AM Best has revised its outlook on Mexico’s insurance segment to negative from stable, citing the elimination of a fiscal credit on value added tax (VAT) paid to third parties such as hospitals and on other claims-related expenses – a change that may erase 40% of insurance companies’ expected net profits for 2025.

The Best’s Market Segment Report, “Market Segment Outlook: Mexico Insurance,” states that even though third-quarter 2025 results showed a mild improvement when compared to the same period in 2024, the changes in VAT treatment when paying claims will create significant pressure on insurers’ profitability metrics. AM Best also expects greater market competition, given the different strategies market players may implement to mitigate the impact on operating performance deriving from this change, which was settled between the tax authority in Mexico and the insurance industry in October 2025 after several years of conciliation.

“AM Best expects insurers to implement a combination of price increases on their coverages, hardening of underwriting practices, adjustments on limits and characteristics of insurance products, and more stringent operational guidelines,” said Alfonso Novelo, senior director, analytics, AM Best. “Unfortunately, there will also be a segment of the economy that cancels its coverages, given the expected spike in insurance rates.”

After two years of double-digit premium growth, the insurance industry in Mexico slowed and is expected to grow by approximately 8% at year-end 2025, which compares positively with an expected 0.5% in economic growth. Even with the expected expansion of the economy, AM Best believes that 2026 will challenge insurers in estimating top-line growth. Top players are better positioned to face the more aggressive competitive landscape in 2026, given their economies of scale and diversification in products and sources of revenues. This most likely will lead to a higher concentration of market share within the largest players and ultimately could prompt merger and acquisition activity in the segment.

In addition, according to the report, while financial products in the previous two years significantly boosted bottom line results, showing growth rates of 24.1% in 2024 and 34.4% in 2023, AM Best expects a reduction in financial revenues of around 8% for year-end 2025, owing to the lower interest rate environment that we expect will expand throughout 2026, which will further pressure the results from the industry in 2025 and 2026.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=361039.

To view all Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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