Download Argentina - A.M. Best

AMB Country Risk Report
August 24, 2016
Our Insight, Your Advantage.
Country Risk Tier
CRT-5
Argentina
• The Country Risk Tier (CRT) reflects A.M. Best’s assessment of three
categories of risk: Economic, Political and Financial System Risk.
• Argentina, a CRT-5 country, has moderate levels of economic risk,
high levels of political risk and very high financial system risk.
Very
High
Very
High
Very
High
High
High
High
Moderate
Moderate
Moderate
Low
Low
Low
• Argentina will face several challenges in the near term including
a continued weak economic environment and legacy debt issues
that will limit its growth potential. Gross domestic product (GDP)
growth is forecasted to contract by -1.0% with inflation at 38% for
2016. Growth for 2016 - 2019, however, is expected to pick up to a
range of 2-3% during the period.
• Regional growth will rely, in part, upon US, European and Chinese
growth rates as well as domestic demand growth and improved
economic policies. As various factors will affect each country
differently, the recovery process will not be homogenous within
the group.
Mexico
Bahamas
Dominican
Republic
Cuba
Puerto
Rico
Haiti
Cayman Islands
Belize
Jamaica
British
Virgin Anguilla
Islands
St. Maarten
St Kitts & Nevis
Honduras
Very
Low
Very
Low
Very
Low
Guatemala
El Salvador
St Vincent & the Grenadines
Curacao
Grenada
Costa Rica
Panama
Political
Risk
Financial
System
Risk
Cape Verde
St Lucia
Barbados
Trinidad & Tobago
Venezuela
Guyana
Colombia
Economic
Risk
Antigua & Barbuda
Dominica
Nicaragua
Suriname
French
Guiana
Ecuador
Peru
Brazil
Bolivia
Country Risk Tier 5 (CRT-5)
Very High Level of Country Risk
Country Risk Tier 4 (CRT-4)
High Level of Country Risk
Chile
Paraguay
Argentina
Uruguay
Country Risk Tier 3 (CRT-3)
Moderate Level of Country Risk
Country Risk Tier 2 (CRT-2)
Low Level of Country Risk
Country Risk Tier 1 (CRT-1)
Very Low Level of Country Risk
Falkland Islands
South Georgia
Tierra Del Fuego
Copyright © 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.
AMB Country Risk Report
Argentina
Regional Summary: Latin America
Vital Statistics 2015
Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Literacy Rate
Urbanization
Dependency Ratio
Life Expectancy
Median Age
USD bn
mil
USD
%
%
%
%
%
Years
Years
585.62
43.1
13,589
1.2
98.1
91.8
56.5
77.7
31.4
Insurance Statistics
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2014 - 2015)
USD mil
USD mil
%
3,527
15,882
9.5
Regional Comparison
• Consumer and business confidence
remains subdued in the region due to
slowing economic growth and political
uncertainties. Most countries would
benefit from improved transparency and a
reduction in the level of corruption.
Source: IMF, World Bank, Swiss Re, Axco and A.M. Best
Economic Risk: Moderate
Economic Growth
• Argentina is rich in natural resources, has a
large agricultural sector and benefits from a
well-educated work force. It remains one of
South America’s largest economies.
25
CPI Inflation
20
• Weak external demand will be a headwind
for the economy. Brazil, which is suffering
from its worst recession in decades,
is Argentina’s main trading partner.
Additionally lower commodity prices and
general economic weakness in the region
will continue to be challenging.
15
10
5
0
• The weak economic outlook for commodity
exporters is exacerbating ongoing political
tensions for some countries in the region
including Brazil and Venezuela.
• Several countries (i.e. Mexico and Peru)
have been able to mitigate the economic
downturn by implementing credible fiscal
and monetary policies. External shocks
to these economies have been somewhat
reduced by implementing countercyclical
policies.
Country Risk Tier
CRT-5
CRT-4
CRT-2
CRT-4
CRT-4
CRT-5
Argentina
Brazil
Chile
Colombia
Peru
Venezuela
%
• Macroeconomic challenges affecting the
region include a slowdown in external
demand, exchange rate volatility, currency
depreciation, inflation, income inequality,
tightening financial conditions and the need
to address structural problems in order to
raise investment and jobs creation.
Superintendency of Insurance
Insurance Regulator
Real GDP
• Economic growth is expected to remain
subdued over the medium term, particularly
for countries that are commodity exporters
and those countries that are experiencing
weak investment.
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
• The government hopes to reduce high
inflation. Its goal for 2016 is 30% and it hopes
to reduce the rate to single digits by 2019.
-5
Source: IMF World Economic Outlook and A.M. Best
2
AMB Country Risk Report
Argentina
Political Risk Summary
Political Risk: High
Score 1 (best) to 5 (worst)
Argentina
World Average
• In December 2015, Mauricio Macri became
the new president of Argentina. He
succeeds former president Kirchner who
had held the office since 2007, when she
succeeded her husband who died in office.
International Transactions
Policy
5
4
Legal System
Monetary Policy
3
• Marci hopes to improve Argentina’s business
operating environment by addressing
foreign exchange restrictions, high levels of
inflation and import barriers. Additionally,
he has pledged to restore the independence
of the central bank and improve the validity
of data from the national statistic office.
2
1
Regional Stability
Fiscal Policy
0
Social Stability
Business Environment
Government Stability
• In the past there has been heavy state
intervention in the economy which has
limited foreign direct investment into the
country. Argentina currently ranks 121
out of a 189 countries in the World Bank’s
Doing Business survey.
Labor Flexibility
Source: A.M. Best
• Marci may have difficulties passing
legislation as he does not control a majority
of the seats in Congress. Many reforms will
likely depend on Marci’s ability to form and
maintain a coalition government.
Financial System Risk: Very High
• The Superintendency of Insurance is
responsible for insurance supervision in
Argentina.
GDP Per Capita and Population
for Selected Countries
250
16,000
GDP Per Capita
Population
14,000
200
12,000
150
Millions
USD
10,000
8,000
100
6,000
• The government is making progress in
reporting factual economic data according
to the IMF. In the past economic reporting
was suspect as the methodology used to
calculate statistics has attracted criticism
from various authorities.
• Argentina recently paid past due interest
of USD 2.7 B on a bond that was in default
since July of 2014. As a result, Argentina
has regained access to international capital
markets and the potential for improved
external financing options.
4,000
50
2,000
0
Argentina
Brazil
Chile
Colombia
Peru
Venezuela
Source: IMF and A.M. Best
3
0
• Fiscal deficits have increased government
debt over the years, with the current
level of debt at approximately 50% of the
country’s GDP. Currently over 60% of
government debt is denominated in foreign
currency.
AMB Country Risk Report
Argentina
GUIDE TO BEST’S COUnTry rISk TIErS
A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims-paying ability of an insurer. Country risk is
evaluated and factored into all Best’s Credit Ratings. Countries are placed into one of five tiers, ranging from “CRT-1” (Country Risk Tier 1), denoting
a stable environment with the least amount of risk, to “CRT-5” (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest
challenge to an insurer’s financial stability, strength and performance.
A.M. Best’s Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.
Country risk Tiers
Country risk Tier
Definition
CRT-1
Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.
CRT-2
Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.
CRT-3
Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.
CRT-4
Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.
CRT-5
Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.
Country risk reports
A.M. Best Country Risk Reports are designed to provide a brief, high-level explanation of some of the key factors that determine a country’s Country
Risk Tier assignment. It is not intended to summarize A.M. Best’s opinion on any particular insurance market or the prospects for that market.
Categories of risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are (1) Very Low; (2) Low; (3) Moderate; (4) High
and (5) Very High.
Category of risk
Definition
Economic Risk
The likelihood that fundamental weaknesses in a country’s economy will cause adverse developments for an insurer.
A.M. Best’s assessment of economic risk evaluates the state of the domestic economy, government finances and
international transactions, as well as prospects for growth and stability.
Political Risk
The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity
of the legal system and of the business infrastructure, the efficiency of the government bureaucracy, and the
appropriateness and effectiveness of the government’s economic policies.
Financial System Risk
Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial
volatility may erupt due to inadequate reporting standards, weak banking system or asset markets, and/or poor
regulatory structure. In addition, it includes an evaluation of whether the insurance industry’s level of development and
public awareness, transparent and effective regulation and reporting standards, and sophisticated regulatory body will
contribute to a volatile financial system and compromise the ability of an insurer to pay claims.
Political risk Summary
To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of one to five with one being the least
amount of risk and five being the highest amount of risk.
Category
Definition
International Transactions
Policy
Measures the effectiveness of the exchange rate regime and currency management.
Monetary Policy
Measures the ability of a country to effectively implement monetary policy.
Fiscal Policy
Measures the ability of a country to effectively implement fiscal policy.
Business Environment
Measures the overall quality of the business environment and ease of doing business.
Labor Flexibility
Measures the flexibility of the labor market, including the company’s ability to hire and fire employees.
Government Stability
Measures the degree of stability in a government.
Social Stability
Measures the degree of social stability, including human development and political rights.
Regional Stability
Measures the degree of stability in the region.
Legal System
Measures the transparency and level of corruption in the legal system.
Country risk Tier Disclosure
A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Best’s Credit Rating Methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor does it address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.
Version 091714
Copyright © 2016 by A.M. Best Company, Inc.
Copyright © 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.
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