Twelve Percent Growth, One Hundred Percent Combined: The One Latin American Market Fitch Calls Deteriorating

Fitch Ratings holds a neutral 2026 outlook across every rated Latin American insurance market with one exception: Mexico, where the outlook is deteriorating on the back of the 2025 VAT reform that eliminated credits for goods and services used in fulfilling insurance contracts. The agency expects technical results to stay strained and combined ratios to remain above 100 percent through 2026 in spite of continued double-digit premium growth. Set against Chile, Mexico and Colombia posting premium growth of 15.7, 12.0 and 8.9 percent, and against a July renewal that delivered property catastrophe reductions of 15 to 20 percent and two to three additional points of ceding commission, the Mexican case states the discipline of the cycle in one line: premium growth and profitability are different variables, and only one of them pays claims.

There is a particular kind of market in which premium grows at double digits and the combined ratio sits above one hundred. It is not a contradiction and it is not a paradox. It is the ordinary result of a cost base that moves faster than a tariff, and Fitch Ratings has now named the Latin American market where it is happening. The agency’s 2026 outlook for the region is neutral across every rated market except Mexico, where it is deteriorating. For a reinsurer that writes Group Life and Personal Accident across Latin America, that single exception is more instructive than the regional average it departs from.

One deteriorating outlook in an otherwise neutral region

Fitch attributes the regional neutral assessment to easing inflation, lower interest rates and broadly supportive macroeconomic conditions. Mexico is carved out for a reason that is fiscal rather than actuarial. The 2025 value added tax reform eliminated credits for goods and services used in the fulfilment of insurance contracts, and the effect of that change lands directly on the expense side of every carrier operating in the market. Fitch expects it to affect financial results materially, to pressure capital, and to keep technical results strained with combined ratios above 100 percent through 2026. The important feature of this deterioration is that it is structural and known in advance. It is not a loss event, it is not a reserve surprise and it is not a reversal of the cycle. It is a permanent increase in the cost of doing business that must either be priced into the tariff or absorbed out of the margin, and the market has not yet finished deciding which. Fitch has separately revised its outlook on the global reinsurance market from neutral to deteriorating, citing abundant capacity, intense competition in non-life and rising claims costs driven by natural catastrophe frequency and persistent social inflation. A cedant in Mexico is therefore managing a domestic cost shock and an international pricing environment that will not help pay for it.

Growth that does not convert

The regional league table makes the point sharper. Brazil, Mexico and Chile remain the three largest markets, with written premiums of USD 139.6 billion, USD 50.4 billion and USD 17.8 billion respectively in 2025. On growth, Chile, Mexico and Colombia stood out among the largest markets at 15.7, 12.0 and 8.9 percent. Mexico therefore appears near the top of the growth table and alone at the bottom of the outlook table in the same year. Anyone who reads only the first of those two rankings will reach the wrong conclusion about where to deploy capacity. Premium growth measures the size of the exposure a market is handing to its carriers. It says nothing about whether that exposure has been priced at its technical cost, and in a market where an expense reform has just moved the technical cost upward without a corresponding tariff adjustment, growth is the mechanism by which an underpriced portfolio becomes larger rather than better. This is the discipline that separates market selection from market enthusiasm. The question a specialist reinsurer asks of a growing market is not how fast it is growing, but whether the growth is being written above or below its cost, and who is absorbing the difference.

The capital that will keep terms soft

Nothing in the supply picture suggests relief. The four largest European reinsurers, Munich Re, Swiss Re, Hannover Re and SCOR, reported a record average half-year return on equity of 21.5 percent in 2026, supported by strong underwriting and investment results. Munich Re generated a net result of EUR 2.211 billion in the second quarter and EUR 3.925 billion for the half year, assisted by very low major-loss expenditure, and carries a solvency ratio above 300 percent. Swiss Re posted a first-half profit of approximately EUR 2.4 billion. Hannover Re lifted group net income to USD 1.4 billion from USD 1.3 billion with a property and casualty combined ratio of 83.2 percent. Capital of that quality does not retreat from a softening market, it competes in it. Across renewals since the start of 2026 the major reinsurers have absorbed average price declines of roughly 5 percent once inflation and changed risk profiles are taken into account, global property catastrophe rates fell around 15 percent at 1 January and the mid-year renewals skewed toward the worse end of a minus 15 to minus 20 percent range. In Latin America specifically the 1 July renewal completed with property catastrophe reductions of 15 to 20 percent, over-placement, and ceding commissions rising by two to three additional points as reinsurers competed for access to cedant portfolios. Fitch expects further softening and greater flexibility on terms at the 2027 renewals. A Mexican cedant facing a structurally higher expense base will find a reinsurance market willing to be generous on commission and structure, which is precisely the mechanism by which a cost problem migrates from the primary balance sheet to the reinsurer’s.

What this means for Power Re

Power Re underwrites Group Life and Personal Accident across Latin America, and Mexico is a market we understand rather than a market we will avoid. Four positions follow from the Fitch assessment. First, a deteriorating outlook driven by a known expense reform is an underwriting opportunity for a disciplined counterparty and a trap for an undisciplined one, because the correction will be made either in the tariff or in the ceding commission, and we will only support the first. Second, we price the cedant, not the country. A carrier that has already passed the VAT effect into its tariff, that can evidence it, and that retains a meaningful share of its own result is a better risk in a deteriorating market than an average carrier in a neutral one. Third, the two to three points of commission conceded in the region this July are a permanent transfer of margin, and we will not match them to hold a line. A proportional treaty written at a commission that cannot be earned back is not a relationship, it is a deferred loss with a signature on it. Fourth, combined ratios above 100 percent at market level are a reserving signal as much as a pricing one, and we will read Mexican submissions with particular attention to the adequacy of case reserves and the honesty of the incurred but not reported provision. Power Re does not grow by volume. It grows by quality, consistency and risk-adjusted return, and the markets that reward that patience most are the ones everyone else is reading as a growth number.