Credit rating agency AM Best has revised its outlook on Mexico’s insurance segment to negative from stable, attributing the change to the elimination of a fiscal credit on value added tax paid to third parties, including hospitals, as well as on other claims-related expenses.
According to AM Best, this regulatory change could reduce insurers’ expected net profits for 2025 by as much as 40%. The agency stated in its Market Segment Report, “Market Segment Outlook: Mexico Insurance,” that while third-quarter 2025 results showed modest improvement compared with the same period in 2024, the revised VAT treatment applied to claim payments is expected to place considerable pressure on insurers’ profitability metrics.
AM Best also indicated that competitive dynamics are likely to intensify as insurers pursue differing strategies to offset the impact on operating performance stemming from the change. AM Best noted that the VAT adjustment was finalised between Mexico’s tax authority and the insurance industry in October 2025, following several years of discussions.
“AM Best expects insurers to implement a combination of price increases on their coverages, hardening of underwriting practices, adjustments on limits and characteristics of insurance products, and more stringent operational guidelines,” said Alfonso Novelo, Senior Director, Analytics, AM Best. “Unfortunately, there will also be a segment of the economy that cancels its coverages, given the expected spike in insurance rates.”
AM Best reported that after two consecutive years of double-digit premium growth, expansion in Mexico’s insurance industry has moderated and is projected to reach approximately 8% by year-end 2025, a rate that still compares favourably with the expected 0.5% growth in the broader economy.
Despite anticipated economic expansion, AM Best believes that 2026 will present challenges for insurers in forecasting top-line growth. AM Best added that larger insurers are better positioned to manage a more competitive environment in 2026 due to scale advantages and diversified product offerings and revenue streams. This situation, according to AM Best, may result in increased market share concentration among leading insurers and could eventually lead to merger and acquisition activity within the segment.
AM Best further noted that although financial products supported bottom-line performance over the past two years, with growth of 24.1% in 2024 and 34.4% in 2023, financial revenues are expected to decline by roughly 8% by year-end 2025. AM Best attributed this outlook to a lower interest rate environment that is expected to persist into 2026, adding further pressure to industry results across 2025 and 2026.
