TEXT-Fitch special report on Latin America southern cone insurance industry

Wed Jan 30, 2013 10:41am EST

Jan 30 - Fitch Ratings has published a special report on the southern cone
insurance industry. Fitch maintains a Stable Outlook for the insurance industry
in Bolivia, Chile and Uruguay, which indicates a majority of insurers' ratings
are likely to be affirmed over the next 12-24 months. On the other hand, Fitch
assigned a Negative Outlook to Argentina's insurance industry, which indicates
potential pressure on companies' operating flexibility and may lead to
downgrades over the next 12-24 months.

The southern cone insurance industry has demonstrated uneven results. While
Chile exhibits a mature and solid underwriting profile, including premiums
diversification as well as a stable regulatory framework, other countries, such
as Bolivia and Argentina face regulatory uncertainty, or greater inflation, such
as Argentina and Uruguay.

Inflation rates in Argentina and Uruguay tend to be more elevated than those
reported in the rest of the region, and has resulted in high nominal growth in
premiums. Uruguay faces a high but controlled inflation scenario, whereas
Argentina's insurers have demonstrated flexibility to anticipate tariff
adjustments. Fitch believes that the significant gap between the official and
unofficial inflation rates in Argentina could pressure companies' operating
margins, in a business environment already characterized by reduced operating
flexibility.

Financial revenue continues to be key to companies' bottom lines, either
compensating for tight technical results in Argentina and Uruguay, or the
significance of asset management portfolios in Chile and Bolivia. The volatility
experienced in capital markets will continue to lead to fluctuations in net
income, and in Fitch's opinion it will be critical for the industry's solvency
and for a company's ability to manage the natural delay between slow technical
price adjustments and the rapid dynamics of financial markets.

The Negative Outlook assigned to Argentina's insurers followed Fitch's downgrade
of the country's sovereign rating in November 2012, which increased credit risk
of the investment portfolio managed by the insurance companies, as well as the
changes in the regulatory and operating framework of the industry over the past
few years.

Uruguay is experiencing the slow but progressive decentralization of Banco de
Seguros del Estado's dominant position in the country. However, the intense
competition by business line has resulted in significant pressures on tariffs,
which has led to substantially diverse results in underwriting margins, a
situation that is expected to continue in 2013.

The insurance business in Bolivia continues to reflect the significant
importance of the retirement business in the insurance aggregate, currently in
run-off, exhibiting less operating flexibility and likely pressuring
creditworthiness over the long term. The opposite is occurring in the non-life
segment and traditional life business lines, which have demonstrated greater
adaptability to a challenging environment and an adequate technical performance.

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

Applicable Criteria and Related Research:
--'Insurance Ratings Methodology' (Jan.11, 2013).

Applicable Criteria and Related Research: 2013 Outlook - Latin American Southern
Cone Insurance

Insurance Rating Methodology - Amended
FILED UNDER:
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