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FOR IMMEDIATE RELEASE
MEXICO CITY - MAY 25, 2021 09:02 AM (EDT)
AM Best is maintaining its negative market segment outlook on Chile’s insurance industry, mainly due to limited financial flexibility from regulatory measures and difficult market dynamics, along with volatility in financial markets that could pressure insurers’ asset-liability management capabilities.
The new Best’s Market Segment Report, titled, “Market Segment Outlook: Chile Insurance,” notes Chile’s economic growth was struggling prior to the COVID-19 pandemic. In 2020, GDP contracted by 5.8%, more than the original estimate at the beginning of the pandemic, which has resulted in increases in fiscal deficit and public debt. The effects of the economic crisis on the overall insurance industry in 2020 were reflected in a contraction of approximately 15%, following a contraction of 1.8% in 2019. The decline was due mainly to a drop of 24.3% in the life segment, versus an expansion of 4% in the property/casualty segment.
The drop in the life segment in 2020 was driven by a stark 54.7% decline in annuities. To maintain financial stability in the markets and for insurers and pension funds, the Central Bank of Chile established several programs to provide liquidity to the market, the latest one applicable after approval of early withdrawals for annuities. According to the report, the measure has not been well-received by local or foreign participants, many of which had established measures to prevent those withdrawals. Because of differences in the calculation of the interest rate for planned retirement pension plans, they remain more attractive than annuities as they reflect the decline in interest rates. The annuity segment will likely continue to experience early withdrawals.
Premiums in the health segment grew by 6.3% in 2020; however, health insurers’ top line may face pressures with a gradual normalization of claims frequency to pre-pandemic levels, and many insurers may not be able to reconcile the increases in their policy costs with recent usage.
Chile has a USD 11 billion insurance industry, which makes it the fourth-largest insurance market in Latin America. AM Best expects the impact of current market developments to be felt through 2021, with a gradual recovery for the industry as the Chilean and global economies revive. AM Best will continue to monitor developments in the country’s insurance market in Chile, as well as its exposures to financial and natural risks.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=308933 .
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.