SANTIAGO, Chile--(BUSINESS WIRE)--The Rating Outlook for the Peruvian insurance sector remains Stable, according to a new Fitch Ratings report issued today. Fitch believes Peru's insurance companies are well supported by adequate capital positions and robust profitability, but still highly influenced by relatively volatile financial income. The investment portfolios remains concentrated in domestic issuers, most of them capped by Peru's sovereign rating.
The Stable Outlook reflects Fitch's expectation that the market will be supported by Peru's economic performance. Key factors that could lead to a deterioration of the Sector's credit profile include: an economic downturn in Peru, a persistent pressure in operational margins resulting of the intense competition in the local insurance market, a deterioration of investment credit risk portfolio, and an increasing trend of leverage.
Fitch believes that the expected recovery of the Peruvian economy in 2015 will boost Gross Written Premiums' (GWP) growth for the insurance industry of the country. Fitch estimates that the GWP would end 2014 growing at around 9%, while for 2015 the estimate in the 11% to 12% range (non-life 9% to 10% and life 12% to 13%), which, albeit GWP breakdown will remain stable, would be stronger for the life insurance and retirement segments.
The insurance market in Peru will remain highly concentrated, but immersed in a gradual process of de-concentration in the last years. However, Fitch believes that this process would be accelerated in the medium term due to the sudden entry of new companies and the attractive development expectation for Peru's insurance industry for the medium and long terms, which do not give respite to intense competition in the insurance industry.
Insurance net incomes reflect dependence in financial revenues, which will continue generating an inherent volatility for accrued returns. While the considerable weight of financial revenues are mostly derived from the assets management business (annuities and saving-life), Fitch believes that the dependence on financial revenues is also extend to the traditional insurance segment, which intensifies this volatility in a pressured operational environment.
Larger and more frequent extreme natural catastrophes could also put a threat to the Outlook. Initially this might only impact earnings, but a sustained increase in the frequency of events could reduce available reinsurance capacity, and lead to higher net retentions and exposure. The most exposed segments to a catastrophic event (property) remain adequately protected, reaching a catastrophic reserve-to-probable maximum loss ratio of 1.73x for the whole industry as of June 2014.
The report, '2015 Outlook: Peru's Insurance Sector, is available at www.fitchratings.com or by clicking on the link above
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research: 2015 Outlook: Peru's Insurance Sector (New Players Continue To Increase Competition)