Chile’s insurance outlook negative over 'diminished attractiveness & profitability'

Ratings agency  AM Best believes that the "attractiveness and profitability" of Chile’s insurance industry, particularly in the health and annuity segments, has diminished, with COVID-19 pandemic further exacerbating the economic growth of the country.

AM Best has assigned a negative market segment outlook to Chile’s insurance industry, citing contractions of premium volume, limited financial flexibility and regulatory changes, all of which are being exacerbated by the COVID-19 pandemic.

According to Best’s Market Segment Report, the country’s economic growth was struggling ahead of the pandemic, due to social unrest, lower copper prices and slowing growth in the economies of Chile’s main trading partners, which limited real GDP growth to 1.1 percent from an expected 2 percent and affected services, commerce and the balance of payments.

For the first quarter of 2020, with the COVID-19 lockdown, Chile's GDP growth stood at 0.4 percent despite the economy reacting positively during the first months of the year to announce government measures. Overall, the insurance industry contracted in real terms by approximately 10 percent as of March 2020 (vs March 2019), following a contraction of 1.8 percent last year.

AM Best stated that the impact on financial markets has limited financial flexibility to insurers that leverage its surplus. It added that the major insurance segments were "already struggling prior to COVID-19", with private health insurers facing rising medical costs in 2019 and annuities losing premiums in favor of pension funds.

The agency's negative outlook recognises that "for the insurance business to generate business, profitability and financial flexibility, many factors need to stabilize, including domestic social unrests".

AM Best expects the effects of current market developments to be felt through 2021, with a gradual recovery of the industry as Chile's economy and global economies rebound.