business and risk diversification, conservative underwriting and investing practices, adequate pricing strategies, and prudent capitalization management will be in a better position than their peers to maneuver through the challenging economic and operating conditions. In addition, the COVID-19 pandemic has accelerated Latin American insurers' business growth strategies using digital solutions, and we believe these tools are here to stay and will support Latin American insurers' future growth. Considering that, companies that lag their competitors in terms of digital solutions will see their growth stagnate and their profitability under more pressure because of less flexible expenses. We expect that the group of Latin American insurers that's had outstanding performance during the pandemic so far will keep shrinking this year amid the challenging outlook.


ESG Factors Are Generally Neutral For Insurers In The Region

Environmental, social, and governance (ESG) factors are becoming more relevant in Latin American insurers' strategies, operations, and risk management policies. In our view, the significant presence of subsidiaries owned by foreign groups--which adopt their parents' risk management and governance policies--together with evolving local regulations are raising awareness of such risks in the Latin American insurance sector. (See "ESG Credit Indicator Report Card: North And Latin America Insurance," published on Nov. 29, 2021.)

In our opinion, environmental and social credit factors are neutral (2) for the credit quality of all rated insurers in the region (compared to 87.4% and 97.6%, respectively, of insurers globally), while governance factors are neutral for 96.4% of these entities (92.7% of insurers globally).

The limited physical risk exposure among our rated insurers in Latin America, along with the relatively high share of government securities and limited exposure to assets subject to climate transition risks in their investment portfolios, result in a neutral impact on ratings. Social risks affecting insurers in the region don't differ from those in other areas of the world and are neutral to our ratings on Latin American insurers. In our view, the low access to insurance in the region could bring opportunities to the insurance sector to close the gap in protection needs and income inequality.

As mentioned above, many Latin American insurers are subsidiaries of foreign groups. These entities inherit risk management--including underwriting and investment policies--and governance practices from their parent companies. Therefore, governance risks are somewhat limited for our rated insurers in this region. Even those subsidiaries of foreign groups operating in jurisdictions with a very high country risk--where the potential for significant institutional or political risks could result in lower standards for risk management and oversight and in transparency and reporting weaknesses--have been able to keep an adequate balance between risk and profitability.

Looking forward, we'll keep analyzing how Latin American insurers adapt and prepare to mitigate relevant ESG risks that could have profound influence on their business fundamentals. In recognition of the threat climate change poses to individuals, businesses, and communities--and therefore their operating performance--we expect insurers in the region to keep developing their ability to monitor, measure, and analyze the potential financial impact of ESG factors.

2022 Forecasts For The Insurance Sector Around The Region

Moderate premium growth and increasing claims will weigh on Mexican insurers' profits

After the severe economic contraction in 2020 in Mexico (8.5%), GDP expanded about 5.0% in 2021. For 2022, we think that supply chain disruptions and the weak investment outlook--partly due to government policies that have undermined investment incentives in key sectors such as energy--will slow the economic recovery. However, the country will continue to benefit from a strong U.S. recovery, which is resulting in record-high remittances. This, in our view, will keep supporting consumer demand in 2022. Considering the strong link between economic dynamics and demand for insurance products, we expect the Mexican insurance market's nominal growth to be about 5%-6% in the next two years, in nominal terms. In our opinion, nonlife products--including accidents and health--will mainly drive growth during this time frame.

The COVID-19 pandemic is the most expensive catastrophic event in Mexico of all time. In 2022, we expect high mortality rates (related to the pandemic) and recovering mobility to keep insurance claims high. A key factor will be the large number of claims (related to COVID-19) that have occurred but haven't yet been reported to insurers, which could potentially increase outstanding claims. Therefore, technical results will remain under pressure this year, although we expect the sector to maintain good capitalization. Mexican insurers' investment portfolios are highly exposed to government securities, so in our view, rising interest rates in the country will support investment income and would mitigate pressure on technical results.

Rising interests should benefit Brazilian insurers, but volatile economic scenario could hurt profitability

We forecast Brazilian insurers' profitability to recover in 2022 after weaker-than-usual earnings in 2021. We also predict that GPW will grow at 5%-6% in 2022, but that slow GDP growth this year and the fluid economic scenario in Brazil are risks to the sector's profitability. On the other hand, rising interest rates could mitigate the effects of these risks.

After profitability was weaker than usual last year for life insurers in Brazil, we expect return on equity (ROE) will rebound to above 30% in 2022. The peak of mortality rates from COVID-19 in Brazil last year resulted in an unusually high amount of life insurance claims. However, the rate of deaths related to COVID-19 is much lower now as vaccination programs have advanced, and claims in the sector have returned to normal levels. However, new COVID-19 variants and the recent increase in infections are still risks.

We forecast the property/casualty (P/C) sector's profitability to be about 16% in 2022. Last year, profits in the P/C sector were lower than usual due to low interest rates and a combined ratio that was higher than in 2020 and 2019. However, double-digit growth in GPW mitigated those impacts, and we expect ROE for 2022 to be higher than last year as interest rates increase. However, we consider that the volatile economic conditions in Brazil could hurt the sector's profitability. Brazilian health insurance players' earnings for 2021 were hit by higher medical loss ratios due to the COVID-19 pandemic. We believe that the health sector's profitability will recover this year following rising interest rates and as the medical loss ratio returns to pre-pandemic levels. However, along with the fluid economic situation, high unemployment and low GDP growth could also curb profits.

Economic recovery in Colombia is boosting insurance premiums growth and earnings should rebound in 2022-2023

In 2022-2024, we expect Colombia's GDP to grow at an average of 3.3% annually. We estimate GPW grew about 15% in 2021 following the economic recovery and the end of lockdowns. Particularly, auto insurance, which makes up 41% of the industry's premiums, has been recovering rapidly thanks to a resumption in car sales. In addition, local regulatory initiatives in place--including the introduction of agricultural insurance--will boost growth in the P/C sector in the next few years. In addition, life and health premiums income growth is rebounding, driven primarily by a recovery of underwriting of life and workers compensation policies, thanks to a gradual rebound in the domestic economy and employment. In addition, we believe public health care shortages, along with shifts in insurance consumer preferences due to the pandemic, will generate growth opportunities for the life and health sectors.

We expect the P/C industry's underwriting results to remain weak in the next few years, with a combined ratio still above 102%. We estimate that the ratio increased to about 105% last year, as the accident rate started to rise following the removal of lockdowns. Moreover, violent social unrest following the government's tax reform proposals in 2021, which resulted in physical damage and theft in several cities, pressured claims in the industry. We expect the combined ratio to stabilize at close to 103% this year. On the other hand, we project the life and health industry's ROE to reach double digits in 2022 as premium growth speeds up and mortality rates and investment returns stabilize.

Argentina's very high country risk reflects the stressed economy and difficult business conditions

Significant macroeconomic distortions and inconsistencies in the past two decades have led to economic volatility and a material decline in living standards in Argentina. We expect that real GDP grew 7.5% in 2021, following a contraction of almost 10.0% in 2020, and we forecast subpar growth this year amid ongoing economic imbalances and weaknesses.

Access to P/C insurance in Argentina remains low, measured as P/C GPW to GDP. We estimate it to be about 2.5% and expect this ratio to stay the same in the next 12 months. We estimate that insurance companies' premiums will be flat in real terms in 2022, focusing on retaining customers and collecting premiums, given the challenging economic scenario. Since June 2020 (fiscal year-end), insurance companies have presented their financial statements adjusted to inflation, distorting comparable metrics because previous financial statements were in nominal terms. Technical results improved, with a combined ratio below 100%, due to an accounting effect, given that the inflation adjustments are considered in the financial results. In addition, due to the pandemic-related lockdowns in 2020, insurance claims and administrative costs were constrained, but we expect they will increase as the economy reopens. As of June 2021 (fiscal year-end), the sector's ROE reached 4% and combined ratio was 88%, in real terms, while in June 2020, ROE was 18% and the combined ratio 99%.

In addition, Argentina's P/C sector is subject to considerable product risk because of high inflation, volatile exchange rate policy in the past two decades, and following the exchange rate controls re-imposed by the government in September 2019, leading to today's multiple exchange rates with progressively tighter controls on foreign-exchange transactions. All of these factors cause uncertainties in both pricing and reserves. For the next 12-24 months, we estimate the country's P/C sector to post real ROE of 4.5%-6.0% and a combined ratio of 100%.

Appendix: Rating Scores Snapshot For Latin American Insurers

(Please click on the "View Expanded Table" link on Capital IQ to view the full Table 1.)

Table 1  |  View Expanded Table

Rating Score Snapshots For Latin American Insurers
Company Group status Business risk profile Competitive position Financial risk profile Capital and earnings Risk exposure Funding structure Governance Liquidity Financial Strength Rating (FSR)
Global Scale National Scale

AIG Seguros Mexico S.A. de C.V.

Strategically Important Satisfactory Satisfactory Strong Strong Moderately Low Neutral Neutral Exceptional A-/Stable/-- mxAAA/Stable/--

AXA Seguros S.A. de C.V.

Highly Strategic Important Satisfactory Satisfactory Satisfactory Satisfactory Moderately Low Neutral Neutral Adequate A-/Negative/-- mxAAA/Stable/--

Austral Resseguradora S.A.

Core Fair Satisfactory Marginal Satisfactory High Neutral Neutral Adequate

Austral Seguradora S.A.

Core Fair Satisfactory Marginal Satisfactory High Neutral Neutral Adequate

Cardif Colombia Seguros Generales S.A.

Strategically Important Fair Satisfactory Satisfactory Satisfactory Moderately Low Neutral Neutral Adequate BBB-/Stable/--

Chubb Seguros Mexico S.A.

Strategically Important Satisfactory Satisfactory Very Strong Very Strong Moderately Low Neutral Neutral Adequate BBB+/Negative/-- mxAAA/Stable/--

Dorama Institucion de Garantias S.A.

Fair Satisfactory Satisfactory Strong Moderately High Neutral Neutral Adequate mxAA+/Stable/--

Fianzas y Cauciones Atlas S.A.

Fair Satisfactory Satisfactory Strong Moderately High Neutral Neutral Exceptional mxAA+/Stable/--

Grupo Nacional Provincial S.A.B.

Strong Strong Fair Fair Moderately Low Neutral Neutral Exceptional mxAAA/Stable/--

HDI Seguros S.A. de C.V.

Strategically Important Fair Fair Fair Fair Moderately Low Neutral Neutral Adequate mxAAA/Stable/--

IRB-Brasil Resseguros S.A.

Satisfactory Strong Marginal Satisfactory High Neutral Neutral Adequate

Junto Resseguros S.A.

HSI Fair Satisfactory Marginal Satisfactory High Neutral Neutral Adequate

Junto Seguros S.A.

HSI Fair Satisfactory Marginal Satisfactory High Neutral Neutral Adequate

La Meridional Compania Argentina de Seguros S.A.

Nonstrategic Important raBBB/Negative

MetLife Pensiones Mexico S.A.

Moderately Strategic Important Fair Fair Very Strong Very Strong Moderately Low Neutral Neutral Exceptional mxAAA/Stable/--

MetLife Seguros S.A.

Strategically Important Satisfactory Strong Strong Strong Moderately Low Neutral Neutral Exceptional BBB+/Stable/-- uyAAA/Stable/--

Qualitas Controladora*

Satisfactory Satisfactory Strong Strong Moderately Low Neutral Neutral Adequate

Qualitas Compania de Seguros S.A. de C.V. y Subsidiarias

Core mxAAA/Stable/--

Qualitas Insurance Co.

Highly Strategic Important BBB-/Negative/--

Sagicor Financial Co. Ltd.

Satisfactory Strong Satisfactory Satisfactory Moderately Low Neutral Neutral Exceptional

Seguros Atlas S.A.

Satisfactory Satisfactory Very Strong Very Strong Moderately Low Neutral Neutral Exceptional mxAAA/Stable/--

Seguros El Potosi S.A.

Nonstrategic Important Fair Fair Satisfactory Strong Moderately High Neutral Neutral Exceptional mxAA-/Stable

Suramericana S.A.§

Satisfactory Strong Fair Fair Moderately Low Neutral Neutral Adequate

Seguros de Vida Suramericana S.A.

Core BB+/Stable/--

Seguros Generales Suramericana S.A.

Core BB+/Stable/--

Zurich Fianzas Mexico S.A. de C.V.

Strategically Important Weak Fair Fair Satisfactory Moderately High Neutral Neutral Adequate mxAA+/Stable/--

Zurich Santander Seguros Mexico S.A.

Strategically Important Strong Strong Very Strong Very Strong Moderately Low Neutral Neutral Exceptional mxAAA/Stable/--
Zurich Mexico** Strategically Important Fair Fair Marginal Marginal Moderately Low Neutral Neutral Adequate

Zurich Aseguradora Mexicana S.A. de C.V.

Core mxAA+/Stable/--

Zurich Compania de Seguros S.A.

Core mxAA+/Stable/--

Zurich Vida Compania de Seguros S.A.

Core mxAA+/Stable/--
*We consider Qualitas Compania de Seguros S.A. de C.V. and Subsidiarias and Qualitas Insurance Company as core and Hhghly strategic important subsidiaries, respectively, of Qualitas Controladora, therefore the ratings and scores on them are in line with those on their parent. §We consider Seguros de Vida Suramericana S.A. and Seguros Generales Suramericana S.A. as core subsidiaries of Suramericana S.A., therefore the ratings on them are in line with those on their parent. **We consolidate figures of Zurich Aseguradora Mexicana S.A. de C.V., Zurich Compania de Seguros S.A. and Zurich Vida Compania de Seguros S.A. into 'Zurich Mexico' to perform the rating analysis. However, ratings apply to three entities. IICRA--Insurance Industry and Country Risk Assessment. N/A--Not applicable.

Table 2

Latin American Insurer Ratings Based On Our Group Rating Methodology Criteria
Company Country Group status Financial strength rating (FSR) National scale FSR Issuer credit rating
Global Scale National Scale National Scale

AXA Salud S.A. de C.V.

Mexico Core mxAAA/Stable/-- mxAAA/Stable/--

Bradesco Seguros S.A.

Brazil Core brAAA/Stable/-- brAAA/Stable/--

BTG Pactual Seguros S.A.

Brazil Core brAAA/Stable/--

Citibanamex Pensiones S.A. de C.V. Integrante del Grupo Financiero Citibanamex

Mexico Core mxAAA/Stable/-- mxAAA/Stable/--

Citibanamex Seguros S.A. de C.V. Integrante del Grupo Financiero Citibanamex

Mexico Core mxAAA/Stable/-- mxAAA/Stable/--

Credito Afianzador S.A. Compania Mexicana De Garantias

Mexico Core mxAAA/Stable/--

MetLife Mas S.A. de C.V.

Mexico Core mxAAA/Stable/--

MetLife Mexico S.A.

Mexico Highly Strategic Important mxAAA/Stable/-- mxAAA/Stable/--

Seguros Afirme S.A. de C.V.

Mexico Core mxA-/Stable/-- mxA-/Stable/mxA-2

Seguros Inbursa S.A.

Mexico Core mxAAA/Stable/-- mxAAA/Stable/--

SOMPO Seguros Mexico S.A. de C.V.

Mexico Highly Strategic Important A-/Negative/--

Swiss Re Corporate Solutions Mexico Seguros S.A. de C.V.

Mexico Highly Strategic Important mxAAA/Stable/-- mxAAA/Stable/--

Tokio Marine Compania de Seguros S.A. de C.V.

Mexico Highly Strategic Important A+/Stable/-- mxAAA/Stable/-- mxAAA/Stable/--

There are currently 34 insurers in Latin America in our rated portfolio that have FSRs. The proportion of global scale FSRs, national scale FSRs, or both is distributed in the following manner:

Chart 5


Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Alfredo E Calvo, Mexico City + 52 55 5081 4436;
Secondary Contacts:Sofia Ballester, Buenos Aires + 54 11 4891 2136;
Camilo Andres Perez, Mexico City + 52 55 5081 4446;
Henrique Sznirer, Sao Paulo + 55 11 3039 9723;
Research Assistant:Jenniffer Torillo, Mexico City

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