Global Perspectives

Economic Recovery In Latin America Hinges on Vaccine Rollout, Though Country Risk Issues Remain

How will the process of Covid-recovery impact the industry?

A new report from Am Best shows shows that an economic growth of 3.6% on average is expected in 2021, following the contraction of 8.1% in 2020.

March 30, 2021 — OLDWICK, N.J.–(BUSINESS WIRE)–AM Best expects economic activity in Latin America to rebound in 2021 as lockdown restrictions due to the pandemic continue to subside, providing support to the region’s insurance markets.

The Best’s Special Report, “COVID Brings Yet More Challenges to Latin America,” notes that economic growth of 3.6% on average is expected in 2021, following the dismal contraction of 8.1% in 2020. However, the economic outlook for Latin America is muted due to weakened fiscal metrics, rising social and political unrest in several countries and uncertainty surrounding the vaccine rollout and availability. Countries have been able to start vaccinating their populations, but to varying degrees of success.

In the short term, economic recovery will depend on countries’ ability to mitigate the effects of the virus until a coherent vaccine strategy can be implemented to avoid further lockdown measures. AM Best considers the major downside risk for Latin America’s economies the likelihood that the region will be slower than average to vaccinate its populations due to limited resources.

The report also highlights how country risk—divided into three main categories: economic, political, and financial system—is evaluated and factored into all AM Best ratings. As part of evaluating country risk, AM Best identifies the various factors within a country that may directly or indirectly affect an insurance company.

Other highlights in the report include:

  • A number of countries, including Argentina, Ecuador, Belize, and Venezuela, were struggling with high levels of debt before the pandemic, which limited the amount of support those governments have been able to provide during the crisis. The imbalance between increased spending amid a sharp cut in revenue will need to be corrected; many countries may need to undertake fiscal consolidation measures to get debt metrics on a more sustainable path.
  • The pandemic has caused numerous challenges, but the steady decline in Latin America’s share of world output over the last decade indicates long-standing structural issues. Latin America’s share of world GDP has declined significantly from 2010.
  • Most Latin American markets need to make their capital markets more accessible and deeper in AM Best’s view. Developed capital markets and well-regulated banking and insurance systems are vital for promoting sustainable growth and providing financial system stability.
  • Insurance premium growth has been relatively resilient despite the economic, political and financial system headwinds of the last few years. Still, economic stagnation has been a drag on the insurance industry, based on premium data to 2019. When measured in U.S. dollars, the region’s premium growth reached a peak of USD 165 billion in 2013, but has declined since, and was down by 1.5% year over year in 2019.

To access the full copy of this report, please visit here.

 

 

 

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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