In spite of a modest deterioration in technical results among Mexico’s insurance companies, credit ratings agency AM Best has confirmed that it is maintaining its stable market segment outlook based on significantly improved premium growth in line with the country’s economic recovery.
A recent report released by the agency states that the insurance industry’s loss ratio rose by 3.4 percentage points to 79.6% in 2023, which was primarily due to Hurricane Otis-related losses.
At the beginning of 2024 AMIS (Mexican Association of Insurers) estimated insured losses at around US $2 billion, therefore making it one of the largest catastrophic events impacting the country.
As a result of this, analysts are expecting to see additional adjustments in reinsurance renewal programs throughout Latin America considering an already hard reinsurance market.
Moreover, the pressure in technical results stemming from the spike in Otis-related claims was partially mitigated by the industry’s ongoing efforts to contain operating expenses, as well as a marginal improvement in acquisition expenses vs. retained premiums.
From what we understand, both efforts contributed to a 2% downward adjustment in the segment’s combined ratio.
Another key factor to highlight, GDP in Mexico was up 3.2% in 2023, which surpassed most forecasts, with inflation also easing, and the insurance segment recorded premium growth of 11.2%.
Analysts noted that the economy is projected to grow by approximately 2.4% in 2024, and that it expects insurance premiums to maintain their current momentum, albeit at a slower pace than last year.
Meanwhile, analysts also pinpointed that financial products grew around 34.4%, which was attributed towards the high interest rate environment, foreign exchange stability and a larger asset base due to the increase in top-line growth, ultimately leading to a 10.2% increase in bottom-line results.
Best noted that the segment’s capacity to shift a portion of the expected increase in reinsurance costs to policyholders will play a “key role” in premium sufficiency in 2024.
Alfonso Novelo, senior director, analytics, AM Best, commented: “Although bottom-line results improved and capitalization levels remain positive, market participants with more developed risk management tools will be in a better position to manage any potential volatility arising from the recent presidential elections.
“The outlook could be revised to negative if macroeconomic conditions deviate considerably from expectations and adversely affect the industry’s operating performance.”
