Best’s Market Segment Report: Value-Added Tax to Ramp Up Pressure on Mexico Insurers’ 2026 Earnings

Business Wire

MEXICO CITY--(BUSINESS WIRE)-- The elimination of a fiscal credit on value added tax (VAT) paid to third parties such as hospitals and on other claims-related expenses in Mexico is likely to create greater earnings volatility and pressurize the capitalization of smaller or monoline insurers, according to a new AM Best report.

Under the 2026 Federal Revenue Law, insurers can no longer recover the 16% VAT they pay to third-party repair shops, hospitals or service providers when settling a claim, making it an added expense. According to the Best’s Market Segment Report, “Value-Added Tax to Further Pressure Earnings of Mexican Insurers in 2026,” the new VAT treatment will erode a notable amount of net income, particularly on carriers with concentrations in the auto and medical lines.

Although total underwriting income increased by 12% and topped MXN 243 billion in 2025, incurred claims rose at a faster rate, at 15%, for the third time in four years. According to the report, many of the companies that have premium concentrations greater than 25% in Mexico’s auto segment are generally smaller companies, and about half reported a net loss in 2025. Overall, 40% of companies with less than a billion pesos in premiums reported losses in 2025.

“While the reinsurance market remains in a soft cycle, the potential strain on insurers derived from the new VAT treatment could increase demand for reinsurance, a factor that may move the needle for prices and conditions if capacity does not increase at the same rate,” said Sebastian del Rio, associate financial analyst, AM Best.

The report states that insurers have been implementing a combination of price increases on their coverages, adjustments on limits and characteristics of insurance products to combat the impacts of the VAT reform.

“Because insurers are unable to credit VAT on direct payments for goods and services used to settle insurance claims, we may see a decrease in take-up rates as insurance premium costs increase and become less affordable,” said Alfonso Novelo, senior director, analytics, AM Best.

To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=368758.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.