According to Fitch Ratings in a newly published report, the Central American insurance sector's outlook remains stable for 2017. This reflects the agency's expectations of higher growth in Costa Rica and Nicaragua sectors, strengthening of underwriting conditions in major insurance lines, and ample reinsurance protection favored by soft pricing conditions. However, any hit to commerce or remittances could challenge the region's economies and insurance industries.
Fitch projects Central American insurance industry premium growth to be 5% in terms of U.S. dollars at year-end 2016, and 7.5% at year-end 2017. This is due to an accounting adjustment in the financial statements of the Instituto Nacional de Seguros de Costa Rica, which underwrites 79% of the market and 29% of the total premiums within the region.
The U.S. election results increase economic uncertainty in Central American countries given their close economic ties to the U.S. In addition, some of the region's economies depend largely on annual workers' remittances from the U.S. Any hit to current account balances could pose challenges to the region's economies and insurance industries.
Higher growth and profitability levels in the region's insurance industries, largely influenced by Costa Rica, along with more conservative underwriting conditions, resulted in an improvement of performance as of third-quarter 2016 (3Q16). This resulted in a combined ratio lower than 100% for the region (99% versus 101% as of Sept. 30, 2015). In addition, the Central American insurance industry's liquid assets/liabilities ratio of 110% compares favorably with other markets in the Latin American region.
As of 3Q16, the region's net written premiums/equity ratio remains lower than in other Latin American insurance markets (0.9x). Fitch expects capitalization levels to remain strong during 2017, which will result in stable and adequate leverage ratios that could sustain growth in the region's markets. This is based on conservative regulatory frameworks, especially in Costa Rica, and also in a reasonable generation and reinvestment of revenues in most of the companies.
The full report, '2017 Outlook: Central America Insurance' is available at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
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