Prospects are mixed for the Central American insurance sector in 2010, according to a study by Fitch Ratings, with countries such as Costa Rica expected to build on their healthy growth in 2009 while others struggle to recover from the global downturn.

The rating agency said that although economic conditions would likely keep premium incomes depressed, the potential for greater market penetration would provide opportunities for growth through the introduction of products with mass appeal. In Costa Rica, for example, new market participants such as Aseguradora Mundial-Mapfre, Alico and Assa were expected to gain substantial market share through new products and aggressive marketing strategies. However, new regulations and slow overall premium growth could provide challenges.

In Guatemala, which like Costa Rica has a high loss ratio, proposed legislative changes include higher reserve requirements and stricter solvency margins. This capital strengthening should bring the market more into line with international standards and provides reason for optimism.

The market in El Salvador, which is already dominated by international companies, continues to see improvements in operational efficiency but the tough economic environment appears to be negatively impacting loan delinquencies and premium receivables, Fitch said.

The two smallest markets, Honduras and Nicaragua, saw improved loss ratios in 2009 but the Honduran market remained highly concentrated and Nicaraguan insurers were reported as the least efficient in Central America. The latter, however, saw the largest net premium growth in the region during the first half of 2009 at 6.7% and the life insurance sector in particular saw strong growth as bankassurance and mass life insurance products have been developed.

One factor which kept premium growth low throughout the region in 2009 was a marked reduction in new car sales, while a general increase in car theft had a negative impact on loss ratios.