Study: Puerto Rico’s insurance industry grows despite economic challenges
Puerto Rico’s insurance industry continues to grow despite the challenging economic environment, affected by inflation and rising interest rates, according to a study by analysis firm Estudios Técnicos Inc. (ETI).
Given this, the government “should consider greater support to strengthen this industry, which is key in the reconstruction of Puerto Rico’s economy,” said ETI’s CEO, José Joaquín Villamil.
“The insurance industry is highly regulated but should also be supported in some areas related to development. In the short- and mid-terms, economic growth will depend on construction more than anything else. Insurance is essential in making possible investment in construction, including infrastructure,” he said.
“Access to reinsurance services is key, but so is having an adequate legal framework that supports the industry and strengthens its role as an important development infrastructure. This may call for changes in the current legislation and the responsibilities of the Office of the Insurance Commissioner,” said Villamil in a presentation to the International Association of Insurance Professionals.
The insurance industry’s gross domestic product (GDP) reached $1.45 billion in fiscal year 2021, or 28% of the financial sector’s GDP. The insurance industry employed 14,000 workers in fiscal year 2021 (32% of finance employment), 1,125 additional jobs since fiscal year 2010. Likewise, the number of establishments in the insurance industry increased moderately, although written premiums rose notably by $7.7 billion since 2014.
According to ETI’s report, premiums in the property and casualty segments have experienced a greater increase in recent years, while premiums for life and disability insurance have remained stable.
Regarding Puerto Rico’s economic outlook, Villamil said that “investment in infrastructure projects will be the primary driver of short-term economic growth,” adding that “$2.7 billion of annual debt service savings can be partially used to finance public sector capital improvement projects.”
“Because of this, the disbursement of the reconstruction funds is essential to support short-term economic growth. Of the $74.2 billion in funds allocated by the U.S. Congress for the reconstruction efforts in Puerto Rico, only $21.7 billion have been disbursed as of January 23, 2023. This disbursement must be accelerated for the reconstruction to continue and the economy to benefit,” Villamil said.
The ETI’s estimated GDP growth projection for the upcoming years is 0.9% in 2023, 1.2% in 2024 and 0.7% in 2025.
“The insurance segment will be able to benefit from multi-year investment in strategic infrastructure projects, such as urban cities’ rehabilitation, for which an investment of $1.3 billion is expected in the next two years; the PR-22 Road Extension, which counts on a $1.2 billion investment; and other governmental strategic projects, including the extension of other roads, the development of Caño Martín Peña, the construction of the new Trauma Hospital, and the development of Bahía Urbana, Roosevelt Roads, the Port of the Americas, and Ponce’s airport. In total, the investment on these projects is a considerable $5.3 billion in the next two years,” Villamil said during his presentation.
