[November 30, 2016]

Fitch: Uruguayan Insurance Outlook Remains Stable for 2017

Stable premiums growth propelled mainly by massive insurance lines such as pension and automobile, low exposure to catastrophic events, and ample room for insurance growth points to a Stable Outlook for the Uruguayan insurance sector in 2017, according to a new Fitch Ratings report.

Uruguayan insurance industry growth is driven by premium increases in massive lines such as pension, automobile, life and accidents, registering yearly average growth of 17%. In Fitch's opinion, 2017 premium growth will be limited within historical ranges between 10%-20%. Pension premiums will maintain two-digit growth while other insurance lines may present one-digit growth.

Banco de Seguros del Estado (BSE), or State Insurance Bank, is a state-owned company and is the dominating leader in the industry with premium market share of 64% as of June 30, 2016. BSE is the leader in various insurance lines such as automobile, fire, liabilities, pension and accidents. Even though there is increasing competition in the market, Fitch believes BSE will remain the leader during 2017, although this presence will decrease in the long term.

Uruguay is one of a few Latin American countries in the region with a high income per capita of USD15,720, as of Dec. 31, 2015. The Uruguayan insurance industry's penetration in the economy (GDP) is 2.4%, as of June 30, 2016, close to Latin America's average (average of 2.7%). There remains significant room for the insurance industry to grow.

Given its geographical location, Uruguay is not exposed to big catastrophic events, such as earthquakes and tsunamis. The country has minor exposure to floods and infrequently tornados with limited effects on industry performance. Thus, the industry's future performance will be determined by claim loss control and price competition.

As with other industries in the region, net income highly depends on financial income. The investment portfolio is concentrated in Uruguayan government and local financial institution securities, with a return on investment of 4.8% resulting in an operational ratio of 91.0%. Fitch does not foresee significant changes in the short term, consequently combined and operational ratios will be around 105.0% and 90.0% respectively.

The industry's leverage has increased to 5.8x, driven by constant pension business growth, an area historically dominated by BSE, holding concentrating practically 100% of market share. The remaining Uruguayan insurers will continue to present a low average of leverage of 2x, comparatively lower than other industries in the region.

Uruguayan insurance regulation has evolved positively during the last three years. Future regulation development will focus on mortality tables and increasing competition in pension segments, now dominated by BSE. This will enhance competition and increase insurance penetration.

The full report, '2017 Outlook: Uruguayan Insurance Sector - Market Dominated by a Stated Owned Company', is available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Related Research

2017 Outlook: Uruguayan Insurance (Market Dominated by a State-Owned Company)

https://www.fitchratings.com/site/re/890766

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