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AMB Country Risk Report
August 24, 2016
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Country Risk Tier
CRT-4
Peru
• The Country Risk Tier (CRT) reflects A.M. Best’s assessment of three
categories of risk: Economic, Political and Financial System Risk.
• Peru, a CRT-4 country, has moderate levels of economic, political
and financial system risk. Gross domestic product (GDP) growth
is expected to increase to 3.7% in 2016, following 3.3% growth in
2015. Medium term economic output is forecasted to range between
3.5% and 4.5%.
Very
High
Very
High
Very
High
High
High
High
Moderate
Moderate
Moderate
Low
Low
Low
• The map below depicts the countries A.M. Best evaluates in
South America. Regional growth will rely, in part, upon U.S. and
European growth rates as well as domestic demand growth and
improved economic policies. As various factors will affect each
country differently, the economic expansion 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
Peru
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
192.14
31.9
6,021
3.3
3.5
94.5
78.6
53.2
73.5
27.3
Insurance Statistics
Superintendency of Banks,
Insurance, and Private Pensions
Insurance Regulator
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2014 - 2015)
USD mil
USD mil
%
1,729
1,886
11.7
Regional Comparison
Country Risk Tier
CRT-4
CRT-5
CRT-4
CRT-2
CRT-4
CRT-5
Peru
Argentina
Brazil
Chile
Colombia
Venezuela
• 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.
• Macroeconomic challenges affecting the
region include a slowdown in external
demand, exchange rate volatility, currency
depreciation, high levels of inflation, rising
income inequality, tightening financial
conditions and the need to address
structural problems in order to raise
investment and jobs creation.
• The deteriorating 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.
• Consumer and business confidence remains
subdued in the region due to slowing
economic growth and political uncertainties.
Most countries could improve transparency
and reduce the level of corruption.
Source: IMF, Axco, Swiss Re and A.M. Best
Economic Risk: Moderate
• Peru relies heavily on its commodity
exports, as it is rich in natural resources
(gold, cooper and silver; oil and gas; and
mineral deposits) as well as construction.
Economic Growth
10
Real GDP
CPI Inflation
9
• Commodity prices, especially for metal,
have been sluggish and have impacted
exports, foreign and domestic investments
and government revenues. Peru has
increased production output in an effort to
mitigate the fall in prices.
8
7
6
%
5
4
3
2
1
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: IMF World Economic Outlook and A.M. Best
2
2021
• The economy has a business friendly
operational environment that has been
successful in attracting foreign direct
investment. In the World Banks 2016 Ease of
Doing Business Survey Peru ranked #50 out
of 189 countries.
AMB Country Risk Report
Peru
Political Risk Summary
Political Risk: Moderate
Score 1 (best) to 5 (worst)
Peru
World Average
• Peru elected Pedro Kuczynski as president
in June of 2016. Kuczynski has advocated
for relative continuity in economic policy.
International Transactions
Policy
5
4
Legal System
• Kuczynski’s political party, Peruvians for
Change, do not have a majority in Congress
winning only 18 out of the 130 seats in
Congress. Kuczynski will have to form a
coalition government in order to implement
his legislative agenda.
Monetary Policy
3
2
1
Regional Stability
Fiscal Policy
0
• Corruption in the government in pervasive.
Former president Alberto Fujimori is
currently serving a 25 year prison sentence
due to human rights abuses against
guerrilla organizations and a corruption
conviction. Alberto Fujimori is the father
of Keiko Fujimori, the defeated presidential
candidate for the Popular Force party.
Business Environment
Social Stability
Government Stability
Labor Flexibility
Source: A.M. Best
• The government has faced rising criticism
as poverty and high levels of inequality
persist. Many feel they have not benefitted
from the recent economic growth or from
the presence of extractive industries in
their regions. The lack of quality education
remains a challenge for the country.
Financial System Risk: Moderate
• The Superintendency of Banks, Insurance
and Private Pensions is responsible for the
supervision of the insurance sector.
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
4,000
50
2,000
0
Peru
Argentina
Brazil
Chile
Colombia
Venezuela
Source: IMF and A.M. Best
3
0
• The Central Bank of Peru raised the policy
rate by 25 basis points to 4.25% in February
of 2016 in an effort ease inflationary
pressures. Inflation has been above the
bank’s target of between 1.0% and 3.0% for
almost a year.
• In coordination with the World Bank, Peru
launched a National Financial Inclusion
Strategy in August 2015. The program hopes
to accelerate progress towards universal
financial access and inclusion. The goal of
the strategy is to ensure that at least 75% of
adults have access to a transactional account
by 2021. Currently, approximately 30% of
adults have an account at a formal financial
institution.
AMB Country Risk Report
Peru
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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