Weak recovery will pressure regional insurers’ operating conditions. A contraction in gross written premiums (GWP) in 2020 and moderate growth in 2021, whilst also expecting net profits to reach the 2019 levels only in 2022. However, the insurers’ overall adequate underwriting, conservative investment policies, and sound capital and liquidity offer a cushion against the tough conditions. Due to COVID-19 and the shock in oil prices exacerbating pre-existing economic weaknesses, S&P has taken negative rating actions on 40% of their Latin Insurers. Before the region’s exposure to the COVID-19 pandemic, economic growth had already slowed due to the underwhelming levels of investment, resulting from political uncertainties and rising social protests. This happened to spill into the insurance sector, Latin American insurers that had already reflected a negative bias, since 38% of the global scale long-term ratings had a negative outlook.
The industry has remained relatively resistant to the twin shocks compared to other sectors, given that rating actions occurred among 9% of rated insurers compared with around 40% across all sectors. However, the number of such actions among Latin America rated insurers was the highest. Given that more than 90% of FSRs in the region are either at or above the level of credit ratings on the respective sovereigns, the recent rating actions reflect the weakening economic conditions and increasing challenges ahead for these countries. The pandemic will have the deepest impact on Argentina and Mexico given the likely contractions of 5.6% and 5.5%, respectively, for both years. The rating agency also expects Brazil’s economy to contract by 3.5% and Colombia’s by just 0.5%.