Best's Market Segment Report: AM Best Revises Outlook on Peru's Insurance Market to Stable
AM Best is revising its outlook on Peru's insurance market to stable from negative, citing a turnaround in profitability and business generation in troubled segments such as life and health, in addition to the resilience of the country's economy and the insurance industry despite political turmoil there.
In a new Best's Market Segment Report, "Market Segment Outlook: Peru Insurance," AM Best notes that Peru's insurance market has demonstrated an ability to partially adjust prices in high-exposure businesses such as life and health. Yet domestic and global challenges remain, including disruptions in global supply chains and rising oil, gas, and grain prices that have driven Peru's inflation to levels well above its central bank's target.
"Domestic political instability remains a challenge not only for the insurance industry but also for many insurance-related industries such as auto sales, hospitals and public spending related sectors," said Elí Sánchez, director, AM Best.
The removal of former President Pedro Castillo from office at the end of 2022 has created a conflict between the Peruvian government's executive and legislative branches and hindered its ability to implement public spending in support of economic growth. However, with the removal of Castillo, business confidence rebounded and Peru's risk premiums seem to be decreasing amid the complex Latin American economy. The International Monetary Fund expects Peru's gross domestic product to grow by approximately 2.4% in 2023, down from 2.7% in 2022.
The AM Best report notes that Peru's insurance market generated USD 4.9 billion in premiums (the fifth-largest market in Latin America), with a penetration rate of 2.05% of GDP. The non-life segment accounted for 48.1%, and the life segment, 51.9%. As of 2023, the market consisted of 17 companies, versus 16 in 2022, as one group consolidated its life and non-life business.; the country still faces headwinds from restrictive monetary policy, subdued government spending, and a slowdown in global demand. The insurance market grew at a 5.9% rate in nominal terms, but contracted by 1.7% in real terms, because premiums lag inflation.
The main growth driver (in nominal terms) has been the life segment, as credit life has been the immediate coverage to reflect price adjustments after its adverse performance following the COVID pandemic, according to the report. On the property/casualty side, fire and allied lines reflect different risk pressures, as well as greater awareness of risk by reinsurers and higher appraisals (inflation). The third key component of growth has been accident & health segment, as medical assistance also reflects medical inflation.
"The availability and cost of reinsurance remain paramount, given Peru's CAT exposure, and in light of the global reinsurers' perception of higher risk in the region, as well as the decline in available capital for risk-transfer vehicles," Sánchez said.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=334532.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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