Best’s News & Research Service - November 18, 2022 12:24 PM (EST)
Best’s Market Segment Report: AM Best Maintains Negative Outlook on Argentina’s Insurance Industry
- November 18, 2022 12:24 PM (EST)
Mexico City //BestWire// - AM Best is maintaining its negative market segment outlook on Argentina’s insurance market, citing a difficult macroeconomic environment.
The Best’s Market Segment Report, “Market Segment Outlook: Argentina Insurance,” states that Argentina’s GDP expanded by 10.4% in 2021, recovering from a three-year recession, with GDP forecast to grow again in 2022. However, with a slowdown in domestic and global economic activity and persistently high inflation, AM Best expects continued pressure into 2023 on the insurance industry’s balance sheet strength and financial performance, which could eventually limit profitability.
Investment income support of profitability has been undermined by the industry’s large exposures to government-backed obligations, which remain pressured by negative real interest rates, foreign exchange volatility and non-investment grade credit quality. Insurers with long USD positions, a robust capital base, diversified business profiles and good distribution capabilities are in a better position to contend with the weak fundamentals of Argentina’s economy.
“The country’s developing capital markets and the few financial instruments approved by the local regulator that can adequately match insurance liabilities and regulatory requirements continue to limit market participants’ financial flexibility to withstand the difficult economic environment, which is being impacted by soaring inflation, ultimately exacerbating solvency and liquidity issues,” said Salvador Smith, senior financial analyst, AM Best.
Argentina’s complex and challenging market requires that insurance companies continually adjust prices and implement strict expense containment strategies to maintain policy coverages, limit business contraction and navigate macro conditions. The industry’s ability to withstand the country’s difficult economic environment is further overshadowed by carriers’ weak risk-adjusted capitalization levels, as measured by Best’s Capital Adequacy Ratio (BCAR). Exposures to non-investment-grade fixed income drive the industry’s required capital.
To access the full copy of the Argentina market segment report in English and Spanish, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=326028 .
To view current Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp .
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.