AM Best, has maintained its stable outlook for Panama’s insurance industry, highlighting the sector’s consistent profitability in underwriting results and positive future prospects.
Despite facing challenges from the macroeconomic environment, the industry appears resilient.
Panama experienced an impressive 10.8% growth in gross domestic product in 2022, as reported by the International Monetary Fund (IMF).
The IMF projects a 6% growth for the country’s economy in 2023. However, challenges persist, including a weakened fiscal regime, strained public finances due to heavy reliance on Panama Canal revenue, and significant imbalances in the pension system caused by depleting reserves.
Economic headwinds, such as disruptions in global commercial trade, climate change shocks affecting the Panama Canal, and political uncertainty ahead of the 2024 elections, continue to add pressure.
Nevertheless, AM Best emphasises the insurance industry’s resilience, pointing out a 5.6% growth in 2022 based on gross premiums written (GPW).
The non-life insurance segment, constituting nearly three-quarters of the market, is primarily driven by the health and auto insurance sectors. The health sector, in particular, expanded by over 17% in 2022.
This growth is attributed to heightened post-pandemic awareness of the necessity for health coverage, delayed medical treatments, and medical inflation.
Salvador Smith, Senior Financial Analyst at AM Best, noted that fine-tuned underwriting practices contributed to the health segment’s recovery, resulting in profitable technical results.
Conversely, the auto insurance segment saw marginal growth of 2% in 2022. Inflation and an increase in claims led to more expensive automobiles, resulting in expected persistent negative technical results for this sector.
However, AM Best anticipates medium-term improvements that could alleviate pressure on the industry’s overall profitability.
Despite challenges, Panama’s insurance industry remains concentrated, with five companies commanding over three-quarters of the GPW market share.
Smith highlighted the industry’s healthy underwriting with a combined ratio below 100, indicating historically sound performance. Strict controls on operating expenses and acquisition costs continue to support underwriting performance.
