AM Best: Guatemala 'positive example' in COVID-19 response; insurance sector 'stable'

Quick and decisive actions from Guatemala’s President Alejandro Giammettei has helped the country’s insurance sector stand out as a “positive example” in Latin America, according to insurer ratings agency AM Best. 

The agency affirmed its “stable” outlook on the country’s insurance sector. “The limited, short-term effect of the economic downturn on premium generation due to the prompt economic stimulus package set in place by the government in response to COVID-19,” it said. 

“The COVID-19 pandemic has hit economies worldwide but its effects vary by country. At the moment, Guatemala stands out as a positive example in Latin America,” wrote the agency in the market segment outlook full report.

“AM Best recognizes that growth prospects have become limited due to the effects of the COVID-19 pandemic,” wrote AM Best. “Nevertheless, Guatemala’s macroeconomic fundamentals provide stability to the system to mitigate the potential impact on claims and financial investments derived from the crisis.” 

Despite the prompt mobility restrictions and the president’s ability to quickly pass an economic stimulus package, AM Best explained, Guatemala’s GDP looks to contract for the first time in two decades, “potentially reflecting reduced opportunities for insurance business during 2020.” 

That said, wrote the agency, “stable foreign exchange rate, ongoing low interest rate environment, and controlled inflation underscore Guatemala’s stable outlook.” 

It added that coming market shocks should be mitigated by the limited exposure to foreign exchange and capital markets in insurers’ investment portfolios.

“The solid Guatemalan insurance market appears to be well prepared to face the expected economic contraction,” wrote AM Best.

The company noted that, as of December 2019, Guatemala’s US$931mn insurance market made it Central America’s third largest in Central America. 

Premiums in 2019 expanded annually 6.7% in nominal terms, above its five-year average of 5.5%. Meanwhile, profitability, as measured by ROE, reached its highest level in five years at 23.9%.

“Leading lines in Guatemalan insurance, like group life and major medical expenses, could suffer more from higher unemployment, leading to reduced headcount on group policies, making premium charge adjustments difficult,” wrote AM Best.

The agency wrote: “Growth opportunities for auto insurers could be limited as credit conditions tighten and remittance inflow drops. Redirected governmental and private investment (construction, commerce, and tourism) will limit growth expectations for the P&C lines, particularly for surety, credit, cargo, and liabilities.”