Rating agency AM Best has announced that it is revising its outlook for Costa Rica’s insurance industry to stable from negative.
The rating agency stated that this owed to the recovery in business volume, contained loss ratios in the non-life market segment, an expected improvement in the government’s budget, as well as a stable regulatory environment.
Tourism, one of Costa Rica’s main industries, was majorly impacted by the COVID-19 pandemic, despite the lack of lockdowns common in the rest of Latin America. Whilst the economy began to recover from the first effects of the pandemic in 2021, real GDP grew by 7.6%.
Best, notes that growth is expected to continue, despite various obstacles standing in the way, including rising commodity prices and supply chain disruptions due to a volatile economic environment.
Meanwhile, central government debt still remains at an all-time high, but debt distress is unlikely. The Tax Affairs Committee of the Legislative Assembly approved a credit of $1.8 million from the International Monetary Fund (IMF), in addition to two new credits totalling to $500 million in government budget and COVID-19 health emergency support from the Inter-American Development Bank (IDB). These credits, despite the high uncertainty that remains helps to mitigate the challenging situation.
Moreover, as of December 2021, Costa Rica’s insurance market registered CRC900 billion in premiums, with 6.9% year-over-year growth, which was primarily driven by the recovery of the economic conditions caused by the pandemic.
As of July 2022, the market had grown 14.4% year over year. This was mainly driven by sustained growth in compulsory insurance, as well as voluntary insurance.
Best highlights that the recovery in compulsory insurance is due to the loosening of restrictions imposed during the pandemic.
Best, concludes that it expects Costa Rica’s insurance market to withstand the challenges it is currently facing. However, the residual effects of the pandemic, as well as the volatile economic environment, and uncertainty surrounding public finances will continue to strain the country’s insurance industry.
AM Best stated that it will continue to monitor the economic, political, and regulatory landscape, and the impact on the country’s insurance segment.