Credit ratings agency AM Best revised the outlook for Mexico’s insurance industry to negative from stable due to the elimination of fiscal credits for value-added tax and other claims-related expenses paid to third parties, including hospitals.
AM Best said the regulatory change could reduce insurers’ expected net profits in 2025 by as much as 40%. While results for the third quarter of 2025 improved slightly compared with the same period in 2024, the revised VAT treatment applicable to claims payments is expected to put considerable pressure on insurers’ profitability metrics, the agency said in its segment report “Segment Outlook: Mexico Insurance.”
AM Best also said competitive dynamics are likely to intensify as insurers adopt different strategies to offset the impact of this change on operating performance. AM Best pointed out that after several years of discussions, the Mexican tax authorities and the insurance industry finalized the VAT adjustment in October 2025.
“AM Best expects insurers to increase coverage, strengthen underwriting practices, adjust limits and features of insurance products, and impose stricter operating guidelines,” said Alfonso Novelo, senior director of analytics at AM Best. “Unfortunately, given the expected spike in insurance rates, there will also be areas of the economy that are removing their coverage.”
AM Best reports that after two consecutive years of double-digit premium growth, the expansion of Mexico’s insurance industry has slowed and is expected to reach about 8% by the end of 2025, which is still better than the overall economy’s expected growth of 0.5%.
Despite the expected economic expansion, AM Best believes insurers will still face challenges in forecasting revenue growth in 2026. AM Best added that large insurance companies will be better able to respond to a more competitive environment in 2026 due to their scale advantages and diversified product offerings and revenue sources. AM Best said the situation could lead to increased market share concentration among leading insurers and could ultimately lead to merger and acquisition activity within the segment.
AM Best further pointed out that although financial products have supported earnings performance in the past two years, with growth of 24.1% in 2024 and 34.4% in 2023, financial revenue is expected to decline by approximately 8% by the end of 2025. AM Best attributed the outlook to a lower interest rate environment expected to persist into 2026, putting further pressure on industry performance in 2025 and 2026.
