CONTACTS:
FOR IMMEDIATE RELEASE
MEXICO CITY - JULY 16, 2018 01:36 PM (EDT)
While the peso has gained some ground after Mexico’s recent presidential election, failure or unfavorable conditions in the renewal of the North American Free Trade Agreement (NAFTA) could burden Mexico’s currency, which could cause an increase in the loss ratio of the country’s insurance sector, according to a new A.M. Best briefing.
The Best’s Briefing, titled, “Mexico’s Election Results: Short-Term Stability, Long-Term Headwinds,” states that an ambiguous economic landscape will challenge President-elect Andrés Manuel López Obrador. Additionally, the NAFTA renewal, monetary policy, inflation and the strength/weakness of the peso will be key concerns. The non-renewal of NAFTA could impact insurance companies’ claims as a result of an increase in the cost of commodities, automobile parts and medical supplies that are priced in U.S. dollars. The insurance sector in Mexico generally tries to avoid currency mismatches between assets and liabilities. Nevertheless, some participants hold long positions in U.S. dollars with excess capital, which could translate into currency gains.
Contracts awarded by López Obrador’s predecessor, especially those related to infrastructure and tax incentives, may be re-examined, which could affect a growing surety insurance sector. Furthermore, changes in attitudes toward trade, business and labor could influence taxes, wages and inflation, which in turn would alter risk/reward profiles of various asset classes and influence investment portfolios.
A.M. Best will continue to monitor key developments in the economic, political, and regulatory landscape of Mexico for any impact on credit risk and ratings.
For the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=275852 .
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.