The Only Deteriorating Outlook in the Region: What Mexico’s VAT Reform Does to a Technical Account, and Why Growth Is Diverging Across Latin America

Fitch Ratings assigns a deteriorating outlook to Mexico, the only such assessment in Latin America, driven by the 2025 VAT reform that eliminates credits for goods and services used in fulfilling insurance contracts, with combined ratios expected above 100 percent through 2026. Regional written premiums rose from USD 204.1 billion in 2023 to USD 245.1 billion in 2025, but growth diverged sharply: Chile 15.7 percent, Mexico 12.0 percent, Colombia 8.9 percent, Brazil and Uruguay below 2 percent. Mexico posted the region’s highest return on average equity at 20.1 percent alongside an aggregate loss ratio of 81.3 percent.

A tax reform is not an underwriting event. It does not change mortality, it does not change morbidity, and it does not appear in any experience triangle. It nevertheless lands in the technical account, and in Mexico it has been sufficient to make that market the only one in Latin America carrying a deteriorating sector outlook. For a reinsurer whose largest single exposure is Mexican, this is the more consequential piece of news of the past week, and it deserves more attention than the headline consolidation deals that dominated the trade press.

A cost shock that arrives through the tax line

Fitch Ratings maintains neutral industry outlooks across Brazil, Chile, Peru, Uruguay and Colombia, and a deteriorating outlook on Mexico alone. The driver is the 2025 value added tax reform, which eliminates credits for goods and services used in the fulfilment of insurance contracts, together with lower yields on short-term sovereign instruments. Fitch expects Mexican technical results to remain strained, with combined ratios above 100 percent through 2026, and notes that the final interpretation of the VAT regulation in the forthcoming fiscal resolution will determine how deeply profitability is affected. The 2025 figures already show the mechanism at work. Mexico’s motor loss ratio rose 1.2 percent and its property loss ratio 2.4 percent, effects Fitch attributes to the VAT change and to higher hydrometeorological claims, producing an aggregate loss ratio of 81.3 percent. What makes the case instructive is the contradiction sitting beside it: in the same year Mexico posted a return on average equity of 20.1 percent, the highest in the regional sample, and an expense ratio of 22.9 percent, among the lowest. A market can be efficient, profitable at the equity line and technically deteriorating at the same time, because investment income and operating discipline are masking a claims cost that is rising for a reason no underwriter can price away.

One region, several cycles

The aggregate regional picture is one of steady expansion. Written premiums across the markets under review rose from USD 204.1 billion in 2023 to USD 232.2 billion in 2024 and USD 245.1 billion in 2025, led by Brazil at USD 139.6 billion, Mexico at USD 50.4 billion and Chile at USD 17.8 billion. The aggregate conceals the dispersion, which is the part that matters for anyone allocating capacity. Chile grew 15.7 percent, Mexico 12.0 percent and Colombia 8.9 percent, while Brazil and Uruguay grew by less than 2 percent, a pattern consistent with markets under heavier competitive pressure and, in Brazil’s case, with a new financial transactions tax on accumulation products. Returns dispersed just as widely. Mexico, Peru and Brazil delivered returns on average equity of 20.1, 19.5 and 19.2 percent, while Colombia fell to 12.4 percent from 17.0 percent a year earlier, carrying an expense ratio of 51.53 percent against a regional norm in the low twenties. Underneath all of it the structural argument is unchanged: insurance penetration stands at 6.1 percent in Brazil, 5.0 percent in Chile, 3.6 percent in Colombia, 2.8 percent in Mexico, 2.1 percent in Peru and 1.2 percent in Argentina, against roughly 10 percent in developed economies, and only 13 to 20 percent of economic losses in the region are insured. Latin America is not one market moving through one cycle. It is seven or eight markets whose fiscal, political and competitive clocks are set differently, and a reinsurer that prices the region as a single block will be wrong in both directions at once.

Capital is buying specialisation rather than building it

The same fortnight produced two transactions that describe where surplus capital is going. Munich Re agreed to acquire At-Bay, a United States cyber managing general agent and security provider, at an enterprise value of USD 575 million against gross written premiums of USD 278 million at the end of 2025, with closing expected in the first quarter of 2027 and the business to sit under Hartford Steam Boiler. Willis Re agreed to acquire the United States reinsurance arm of BMS Group, expanding its property and casualty broking footprint. Neither is a Latin American transaction, and both matter here. When the largest balance sheets in the industry pay roughly two times premium for underwriting capability rather than deploying that capital into an oversupplied treaty market, they are stating a view on where returns are available: in specialised books with proprietary risk selection, not in generic capacity. Consolidation among intermediaries points the same direction, because a smaller number of larger reinsurance brokers concentrates the decision on which markets see which submissions. For a regional specialist, the practical consequence is that visibility on a broker panel is no longer a relationship outcome but a technical one, earned by responsiveness, consistency of terms and a reputation for saying no clearly and early.

What this means for Power Re

Power Re underwrites Group Life and Personal Accident across Latin America, with its largest concentration in Mexico, and the discipline this news demands is specific rather than general. First, fiscal drag must be priced explicitly. A VAT reform that removes credits on the goods and services used to fulfil a contract raises the net cost of every claim serviced under that contract, and it does so permanently until the law changes. It belongs in the loading, not in the variance explanation at the following year’s review. Second, a cedent showing a combined ratio above 100 percent while reporting a twenty percent return on equity is a counterparty whose result depends on investment income and on the sovereign curve, and its appetite for retaining risk will move with rates rather than with its own loss experience. That is a counterparty behaviour worth modelling before the January renewal, not after it. Third, the divergence in regional growth rates is an argument for underwriting country by country and treaty by treaty. Chile growing at 15.7 percent and Brazil at under 2 percent are not the same commercial environment, and a ceding commission conceded in one because of competitive intensity has no business being extended to the other on grounds of consistency. Our position through the January renewal is unchanged and this data hardens it. We price to a technical margin defended line by line, we treat ceding commission as price, and we decline what does not clear. A protection gap in which only 13 to 20 percent of economic losses are insured is a genuine long-term opportunity for this region. It will be captured by the reinsurers still solvent and still credible when it closes.