Mexican credit insurance ballooned in 2016 on uncertainty

Mexico's credit insurance market grew 30.8% year-on-year in the third quarter of 2016 to 878mn pesos (US$46.0mn), according to insurance brokerage and consulting firm Lockton México.

A Lockton report said mounting economic concerns drove spending on the coverage, adding that the US election and actions of the incoming administration have only increased the appetite for credit insurance.

"At this juncture, where the peso is being affected daily by the signals coming from US President Donald Trump via Twitter, the risk of negative impact for businesses that buy credit is constant," reads the report.

Lockton sees the peso's depreciation having an ongoing impact on the Mexican economy, a concern coupled with slower economic dynamism abroad in nations like China, continued low oil prices and rising inflation at home.

"Within this panorama, businesses are more exposed to greater risks by selling on credit, such as non-payment of their bills, delays in payment, voluntary or involuntary bankruptcy both with domestic and export operations," according to Lockton.

The firm, however, stressed that even though the economic outlook in 2017 is rife with risk, it estimates the credit insurance industry can withstand up to a 50% loss rate.

Lockton also examined the performance of the four companies that offer credit insurance in Mexico, which in order of descending market share are: Atradius (45.4%), Coface (26.5%), Solunión (23.9%) and Cescemex (4.24%).

All four saw growth in premiums in 3Q16, when Atradius stood out with a 51.1% year-on-year increase to 398mn pesos. Coface was second at 24.6% higher followed by Solunión (13.0%) and Cescemex (5.4%).

Lockton also said the Mexican insurance industry represents only about 2% of GDP, compared to 3% in Brazil and 4% in Chile and cited credit insurance as a segment primed for growth.

The report estimates the market potential for the segment at US$300mn.