AM Best maintains negative outlook on Argentina’s insurance industry

Written by Adam Cadle

21/11/2022

AM Best is maintaining its negative market segment outlook on Argentina’s insurance market, citing a difficult macroeconomic environment.

The ratings agency stated that Argentina’s GDP expanded by 10.4% in 2021, recovering from a three-year recession, with GDP forecast to grow again in 2022. However, with a slowdown in domestic and global economic activity and persistently high inflation, AM Best expects continued pressure into 2023 on the insurance industry’s balance sheet strength and financial performance, which could eventually limit profitability.

Investment income support of profitability has been undermined by 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, AM Best added.

"Insurers with long USD 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."

“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 impacted by soaring inflation, ultimately exacerbating solvency and liquidity issues,” said Salvador Smith, senior financial analyst, AM Best.

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