Credit rating agency AM Best has reasserted its negative outlook on Colombia’s insurance segment, citing limited development due to challenging global conditions and political uncertainty. While economic conditions are showing signs of improvement in Colombia, concerns persist regarding the government’s ability to stabilize the nation’s fiscal situation.
Colombia’s reliance on the hydrocarbon and mining sectors further compounds its vulnerability to fluctuating global commodity prices and demand, as outlined in Best’s Market Segment Report titled “Market Segment Outlook: Colombia Insurance.”
Despite these challenges, the country’s insurance market has demonstrated growth, with a remarkable 34% year-over-year increase in 2022. Premiums reached COP47.3 billion during this period, with a 20% discount accounting for the assumption of AFP Protección pensioners’ risks by the newly formed Asulado Seguros de Vida S.A. By August 2023, the market had sustained a 19% growth compared to the same period the previous year.
The report highlights that growth in 2022 was primarily fueled by social security business lines, followed by property/casualty, where auto insurance played a significant role. The surge in the average premium value and the number of insured vehicles contributed to this growth. Subsequently, fire, liability, and fulfillment, along with double-digit growth in life and health premiums, underscored the industry’s resilience despite the devaluation of the Colombian peso in 2022.
Although 2023 witnessed continued growth at 19.1% year-over-year, the insurance market faced a negative technical result due to pandemic-related claims and inflationary impacts, as detailed in the report.
Colombia’s expanding economy, particularly in manufacturing, mining, and services, has driven increased awareness of insurance coverage among individuals and businesses, particularly heightened by the COVID-19 pandemic. The evolving socio-economic landscape, characterized by a growing middle class, fuels rising demand for insurance products and services, according to analysts.
However, the challenges persist, with limited development attributed to global conditions and political uncertainties. The recent change in leadership, focused on reversing the conservative positions of former President Ivan Duque, has introduced additional uncertainty regarding the government’s fiscal stabilization capabilities. Furthermore, the country’s reliance on the hydrocarbon and mining sector makes it susceptible to global demand and price shifts.
AM Best projects Colombia’s GDP to slow to 1.4%, following a substantial 7.3% expansion the previous year. Analysts caution reinsurers to remain vigilant in implementing fraud detection measures, as false claims and insurance scams pose potential threats to the industry’s stability and profitability in Colombia.
In light of persistent inflationary pressures, current interest rates have surpassed levels seen during the 2008 global financial crisis. This presents a dual challenge, with higher interest rates benefiting investment income, particularly for carriers with a significant life insurance component, while inflationary pressures impact claims cost and underwriting income.
AM Best, while expressing confidence in Colombia’s insurance market’s ability to withstand current challenges, commits to ongoing monitoring of economic, political, and regulatory landscapes for potential impacts on carriers.
