Fitch: Review and Outlook of Argentine Insurance Industry for 2010

BUENOS AIRES, Argentina--(BUSINESS WIRE)-- Fitch Ratings expects a 5%?8% growth rate in premiums in the Argentine insurance industry given the anticipated expansion in GDP, the favorable expectations in terms of patents, and the development of the agriculture sector, which is anticipated to have a positive impact on auto insurance, agricultural risk, and transportation, among other segments.

Argentina's GDP is expected to recover by 3%-5% in 2010, after exhibiting sluggish growth in 2009 (+0.8% according to official figures, -3% according to private-sector estimates). However, there is still significant uncertainty regarding the country's political stability and growing inflationary pressures resulting from increased fiscal and private spending, which has not been matched on the production side due to the country's low investment rate.

In 2009, the Argentine insurance industry grew by 3.9% in real terms (down from a real 8.4% in 2008), with the non-life and life insurance segments expanding by 11.3% and 7.2%, respectively, and the retirement segment plunging by 74.5% as a result of the nationalization of private pension funds in late 2008. The industry's technical results for the first six months of the fiscal year (which ended in December 2009) plummeted due to an increase in the industry's loss ratio and operating costs, which combined led to an 8% increase in the sector's combined ratio. However, the industry was able to double its net income thanks to higher returns on investments (particularly public-sector instruments, which represented 50.4% of the portfolio), leading to a strong gain in financial revenues.

For the current year, Fitch does not anticipate any major changes in terms of:

--Market structure, which is characterized by: 1) low penetration (2.5% of GDP as of June 2009), 2) high granularity of producers and companies (although this has been gradually declining over the past few years), 3) high participation of the auto and workers' compensation segments in total production (56% of premiums written), 4) low incentives for life insurance with capitalization, and 5) high overall retention levels (of over 80%).

--Profitability: the industry continues to exhibit positive technical results despite a growing combined index, with profitability levels being subject to volatility in financial revenues.

--Stable capitalization, with an overall liabilities/equity ratio of about 4%.

In the medium term, the most significant challenges for the industry are: 1) to adapt to the regulatory changes introduced in November 2009 in the workers' compensation segment (as of December 2009, the impact on the segment's technical performance was significant); 2) to implement measures that take into consideration inflationary expectations and their impact on reserves, structural costs, investment valuations, reinsurance rates, etc.; and 3) to adjust claims and litigation management controls and policies where the levels are still high.

For more information, Fitch has published a special report titled 'The Argentine Insurance Industry - Review and Outlook for 2010' which is available on Fitch's website at 'www.fitchratings.com'.

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

Related Research: The Argentine Insurance Industry: Review and 2010 Outlook

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Source: Fitch Ratings