AM Best is maintaining its negative outlook for Colombia’s insurance industry, owing to the challenging global conditions that continue to pressure the country’s economy.
In its report, Best notes that despite economic conditions in the country improving over the past few years, development has been limited by the spread of COVID-19 and the pandemic-related measures.
It also notes that Colombia relies on the hydrocarbon and mining sectors, which makes it vulnerable to shifts in global commodity prices and demand.
As of December 2021, Colombia’s insurance market registered COP35.3bn in premiums.
This consolidated its position as the fourth-largest player in Latin America’s insurance market, with 15.8% year-over-year growth, says Best.
The insurance penetration rate has grown to 3.1% since 2018, in line with the previous period, which Best observes is an improvement considering that real GDP grew 10.7%, after contracting 7% in 2020. The life segment accounts for 54% of total gross premiums written, and the non-life segment, 46%.
Olga Rubo, senior financial analyst, AM Best, commented, “Due to inflationary pressures, interest rates have reached a level not seen since the 2008 crisis. Higher interest rates favourably affect investment income, to which carriers with a heavy life component are particularly sensitive.”
As of July 2022, the insurance market continued to grow, says Best, up 20.4% year over year, though still with a negative technical result, albeit a slight improvement in the case of the P/C business lines.
AM Best expects Colombia’s insurance market to withstand the current challenges, however, it adds that the pandemic and the resulting damage to the economy will continue to strain the segment considerably.
The ratings agency suggests it will continue to monitor the economic, political, and regulatory landscape, and the impact on Colombia’s insurance industry.
