MEXICO CITY–(BUSINESS WIRE)–Despite inconsistent premium growth in Mexico’s insurance industry, the
introduction of the Solvency II-based regulatory framework in Mexico’s
insurance industry three years ago has not been the limiting factor that
some market observers had predicted, according to an AM Best
market segment report.
The Best’s Market Segment Report, titled, “Mexico: Three Years
Since Solvency II,” states that Mexico’s insurance market has benefited
from the Solvency II framework, and that Mexico continues to offer
significant growth opportunities for insurers. Since meeting the
legislative thresholds for Solvency II equivalence in January 2016, the
Mexican insurance industry grew just 0.7% in 2017, but in 2018, the
volume of premiums increased by 5.2%. Overall, the market remains more
correlated with economic growth and market conditions as opposed to the
regulatory regime, but conservatism by insurers, which thoroughly
evaluated the impact of the different risks they faced in accordance
with the new formula to measure their regulatory solvency, also could
have contributed to the low growth in the second year of implementation.
AM Best expects lower premium growth in 2019, between 2% and 2.3%, on a
decline in economic growth, AM Best estimates Mexico’s 2019 GDP growth
at 1% to 2%. This forecast considers the potential effects of the
austerity plan proposed by President Andrés Manuel López Obrador, who
seeks to cut government spending by canceling private major medical
coverage, and potentially, life insurance to government employees.
Additionally, uncertainty about the scope of future legislative projects
stemming from actions by the president, could adversely affect the
performance of financial services providers.
Mexico’s insurance industry remains strong. The return on equity has
been higher than 20%, and the return on assets has been nearly 3% in the
three years since the introduction of Solvency II framework. The
framework also has allowed for the ongoing strengthening of the
segment’s capital base, with the industry maintaining nearly constant
net premium leverage, at 2x—a level that AM Best considers
appropriate—over the same period.
AM Best believes risk-based regulatory standards such as Solvency II may
boost insurance penetration, because they provide a better assessment of
different risks through the use of more technical tools. However, the
execution and supervision of the process by insurers and regulators with
strong industry expertise, as well as an appropriate set of technical
skills, is critical. Otherwise, the risk of market distortions that
could affect the competitive environment, or shift capital or asset
allocations toward less efficient strategies, may diminish or even erase
the benefits of modernizing insurance regulations.
AM Best considers the capitalization of Mexico’s insurance industry as
the strongest, as measured by Best Capital Adequacy Ratio, and the
adoption of the Solvency II framework likely will continue to promote
sound development and strengthen the solvency of those insurers
participating in the market.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=285260.
AM Best will be hosting a networking event with a brief Latin America
market overview to mark the five-year anniversary of its Mexico-based
subsidiary at Habita Hotel in Mexico City, on Thursday, May 9, 2019,
beginning at 6 p.m. CDT. There is no charge for this event. To attend or
for more information, please visit the event
registration page or email [email protected].
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.
Copyright © 2019 by AM Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.
Contacts
Alfonso Novelo
Senior Director, Analytics
+52
55 1102 2720, ext. 107
[email protected]
Christopher Sharkey
Manager, Public Relations
+1
908 439 2200, ext. 5159
[email protected]
Jim Peavy
Director, Public Relations
+1 908
439 2200, ext. 5644
[email protected]
