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Alfonso Novelo, senior director of analytics at AM Best
9 September 2019 Insurance

Insurance potential linked to Mexico’s economic backdrop

Speaking to FIDES Today, rating agency AM Best outlines the unpredictable market in Mexico, Latin America’s second largest economy, and potential market growth in Panama.

Uncertainty in Mexico

Mexico, the second largest economy in Latin America, presents an unpredictable market. Since December 2018, when President López Obrador took office, the economy has been undergoing a phase of uncertainty.

This is according to Alfonso Novelo, senior director of analytics at AM Best, who warns that this lack of clarity factors into all of the country’s economic indicators, including the insurance industry.

It’s not all bad news for the country, whose economy ranks as 15th in the world. While AM Best expects certain volatility in the industry, Mexico’s insurance market remains solid and profitable.

“We believe that the low penetration rate relative to gross domestic product growth (2.3 percent in 2018) and the still developing nature of the system allow for organic premium growth without pricing wars,” says Novelo.

There’s potential for expansion in the market and the industry could expect growth in gross premiums in the near future, although this, again, is linked to Brazil’s economic backdrop.

“It would be ideal to increase insurance penetration in Mexico, but the current uncertainty is keeping the market in a holding pattern,” he adds.

Panama’s dynamic economy

Panama is one of Latin America’s most dynamic economies, being the leader of Central America with 29 percent of regional market share by gross written premium, says Novelo.

Last year, its insurance market grew 5.4 percent, just above the 5.3 percent gross domestic product growth, and remains stable despite the country’s economic deceleration.

He adds: “The market could still be expected to grow based on factors such as the sound underwriting performance of its insurance companies, and the segment’s profitability, which is still being reinforced by investment returns generated from conservative strategies.”

In addition, the government’s infrastructure investment (resuming in 2020), revenues from the Panama Canal, and the country’s continued continued success as a regional financial centre are all expected to sustain economic growth in the near future.

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