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Best's Commentary: No Short-Term Rating Impact Expected from Peru President's Departure; AM Best Maintains Stable Outlook

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While the resignation of Peru's president on Wednesday comes at a time of heightened economic and political instability, AM Best is maintaining its stable outlook for the country's insurance industry due to its sound capitalization levels.

In a newly issued Best's Commentary, AM Best said it expects financial income levels in Peru to remain volatile through the end of 2020, which could be exacerbated by President Martín Vizcarra's impeachment on corruption charges at the beginning of this week. The country has been hard hit by the COVID-19 pandemic, with one of the highest per-capita mortality rates in the world, and will now have its third president since 2016.

Last month, the International Monetary Fund projected that Peru's economy would contract by almost 14% in 2020. Given the IMF's forecast, pandemic lockdown measures being extended until the end of November and the likelihood of subsequent turmoil, premium volume in Peru will remain pressured. Premiums have been almost stagnant since the first half of 2020, and AM Best expects the industry to decline in real terms by 1% to 2% this year from its year-end 2019 premium level of approximately USD 4.2 billion, following a four-year deceleration in growth, according to AM Best.

"So far, industry claims have been under control because of lower frequency in lines such as auto and personal lines, owing to preemptive measures related to the COVID-19 pandemic," said Alfonso Novelo, senior director, analytics, AM Best. "However, as the economy starts to open in 2021, reported claims could spike."

In May, AM Best decided to maintain its stable market segment outlook on Peru's insurance industry, citing the country's comprehensive economic and regulatory response to COVID-19, which provided insurers financial flexibility, and the industry's robust capitalization. Peru's insurance market ranked as the seventh largest in Latin America based on 2019 premiums; Peruvian companies underwrite around 78% of insurance policies in the country, despite constituting only a quarter of all participants.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=303086.

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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2020 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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