Fitch Ratings has published a special report on the southern cone insurance industry. Fitch maintains a Stable Outlook for the insurance industry in Bolivia, Chile and Uruguay, which indicates a majority of insurers' ratings are likely to be affirmed over the next 12-24 months. On the other hand, Fitch assigned a Negative Outlook to Argentina's insurance industry, which indicates potential pressure on companies' operating flexibility and may lead to downgrades over the next 12-24 months.
The southern cone insurance industry has demonstrated uneven results. While Chile exhibits a mature and solid underwriting profile, including premiums diversification as well as a stable regulatory framework, other countries, such as Bolivia and Argentina face regulatory uncertainty, or greater inflation, such as Argentina and Uruguay.
Inflation rates in Argentina and Uruguay tend to be more elevated than those reported in the rest of the region, and has resulted in high nominal growth in premiums. Uruguay faces a high but controlled inflation scenario, whereas Argentina's insurers have demonstrated flexibility to anticipate tariff adjustments. Fitch believes that the significant gap between the official and unofficial inflation rates in Argentina could pressure companies' operating margins, in a business environment already characterized by reduced operating flexibility.
Financial revenue continues to be key to companies' bottom lines, either compensating for tight technical results in Argentina and Uruguay, or the significance of asset management portfolios in Chile and Bolivia. The volatility experienced in capital markets will continue to lead to fluctuations in net income, and in Fitch's opinion it will be critical for the industry's solvency and for a company's ability to manage the natural delay between slow technical price adjustments and the rapid dynamics of financial markets.
The Negative Outlook assigned to Argentina's insurers followed Fitch's downgrade of the country's sovereign rating in November 2012, which increased credit risk of the investment portfolio managed by the insurance companies, as well as the changes in the regulatory and operating framework of the industry over the past few years.
Uruguay is experiencing the slow but progressive decentralization of Banco de Seguros del Estado's dominant position in the country. However, the intense competition by business line has resulted in significant pressures on tariffs, which has led to substantially diverse results in underwriting margins, a situation that is expected to continue in 2013.
The insurance business in Bolivia continues to reflect the significant importance of the retirement business in the insurance aggregate, currently in run-off, exhibiting less operating flexibility and likely pressuring creditworthiness over the long term. The opposite is occurring in the non-life segment and traditional life business lines, which have demonstrated greater adaptability to a challenging environment and an adequate technical performance.
Additional information is available at www.fitchratings.com
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