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Best’s Commentary: No Ratings Impact on Peru’s Insurers From Recent Sovereign Downgrades

·3 min read

OLDWICK, N.J., October 28, 2021--(BUSINESS WIRE)--AM Best does not foresee near-term Credit Rating actions on rated insurance companies operating in Peru despite recent sovereign downgrades amid ongoing political tensions and the sustained impact of COVID-19 on the country’s economy.

However, in its new Best’s Commentary, titled, "No Ratings Impact on Peru’s Insurers From Recent Sovereign Downgrades," AM Best states that it is maintaining a negative market segment outlook on Peru’s insurance industry, based on the potential for further volatility in the financial markets stemming from reforms to the pension system, along with the impact on premiums associated with those pension funds.

Peru’s insurance industry in 2021 has resurged owing to the growth in economic activity, particularly during the April-June period with regard to premiums and claims. Still, COVID-19 claims account for a relevant proportion of all claims and are the main reason for the limited performance of the life segment and insurance associated with private pension plans. COVID-19 claims resulted in a loss of PEN 200 million (USD 52.7 million) in net income as of June 2021.

Although Peru historically has been characterized by sound macro-fundamentals that have supported the development of the country’s insurance industry, political decisions continue to bring volatility to revenues and investments (i.e., reserves). AM Best’s country risk analysis, which is factored into all of Best’s Credit Ratings, encompasses the broader operating environment, focusing on the economic, political and financial system risks in a given country. Unlike sovereign credit risk, which measures a country’s overall capacity and willingness to pay its financial obligations, country risk incorporates the country-specific factors that could adversely affect an insurer’s ability to meet its financial obligations. In other countries in Central and South America, downgrades, defaults or selective defaults have been resolved rapidly by the governments able to restructure their debt—which, in conjunction with well-capitalized rated entities and limited exposure to foreign securities issued by those sovereigns, have limited the impact on AM Best rating units.

AM Best views its rated entities in Peru as well-capitalized and expects them to weather the change in the country’s sovereign ratings and its impact on risk requirements for investments.

To access the full copy of this commentary, please visit http://www3.ambest.com/ambv/sales/bwpurchase.aspx?record_code=314053.

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.

Copyright © 2021 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211028005680/en/


Ann Modica
Associate Director, Credit Rating Criteria
Research and Analytics
+1 908 439 2200, ext. 5209

Eli Sanchez
Associate Director
+52 55 1102 2720, ext. 122

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Communications
+1 908 439 2200, ext. 5644