Credit rating agency AM Best has announced it is maintaining its negative outlook on Colombia’s insurance segment given limited development due to challenging global conditions and political uncertainty.
Although economic conditions in Colombia are improving, uncertainty with respect to the ability of the government to stabilise the country’s fiscal situation remains.
Additionally, Colombia relies on the hydrocarbon and mining sectors, which makes it vulnerable to shifting global commodity prices and demand, according to Best’s Market Segment Report, “Market Segment Outlook: Colombia Insurance”.
The country’s insurance market continues to grow: 34% year over year in 2022; it registered COP47.3bn in premiums (or 20% discounting the newly formed Asulado Seguros de Vida S.A.’s assumption of AFP Protección pensioners’ risks), and 19% as of August 2023 compared with the same prior-year period.
According to the report, growth in 2022 was driven by the social security business lines, followed by property/casualty, with auto accounting for most of that growth, given the increase in average premium value and the rise in the number of insured vehicles.
This was followed by fire, liability and fulfilment. Life and health premium also grew by double digits, despite the continued weakening of the Colombian peso in 2022.
Despite continued growth in 2023, up 19.1% year-over-year, the insurance market still has posted a negative technical result due to the claims rate being affected by the residual impacts of the pandemic and inflation, according to the report.
Colombia’s economy has experienced significant growth in recent years especially, AM Best noted, mainly in the manufacturing, mining and service sectors. With the Covid-19 pandemic individuals and businesses became more aware of the importance of insurance coverage.
“This growing awareness coupled with a larger middle class, is driving growing demand for insurance products and services. With a supportive economic environment and a population that recognizes the value of insurance, the industry in Colombia has substantial growth potential,” analysts explain.
Although economic conditions in the country have imp[roved, development has been limited by the challenging global conditions and political uncertainty. This includes the recent change in leadership, focused on reversing the conservative positions of former President Ivan Duque.
According to AM Best, this has created uncertainty in respect to the ability of the government to stabilise the country’s fiscal situation. Additionally, the country’s reliance on the hydrocarbon and mining sector makes it more vulnerable to shifting global demand and prices.
According to AM Best, Colombia’s GDP is expected to slow to 1.4%, following last year’s 7.3% expansion. Analist also warn reinsurers to remain vigilant in implementing fraud detection as false claims and insurance scams pose a threat to the industry’s stability and profitability in the country.
“Owing to persistent inflationary pressures, the current interest rates reached a level higher than what was seen during the 2008 global financial crisis,” said Olga Rubo, senior financial analyst, AM Best.
Adding: “Higher interest rates favourably affect investment income, to which carriers with a heavy life insurance component are particularly sensitive. On the flip side, inflationary pressures will continue to impact claims cost and underwriting income.”
AM Best expects Colombia’s insurance market to withstand the current challenges, but will continue to monitor the economic, political and regulatory landscapes for their impact on carriers.
