AM Best has revised its market segment outlook on the Panama insurance industry to stable from negative due to the segment’s consistent technical results and improving macroeconomic environment
The Best’s Market Segment Report, “Market Segment Outlook: Panama Insurance,” states that Panama’s GDP expanded by 15% in 2021, following a 17.9% contraction in 2020. The country also reduced its debt burden, with the debt-to-GDP ratio falling to 58.4% in 2021 from 65.6% in 2020. Public finances remain pressured by government’s significant dependence on the Panama Canal´s revenues and the deteriorated fiscal regime, in conjunction with its material spending due partially to its health crisis program, pensions and social security. Disruptions in global commercial trade, a slowdown in global economic activity and potential external shocks still represent a risk for the region´s most relevant shipping and logistics hub—an important revenue source.
The country’s insurance industry grew by 5.9% by gross written premiums (GWP) in 2021. Non-life business, which accounts for almost three quarters of the market, remains driven by health and auto. Health is still the spearhead of the domestic industry, and this line grew 19% in 2021, driven partially by the population’s growing awareness of the need for health coverage, the postponement of non-COVID related treatments and ongoing medical inflation.
Panama’s insurance industry remains concentrated, with five companies accounting for almost 75% of GWP market share. Underwriting remains healthy, reflecting a combined ratio of 91%, consistent with the segment’s historically sound performance. Strict operating expense containment strategies and contained acquisition costs continued to support underwriting performance.
Profitability is still being reinforced by insurers’ historically conservative investment strategies, mainly in the form of allocations of fixed-income securities. Given the current high inflationary environment, as well as historically high volatility in the equity capital markets, the overall industry is positioned to take advantage of the attractive interest rate environment, while maintaining favorable credit quality and strategies appropriate to asset-liability management, in line with strict regulatory requirements.