Mexicos insurance industry is benefiting from its companies strong capitalization levels and operating performances, which in turn is supporting AM Bests stable market segment outlook on the industry.
A new Bests Market Segment Report, titled, Market Segment Outlook: Mexico Insurance, states that despite the stable outlook, AM Best expects some volatility in the industrys operating performance in the last quarter of 2018 due to fluctuations in the countrys foreign exchange and stock markets. Factors contributing to these expectations include a drop in oil prices, as well as the recent cancellation of a Mexico City airport project and a proposal to restrict a number of existing bank commissions.
AM Best also is adjusting its forecast for 2019 premium growth to 2.0%-2.5%, based on a downward adjustment to 2% for 2019 gross domestic product growth. The premium forecast takes into account a potential 2% decline in premiumsthe worst-case scenarioas a result of the austerity plan proposed by President Andrs Manuel L³pez Obrador. L³pez Obrador, in an effort to cut government spending, has announced the cancellation of government employees private major medical insurance coverage, which could affect life insurance premiums. Furthermore, uncertainty about the scope of future legislative projects could directly affect the performance of other financial services providers over the medium term.
The economic and regulatory environments in which Mexicos insurers operate continue to favor competition, as the market share of the five largest insurers has declined to approximately 44.0% in 2018 from 57.7% in 2005. The biggest carriers have larger concentrations in the life, accident and health and auto segments, but the rest of their property/casualty operations have experienced significantly higher competition. The trend in the property/casualty lines, other than auto, is for the most part attributable to the available capacity of the global reinsurance market, which is reflected in considerably lower retention rates in these lines of business compared with the life, accident & health and auto segments. Although intensified competition could pressure results, AM Best believes the low insurance penetration rate, relative to GDP growth (2.2% in 2017), and the still-developing nature of the system allow for premium organic growth without a potential pricing war that could jeopardize the industrys profitability.
With a few minor exceptions, Mexicos insurance industry has operated under premium sufficiency (i.e., the adequacy of premiums to cover claims and expenses) for the past 10 years. AM Best expects this trend to continue, given the countrys solid regulatory framework and recently implemented risk-based capital regulatory requirements. AM Best will keep a close eye on any new developments and their potential impact on the Mexico insurance industry.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=280956.
To view a video with Carlos De la Torre, senior director of operations and business development for AM Best in Latin America, about the Mexico market, please visit http://www.ambest.com/v.asp?v=delatorre119.
AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.
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