AM Best goes negative on Argentina and Bolivia insurance due to COVID-19

AM Best has revised its market segment outlook on Bolivia’s insurance industry to negative from stable, owing mainly to the COVID-19 pandemic, which is said to have exacerbated the country’s political turmoil and contributed to the overall slowdown in economic activity.

Meanwhile, the agency has maintained its negative market segment outlook on Argentina’s insurance industry, saying that the pandemic adds to the country’s existing challenges.

AM Best stated that COVID-19, in combination with the vulnerable economic environment and the political uncertainty in Bolivia, will "dampen growth targets and the stability of insurers’ balance sheets".

Bolivia experienced a complicated presidential election in 2019, as well as a decline in economic activity toward the end of the year. According to AM Best, these events are "triggering volatility and further pressuring the country’s micro and macro fundamentals, worsened by widening fiscal deficits and declining hydrocarbon revenues".

It noted that combined ratios among non-life insurers have traditionally been high, and the eventual impact of COVID-19 on the number and amounts of claims is unknown. Although solvency ratios are healthy, interest rate pressures, volatility in capital markets, the pandemic and the ongoing decline in financial products could further strain companies’ operating performance, as well as capital requirements.

In Argentina, the agency expects the protracted recession to challenge insurers’ premium growth, and the impact of the COVID-19 pandemic to vary by business line. Best said that the COVID-19 pandemic will "test the enterprise risk management capabilities of insurers operating in Argentina".

The country's non-life market, which accounts for the bulk of gross premiums, is expected to face "declining growth prospects and rising costs for automobile spare parts, driven by disrupted supply chains and continued currency devaluation".

Argentina's life insurance companies continue to face declining bond market values and asset-liability mismatches owing to debt tenor extensions and negative yields. "Solvency and liquidity issues for the life segment could be exacerbated despite an initiative placing higher tax deductibles on premiums to promote policyholder savings, while increasing the industry’s organic growth and investment base," AM Best noted.