Best’s Special Report: Tighter Financial Conditions, Stubborn Inflation Cloud Latin America’s Economic Outlook

Despite contending with economic headwinds and the related challenges, Latin America’s insurance market remains sound with premium levels nearing those last seen in 2019, according to a new AM Best report.

The Best’s Special Report, “Tighter Financial Conditions, Political Polarization, and Stubborn Inflation Cloud Latin America’s Economic Outlook,” notes that the region’s gross domestic product grew 4.0% in 2022, which followed on the heels of 7.0% growth a year earlier. The report notes that Latin America has managed to successfully navigate major external shocks since 2020 stemming from COVID-19, the Russia-Ukraine conflict and, most recently, the tightening of global financial conditions.

Chief issues driving the economic conditions for Latin America’s insurers include:

• Domestic demand has dampened due to declining real wages and weakening consumer balance sheets
• Higher operating expenses, sluggish sales, and narrower profit margins have negatively affected businesses
• Rising government debt loads owing to pandemic crisis spending have diminished fiscal space and the ability of governments to spend in the future.

According to a recent International Monetary Fund (IMF) estimate, economic activity in Latin America is expected to slow to 1.6%, which tracks lower than an IMF projection that global economic growth will slow to 2.8% in 2023.

The report also highlights how country risk—divided into three main categories: economic, political, and financial system—is evaluated and factored into all AM Best ratings. As part of evaluating country risk, AM Best identifies the various factors within a country that may directly or indirectly affect an insurance company.

Other highlights in the report include:

• When measured in USD, the region’s insurance premium growth reached a peak of USD203 billion in 2016 and has fallen every year since, with the exception of 2021, when insurance premiums rebounded to USD116 billion from USD103 billion in 2020, as the market benefitted from the economic recovery following the slowdown due to the pandemic.
• From 2019 to 2020, insurance premiums dropped by almost USD15 billion. Most countries in the region saw a decline, but five saw contractions in the double digits: Chile (22.6%), Brazil (20.5%), Suriname (14.9%), Mexico (10.5%), and Colombia (10.2%).
• One of the most glaring deficiencies in the regional economy would be the lack of real GDP per capita growth, which has fallen for many of the region’s countries over the last decade—five of the 18 eighteen countries in Latin America have a lower GDP per capita now than in 2012.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=332840.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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