Trump presidency looms large over Mexico’s insurance sector

Mexico’s insurance sector enters 2025 in a strong financial position and riding a period of solid premium growth, rising profits and a strong solvency position.

However, the rosy picture could change as the Mexican economy shows signs of slowing down, investment returns shrink and buyers face capacity restraints in areas such as property catastrophe lines, which is vital in a country heavily exposed to natural disasters.

Insurers and reinsurers with an interest in the Mexican market will also have to operate under the impact of controversial measures expected from the new US government.

President-elect Donald Trump has picked Mexico as one of the main targets for new tariffs and economic restrictions, threatening to impose retaliatory policies if the neighbouring country does not reduce the flow of migrants and drugs into the US and does not put a brake on the booming presence of Chinese economic groups in its economy.

China is accused by Trump of taking advantage of Mexico’s free trade agreements with the US to dodge sanctions imposed on its exports.

“Changes in trade agreements and economic tensions could impact key sectors such as transportation and manufacturing, increasing exposure to logistical and compliance risks,” Bernardo Arroyo, chief executive of Lockton México, says. “Possible migration restrictions or tariffs could affect remittances and economic growth, reducing the capacity to purchase insurance.”

Economic deterioration

Even if the Trump government’s bark proves to be worse than its actual bite, the expectation is Mexico’s economy and insurance industry will edge down in 2025. Swiss Re has forecast GDP growth will reach 1.5% in 2025, down from 1.6% last year. The slowdown in premium growth could be more dramatic, from 11.7% to 3.9%, according to the reinsurer.

If confirmed, the expected reduction is likely to be caused partly by the deterioration of economic activity, partly by the dynamics of the industry itself. Life insurance led the way as premiums swelled 17% in the year to the end of September 2024, according to the latest statistics released by the financial regulator, the Comisión Nacional de Seguros y Fianzas (CNSF).

Bernardo Arroyo, Lockton México

Health and accident premiums posted an 8.9% spike in the same period. Combined, those two lines make up almost 60% of the Mexican market and have benefitted from higher inflation rates and strong demand. Slower income growth could threaten this trend.

On the property/casualty (P&C) side, motor insurance has been the main driver of growth, with premiums closing September 22.7% higher than in the previous year. The performance was fuelled by a 7.7% hike in car sales in the period, as well as by rate adjustments fuelled by repair costs inflation. That trend could also turn around as inflation is falling and car sales could be affected by slower economic growth and the possible impact of US tariffs on the activity of Chinese car makers in the country.

“Risks with catastrophic coverage in highly exposed areas, cyber security and transportation are difficult to place. As alternatives, some companies are exploring captives, parametric insurance and other non-traditional risk-transfer methods”
_{Bernardo Arroyo
Lockton México}

Other P&C lines, which amount to 16% of the market and include civil and professional liability, crop insurance, marine and property with catastrophe exposure among others, saw a 2.7% fall in premium volume. Natural catastrophe was the sole non-motor P&C line with a positive performance, growing 12.5%.

In that case, premium growth may well have been the outcome of the hardening of the reinsurance market for Mexican catastrophe risks rather than higher demand for cover.

In October 2023, the tourism-reliant region of Acapulco on the Pacific coast was hit by Hurricane Otis, causing insured losses estimated at least $2bn. It was the second-largest loss generated by a natural catastrophe event in the country, according to insurance association the Asociación Mexicana de Instituciones de Seguros (Amis). As a result, rates have hardened for Mexican cedants, which transfer almost 78% of their natural catastrophe exposures to global reinsurers, Victor Pérez, a senior analyst at Fitch in Mexico City, says.

Price stabilisation

His expectation, however, is the market will be less hard in forthcoming renewals, following global trends and the lack of significant catastrophic losses in 2024.

“The truth is coverage levels by cedants are very adequate and that has helped the sector to alleviate the pressure of higher losses,” Perez says. “We expect that adjustment of rates has got in line with risk exposures and they will stabilise, although that could situation change and prices could go up due to new natural catastrophe events.”

Arroyo points out, however, one lingering impact of Otis is Mexican cedants have found less capacity available to transfer risks such as liability and transportation to the reinsurance market. He has also spotted changes in reinsurance contracts that have affected insurable risks.

Catastrophic cover is vital for the Mexican market as it is estimated almost half of the country’s territory is exposed to some kind of natural disaster, especially earthquakes, hurricanes and flooding. But one of the main hurdles to the development of the Mexican market – the low penetration of insurance among the population – ends up helping the industry’s financial health when an event such as Otis takes place.

In a recent press conference, Noelia Alicia Rosas, Amis’s managing director, said only 10% of Mexican homes are protected by insurance policies. The number is higher among those that are financed by bank mortgages but even then it barely reaches 20%. Not surprisingly, perhaps, less than one-third of the $1.2bn of insured claims caused by Otis already settled were paid to homeowners, compared with 20% to hotels, which are a key industry in the region of Acapulco, and 46.5% to companies and infrastructure operators.

In addition to reinsurance capacity, Otis has had an impact on loss levels, which increased 10.3% in the third quarter (11.4% in non-motor P&C lines), according to the CNSF. In natural catastrophe risks, the increase was 115.5% and another noticeable contributor was fire insurance policies, with a 49.6% spike. Other factors such as medical and car repairs inflation contributed to the trend.

Solvency levels

Nonetheless, Mexican insurers remain profitable and highly solvent. By the end of September, insurers boasted a solvency capital ratio of 3.4, which is 2.4 points more than the level required by the supervisor.

“Ever since Mexico has implemented Solvency 2 in 2016, the industry has posted solvency levels that are consistently above 3.2,” Eugenia Martínez, head of insurance for Mexico at Fitch Ratings, says.

Eugenia Martínez, Fitch Ratings

“In the P&C segment solvency is ample and we do not see it under any pressures right now. Furthermore, regulation requires Mexican insurers build up their catastrophe reserves, which constitute an excess of reserves that allow them to broaden their capital base if necessary,” Martínez adds.

Insurers’ profits reached Peso60.2bn ($2.9bn) in the first nine months of last year, a 24% annual increase. However, they have been boosted by the performance of investment portfolios thanks to high interest rates and the appreciation of the peso versus the US dollar.

“Ever since Mexico has implemented Solvency 2 in 2016, the industry has posted solvency levels that are consistently above 3.2. In the P&C segment solvency is ample and we do not see it under any pressures right now”
_{Eugenia Martínez
Fitch Ratings}

Both factors could go away this year, however. Swiss Re expects central banks to continue the ongoing process of cutting rates and the peso to get weaker. If investments fail to deliver strong results, they may fail to compensate for negative technical results, which were already posted in 2024.

Furthermore, Perez says infrastructure investments may contribute less to premium growth under Mexico’s new president, Claudia Scheimbaum, than under her predecessor, Andrés Manuel López Obrador. “We can still see some movement towards infrastructure projects, although not with the same intensity as in the previous six years,” he says.

Judicial reform

That might not be the only impact government action could have on the market. Arroyo points out the recently approved reform of Mexico’s judiciary system, according to which many judges will be elected by popular vote, also worries the market.

“In terms of liability, some companies have expressed concern about recent changes in the judiciary and Mexican legislation, as insurance indemnities may be affected by decisions made by people without the appropriate capacity or experience,” he says.

Arroyo also highlights at present commercial insurance buyers, at least, are generally enjoying a moment of fierce competition in the Mexican market, although there have been rates increases in certain lines of business such as property exposed to natural catastrophe and liability. However, some business sectors face capacity restrictions because of greater risk selectivity by reinsurers.

“Risks with catastrophic coverage in highly exposed areas, cyber security and transportation are difficult to place. As alternatives, some companies are exploring captives, parametric insurance and other non-traditional risk-transfer methods,” Arroyo says.

Another line that presents capacity challenges is transportation, according to the Lockton executive. “Insurers have closed underwriting or tightened conditions. There are goods that are not appetising, such as blood, jewellery, some perishables and bulk goods,” Arroyo points out. “More security measures are required, such as monitored GPS point-to-point, decoys, engine stops and so forth.

“Mexico faces a considerable increase in organised crime that mainly affects the transportation of goods on highways. Some insurers even have higher penalties for routes or transfer schedules.”

On the property side, sectors like mining, petrochemicals, gas, energy are kept outside the underwriting policies of some insurers. “For the manufacture or transformation of cotton, wood, plastics, solvents, recyclables and other similar activities, underwriters request fire protection security measures according to international standards,” he says.

“However, in Mexico, basic measures like extinguishers are in place to comply with civil protection [rules], but they are not optimal for adequate risk protection.”