AM Best has decided to maintain its negative outlook on Mexico’s insurance market, due to continued concerns over the impacts of the COVID-19 pandemic.
In 2020, the rating agency notes that Mexico’s insurers were able to generate minimal business, reflecting the limited economic response to the pandemic on a local level, as well as the global slowdown that affected its main underlying industries.
And this year, premiums are expected to recover slowly amid limited expansionary policies and slow vaccination efforts, while a resumption in claims could pressure the net results of companies.
Mexico’s $29.8 billion market contracted in real terms by 2.6% in 2020, and in the first quarter of 2021 contracted by 2.1%.
The most affected property and casualty P&C segments were auto and surety, with the P&C segment, excluding auto, contracting 2.2% in real terms in Q1 2021.
Underlying industries for insurance consumption, such as auto and tourism, are starting to gain momentum in 2021, but analysts say this has not yet been reflected in premium growth.
Meanwhile, the life segments in 2020, including accident and health, remained afloat given a greater awareness of insurance protection due to the pandemic, with major medical expenses driving the growth of the market.
According to AM Best, downside risks for Mexico in 2021 include a challenging security environment and the government’s contingent liability exposure to state-owned petroleum company PEMEX.
However, faster-than-expected economic growth in the US, which is Mexico’s largest trading partner, has improved the outlook for remittances, exports and foreign investment, providing a backdrop for an improved Mexico economy in 2021.
While the recent surge in COVID-19 cases in Q1 limited growth in the services sector, which accounts for two-thirds of the economy, AM Best expects it to regain traction as the number of cases and deaths fall.