Swiss Re: Latin America market report 2022 – moderating growth and rising headwinds
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Swiss Re: Latin America market report 2022 – moderating growth and rising headwinds

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We present the key findings from Swiss Re's latest report on the economic and insurance-focused outlook for the Latin American region

Economic Outlook

  • We forecast that gross domestic product (GDP) growth in Latin America will moderate to 1.3% next year from an estimated 3.2% in 2022. Tighter financial conditions, broadly lower (but still elevated) commodities prices and the global economic slowdown will weigh on regional growth. We project that Peru will outperform (2.5% growth), Colombia and Mexico to have a sluggish economy (1.3% each), while Brazil, the largest country in the region, to have muted growth (0.4%), and Chile to go into mild recession (-1%). Following a strong rebound last year, economic growth in the region has been stronger than expected, particularly in the first half of this year. Higher commodity prices have benefitted net commodity exporters (Chile and Peru rely heavily on metals; Mexico, Colombia and Brazil have large exposure to oil, and the region as a whole is a net exporter of agricultural goods), while robust domestic demand and normalization of contact-intensive sectors (eg, hospitality, travel, wellness) have also provided support. External headwinds to growth have included renewed supply-side shocks, geopolitical tensions in the wake of the war in Ukraine, and rising interest rates in the US. Heading into next year, rising (global) interest rates will further weaken public finances and also test private balance sheets. Weaker growth in China, a likely recession in advanced economies and social unrest are key downside risks to the economic outlook for Latin America. 

  • Inflation has likely peaked but we expect it will remain elevated in the near term, exceeding central bank targets well into 2024. As around the world, inflation has accelerated in Latin America in 2022 due to a rebound in domestic demand, higher energy and food prices, and supply-chain disruptions. We expect inflationary pressures to ease but persist into next year, due to second-round effects from higher energy and food prices passing-through to core inflation and wages. Several central banks in Latin America have been tightening monetary policy for more than a year, and are now close to or at the end of their hiking cycles. Most central banks in the region are likely to start unwinding some of their monetary tightening next year but even so, upside risks remain. For instance central banks in the region may need to raise interest rates more or keep them elevated for longer to curb capital outflows and avoid abrupt currency depreciations and pass-through inflation. We expect the policy rate in Brazil to end next year at 11.75%, while Mexico's central bank is expected to move in lockstep with the path of the US Federal Reserve (Fed). 

  • Policy uncertainty will continue following political shifts. Slower growth and social discontent with higher cost-of-living could result in more market-adverse economic policies from the left-leaning leaderships recently elected. Weaker fiscal positions in an environment of rising interest payments mean interest rates may need to remain elevated due to increased risk-premia. Persistent uncertainty regarding policy continuity has jeopardised growth prospects for Latin America. 

Insurance Outlook

  • We expect real premiums in Latin America to grow by 3.1% in 2023, down from an estimated 4.2% in 2022. We forecast 3% growth in Life and Health (L&H) premiums in real terms for the region in 2023, up from an estimated 2% in 2022, as high inflation has been eroding nominal growth. Slower economic growth and higher cost-of-living will weigh on insurance spending in the near term. We expect non-life (excluding health) premium growth to moderate to 3.8% in 2023 from an estimated 8% this year, with rate hardening, particularly in property, continuing to provide support. Further out we expect total premiums for the region to grow above GDP annually over the next five years on the back of increased risk awareness and large insurance protection gaps. At the same time, structurally higher and more volatile inflation will likely remain a negative for insurance demand and profitability. 

  • We expect commercial insurance prices to continue to rise. In the third quarter of 2022, the composite commercial insurance prices index rose by 5% in Latin America (the sixteenth consecutive quarter of increase). Pricing increases were driven by property (5%) and financial and professional liability (6%), and a second quarter of growth in casualty prices (6%) for the first time since early 2020. We see rate hardening regaining momentum as economic inflation has driven up claims inflation (including health, motor and construction) and natural catastrophes losses pressure reinsurance capacity. Life profitability is benefiting from rising interest rates and normalising mortality claims related to COVID-19. 


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