Best's Market Segment Report: AM Best Maintains Negative Outlook on Panama's Insurance Market

AM Best is maintaining a negative market segment outlook on Panama's insurance industry, owing to a number of significant challenges, including a slow economic recovery and underwriting activity that is being pressured by higher claims frequency amid slower premium generation.

The new Best's Market Segment Report, titled, "Market Segment Outlook: Panama Insurance," notes that more than one year into the global pandemic, Panama's measures to withstand its economic downturn have taken their toll. The International Monetary Fund estimates a 17.9% GDP contraction for Panama, the highest among Central American countries and well above the 2% previously forecast for 2020. Travel restrictions and intermittent quarantine periods seeking to contain the virus led to an acute decline in commercial activity and diminished external demand. Despite measures safeguarding credit risk exposure, including flexibility in credit collections, extended payment options, and discounts, the economic slowdown exacerbated deteriorating fiscal conditions.

Panama´s insurance industry contracted 2.15% in terms of gross premiums written (GPW). The domestic industry is led by health, as reflected by a 7% compound annual growth rate during the past five years. This business line expanded 10.3% in 2020, partially driven by increased awareness of health coverage seeking to offset the severity of COVID-19, as well as continued medical inflation. In AM Best´s view, increasing demand for health coverage will persist and drive growth in the coming years.

Other factors underpinning the negative outlook include Panama's debt burden, which has been exacerbated by an increase in the fiscal deficit, along with the pressure being put on public finances, driven by the government's higher dependency on the Panama Canal, its main source of revenues. Disruptions in global commercial trade caused by the pandemic continue to represent a risk for the shipping and logistics hub.

Underwriting among Panama's insurers remains profitable, with the industry posting a combined ratio of 84%, consistent with historical performance despite adverse 2020 results. Profitability continues to be reinforced by historically conservative investment strategies that are mainly allocated to fixed income securities. Still, volatility in equity capital markets, in conjunction with stricter regulatory requirements, may pose a significant challenge for insurers looking to enhance their investment income while maintaining strategies appropriate to their asset-liability management. In AM Best´s opinion, the industry´s sound capitalization is well-positioned to withstand further pressures stemming from the pandemic.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=314002.

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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