According to analysts at GlobalData, Mexico’s general insurance industry is expected to grow at a CAGR of 7.5%, from $18.2 billion in 2021 to $26 billion in 2026.
Premium growth in 2021 was pressured by a 2% reduction in the life business, as well as 1% in the automobile line, which overall accounts for about 55% of industry premiums.
Such growth will be driven by large infrastructure and construction projects, frequent occurrence of natural catastrophe events, and an increase in demand for health insurance policies, which are due to the COVID-19 pandemic.
At the same time, GlobalData also notes that Mexico’s general insurance industry growth will be led by property and personal accident and health (PA&H) insurance lines, which is the largest general insurance line in Mexico, accounting for a 31.3% share of the GWP in 2021, while property insurance held a 21.1% share.
In 2021, the P&H segment grew by 19.3%, which was driven by the rising demand for health following increased awareness due to the pandemic.
Meanwhile, AM Best is maintaining its negative outlook on Mexico’s insurance market segment, owing to increased levels of inflation and slow GDP growth.
At the same time, unemployment rates have been spiking since 2020, amid economic uncertainty because of the COVID-19 pandemic, which has impacted consumer sentiment for both lines of business.
However, other lines of business did return to growth in 2021, but the increase in premium volume was very limited and flat in the surety business line.
Recovery estimates for the Mexican economy have been adjusted downward, to GDP of approximately 1.7% from up to 3% at the end of 2020, which has led to AM Best to project 2% growth for the country’s insurance industry in 2022.
Inflation estimates have also almost doubled since the beginning of 2022, and are expected to be around 7% at year-end.
The demand for life insurance products could decline if the returns offered by the industry do not keep up with those offered in the market through more liquid investments. On the property/casualty side, rising inflation, a slow economic recovery and the risk of future supply chain disruptions could hamper segment dynamicsAlfonso Novelo, senior director, analytics, AM Best
Insurance industry capital declined by approximately 2% in 2021, which was mainly as a result of dividend payments. AM Best not see this as a negative in terms of risk-based capitalization, since the insurance industry’s net underwriting leverage did not change materially from previous years.
Furthermore, to mitigate the impact of increased claims on underwriting results, Mexico’s insurance industry implemented stringent cost policies that improved operating expense ratios during 2021. But, since acquisition expenses have remained virtually unchanged from 2020, the combined ratios of some lines of business, such as accident and health, and automobile, rose considerably.
Mexico’s insurance market to remain pressured by the challenging economic environment.
The outlook may be revised to stable if challenges dissipate or adjustments to underwriting policies and improved efficiency are able to mitigate the impact of headwinds.