Download Costa Rica - A.M. Best

AMB Country Risk Report
August 24, 2016
Our Insight, Your Advantage.
Country Risk Tier
CRT-4
Costa Rica
• The Country Risk Tier (CRT) reflects A.M. Best’s assessment of three
categories of risk: Economic, Political and Financial System Risk.
• Costa Rica, a CRT-4 country, has high levels of economic and financial
system risk with moderate levels of political risk. Gross domestic
product (GDP) growth is forecasted at 4.25% for 2016 and 2017 while
inflation is expected to remain well contained, averaging 3% from
2017 onward.
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 Central
America, South America and the Caribbean. 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
Costa Rica
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
52.90
4.8
10,936
3.7
0.8
97.8
76.8
45.4
78.4
30.4
Insurance Statistics
General Superintendency of
Insurance
Insurance Regulator
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2014 - 2015)
USD mil
USD mil
%
135
921
-10.3
Regional Comparison
Country Risk Tier
CRT-4
CRT-4
CRT-4
CRT-5
CRT-5
CRT-4
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
• The weak economic outlook for commodity
exporters is exacerbating ongoing political
tensions for some countries in the region
including Brazil and Venezuela.
• Consumer and business confidence
remains subdued in the region due to
slowing economic growth and political
uncertainties. Improved transparency and
reduced levels of corruption could boost
growth long-term.
Economic Risk: High
Economic Growth
• Costa Rica’s economy is diversified, with
a developed manufacturing and service
sectors. An increase in exports have
provided a boost to the economy in 2016.
16
CPI Inflation
14
12
• Inflationary pressure are low largely due to
continued low commodity prices. As a result,
the Central Bank of Costa Rica has been able
implement accommodative monetary policy
in the form of low interest rates. The base
lending rate currently is 1.75%.
10
%
• 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.
• 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 countercyclical policies.
Source: IMF, World Bank, Swiss Re, Axco and A.M. Best
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.
8
6
4
2
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-2
Source: IMF World Economic Outlook and A.M. Best
2
2020
2021
• Low oil prices will help stimulate domestic
demand by increasing consumer purchasing
power. Private consumption accounts for
approximately 65% of GDP.
AMB Country Risk Report
Costa Rica
Political Risk Summary
Political Risk: Moderate
Score 1 (best) to 5 (worst)
Costa Rica
World Average
• President Solis, a member of the PAC
party, was elected in 2014 on a platform of
improving public governance, ousting the
opposition party (the PLN) who held the
presidency for eight years. Elections were
peaceful and transparent.
International Transactions
Policy
5
4
Legal System
Monetary Policy
3
2
1
Regional Stability
Fiscal Policy
• The president’s party, the PAC, only has 13
of the 57 seats in Congress. The lack of a
coalition government will likely continue to
curtail the legislative agenda.
Business Environment
• Environmental activism is prominent,
particularly in the extractive sectors. This
will likely curtail foreign direct investment.
0
Social Stability
Government Stability
• One of the main concerns of the
government is the deterioration in the
fiscal account due to growing debt burdens
and interest payments. Reform in this
area is being tied to the replacement of
some proposed tax increases to reduced
government spending. These conditions
make it more difficult to pass reform
measures.
Labor Flexibility
Source: A.M. Best
• Crime is low by regional standards, however
there are indicators that violent crime is
increasing as there is a growing presence of
organized crime. There is also an increasing
risk of social protests due to potential
government austerity measures.
GDP Per Capita and Population
for Selected Countries
Financial System Risk: High
18
14,000
GDP Per Capita
• The supervisor, the General
Superintendency of Insurance, was
established by law in 2008, concurrent with
the abolition of the monopoly of INS, the
National Insurance Institute.
Population
16
12,000
14
10,000
12
8,000
8
6,000
6
Millions
USD
10
• A key vulnerability in the financial sector
is the banking sector which is highly
concentrated with about 80% market share
of the financial system.
4,000
4
2,000
2
0
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
Source: IMF and A.M. Best
3
0
• The banking system is also highly
dollarized. Public banks hold approximately
20% of deposit in foreign currency. Private
banks hold approximately 50% of deposits
in foreign currency.
AMB Country Risk Report
Costa Rica
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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