AM Best is maintaining its negative outlook on Colombia’s insurance segment given limited development due to challenging global conditions and political uncertainty.
The Best’s Market Segment Report, “Market Segment Outlook: Colombia Insurance,” states that economic conditions in Colombia are improving, but with the recent leadership change, uncertainty with respect to the ability of the government to stabilize the country’s fiscal situation remains. Additionally, Colombia relies on the hydrocarbon and mining sectors, which makes it vulnerable to shifting global commodity prices and demand.
Colombia’s insurance market continues to grow: 34% year over year in 2022 (or 20% discounting the newly formed Asulado Seguros de Vida S.A.’s assumption of AFP Protección pensioners’ risks), and 19% as of August 2023 compared with the same prior-year period. Growth in 2022 was driven by the social security business line, followed by property/casualty, with auto accounting for most of that growth, given the increase in average premium value and the rise in the number of insured vehicles. Life and health premium also grew by double digits, despite the continued weakening of the Colombian peso in 2022. Despite continued growth in 2023, the insurance market still has posted a negative technical result due to the claims rate being affected by the residual impacts of the pandemic and inflation.
“Owing to persistent inflationary pressures, the current interest rates reached a level higher than what was seen during the 2008 global financial crisis,” said Olga Rubo, senior financial analyst, AM Best. “Higher interest rates favorably affect investment income, to which carriers with a heavy life insurance component are particularly sensitive. On the flip side, inflationary pressures will continue to impact claims cost and underwriting income.”
AM Best expects Colombia’s insurance market to withstand the current challenges, but will continue to monitor the economic, political and regulatory landscapes for their impact on carriers.
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