Caution reigns despite growth in Colombia

Rating agency AM Best tells FIDES Today a tale of two very different economies: Guatemala, where there is consistent profitability, and Colombia, where insurers have adopted a cautious outlook despite a growing economy.

Following suit in Colombia

Colombia’s economy has progressed, but the insurance industry hasn’t necessarily followed suit. This is mostly due to caution on the part of insurance companies, according to Elí Sánchez, associate director at the rating agency.

“We have seen Colombia’s gross domestic product (GDP) el producto bruto interno peak in 2018, following a slowdown from 2015 to 2017. We think companies have noticed this and have not been as optimistic as the growth has been,” he says.

The future is a different story—AM Best expects Colombia’s economy to grow at a 3.3 percent rate in 2019, and this could foster growth in the property and casualty segments.

The results between the P&C and life segments differ both in terms of growth and in terms of performance: non-life segment premium has increased approximately 6.3 percent while the life products increased around 4 percent.

Sánchez adds: “It is natural as an economy grows to see the impact on P&C products more quickly as demand increases for construction and infrastructure. The life products are tied more to the consumer’s position and driven more by personal or credit loans, and mortgages. Life products take more time to reflect the state of the economy.”

In terms of net income, the P&C products increased about 12 percent in 2018, while the life segment decreased about 30 percent. AM Best expects both segments to improve.

Consistent profitability in Guatemala

As the third largest in Central America, Guatemala’s insurance market has shown consistent profitability and is not necessarily affected by the performance of that of its neighbouring countries.

Sánchez adds that even though the industry grew 3 percent in 2018, compared with 8 percent growth in 2016 and 2017, profitability improved from 21.9 percent to 23.8 percent on return on equity.

The industry’s combined ratio also improved marginally from 90.9 to 90, mainly because of an adjustment in prices over the past two years.

He says: “Strong regulatory practices also have helped to further strengthen Guatemala’s market, with regulatory investment strategies and strict requirements for foreign-registered reinsurers, among other practices.”