Best’s Market Segment Report: AM Best Maintains Negative Outlook on Argentina’s Insurance Industry

AM Best is maintaining its negative outlook on Argentina’s insurance industry, citing an economic slowdown with extreme inflation, and an expectation of severe volatility in the macro-environment over the short term.

After a two-year economic expansion, Argentina’s economy slowed in 2023, due mainly to a historic drought, policy uncertainty and challenging macroeconomic conditions, as well as the new administration’s austerity measures. Inflation remains a significant challenge, hitting a high of 160.9% in November 2023, severely undermining consumer purchasing power.

In its Best’s Market Segment Report, “Market Segment Outlook: Argentina Insurance,” AM Best states that it expects these factors to pressure on the insurance industry’s overall balance sheet strength and financial performance, which could further limit profitability. The industry posted a combined ratio under breakeven in 2022, driven mainly by a drop in life and health insurance premium and delays in official foreign exchange rate announcements, despite severe pressure from a surge in auto claims. Additionally, the industry’s large exposures to government-backed obligations, which remain pressured by negative real interest rates, foreign exchange volatility and non-investment-grade credit quality, undermined the traditional support of investment income for overall profitability.

“The country’s developing capital markets and the few financial instruments approved by the local regulator that can adequately match insurance liabilities and regulatory requirements continue to limit market participants’ financial flexibility to withstand the difficult economic environment, which is being continuously impacted by soaring inflation and is worsening insurers’ solvency and liquidity issues,” said Salvador Smith, senior financial analyst, AM Best.

However, according to the report, insurers with long U.S. dollar positions, a robust capital base, diversified business profiles and good distribution capabilities are in a better position to contend with the weak fundamentals of Argentina’s economy.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=339269.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing 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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