Prospects for sustainable growth in Latin America have been on a downward slide in recent years. Some countries are on track for solid expansion, while others face economic challenges, including currency devaluations and evolving fiscal and monetary policies. Economic diversification and an expanding middle class will encourage increased trade and future investment.
The insurance market outlook is promising even though GDP growth across the region has slowed considerably, with most countries lowering their gross domestic product (GDP) forecast. As Brazil faces high inflation and one of its worst recessions, Argentina is slowly recovering. The four trading partners in the Pacific Alliance (Mexico, Chile, and particularly Colombia and Peru) are expanding at a solid pace.
The key issues facing insurance companies: increased competition and market consolidation, greater contagion risk and rising customer expectations. Against this backdrop is a complex regulatory landscape where companies are at various stages in advancing risk transparency and adopting global solvency standards, corporate governance and enterprise risk management (ERM).
We introduced our first Latin American report on regulatory developments in 2012, with an update in 2014. By 2016, Mexico had set the standard by being the first in the region to adopt a framework modeled after Solvency II.
Brazil received provisional Solvency II equivalence status in January 2016, and Chile is close on its heels with a risk-based capital approach modeled after Solvency II. Colombia is moving toward the more risk and economic value-based ComFrame, while Peru, Uruguay and Argentina have been cautiously watching their neighboring countries with no immediate plans to implement a risk-based capital system.
Risk-based capital and Solvency II-type rules are still evolving in many of these countries. Upgrading ERM practices and collaborating with governments, regulatory organizations and other financial institutions may be a reasonable strategy to achieve a more consistent insurance regulatory framework across the region.