BOGOTA--(BUSINESS WIRE)--Fitch Ratings has published a special report titled 'Outlook 2012: Andean Region Insurance, Colombia, Venezuela and Peru'.
Fitch believes that rated Colombian, Venezuelan, and Peruvian companies are in a position to handle the challenges they are currently facing. As 96% of these companies currently have a Stable Outlook, no significant changes are expected in their ratings over the short term.
The regional economy has experienced positive growth thus far in 2011, with Colombia and Peru standing out for their dynamism. The 2012 growth outlook for all three countries analyzed in this report continues to be positive, with a modest slowdown possible in Colombia and Peru and acceleration likely in Venezuela.
A favorable economic environment, combined with the insurance industry's strategy to grow large-scale, low-price, and low-risk insurance segments, will help the sector attain higher market penetration as its business begins to target the less insured segments of the population.
While the region's technical performance is adequate, loss ratios remain under pressure from inflation, more intense competition, severe climatic events, and regulatory changes that may require the establishment of larger reserves.
Andean region insurers' reserves are primarily invested in government instruments and local bank bonds from each respective country, and, to a lesser extent, in private debt securities. The trend is slightly different in Colombia, where a greater percentage of the portfolio is held in equity instruments. The portfolios' profitability has been very modest and in line with the monetary policies of each country, but they have been less volatile than in countries such as Chile.
The insurers' capitalization ratios are in line with international standards. However, Venezuela's capital is highly exposed to real estate, at levels that exceed international standards.
Factors that Could Trigger Rating Changes
Downgrade: The largest threat faced by Andean region insurers is prolonged, fierce competition that could drive prices down further. Also, higher leverage ratios and equity exposure could trigger a downgrade in the sector's outlook.
Upgrade: With the generally slower economic growth anticipated for 2012, the industry faces challenges in terms of combined ratio and investment income; thus, a revision in the Rating Outlook to Positive from Stable will depend on more company-specific issues.
The full report is available on the Fitch website at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
'Insurance Rating Methodology', dated Sept. 22, 2011.
Applicable Criteria and Related Research: 2012 Outlook: Andean Region Insurance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=661909
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018
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