When analyzing how the year closes and what the next year could be like, one tries to get rid of several things, the tribune euphoria, prejudices, preconceived negativity and several more etcetera that are not relevant. One should not search full of hope for a path of dreams, but focus on what the data says, the information that nourishes the analysis and try to make the intuition reasonable and as objective as possible.
2024 faces the final stretch of a year that has been difficult, hard for the insurance sector, as it has been for many economic sectors. Decision makers are the most aware of this situation.
Some economic numbers for the first semester were very bad, GDP fell 3.4%, construction 22% year-on-year, industry 17.4%, commerce 17.5%, consumption 9.8%, and investment 29.4%… all in free fall. In July, the Fund adjusted its 2024 growth projections from -2.8% to -3.5%, which it maintained in October.
Thinking about 2025, the way I see things, until a few months ago the bad ones were more than the good ones. But October (mainly) and November led me to rethink the medium term and discuss with several colleagues from another place. I don’t want to say that I am optimistic, because it sounds too much, but it is worth reflecting that 2025 could be a good year for the insurance sector.
Until a few months ago, part of the economic debate focused on the lack of dollars for the macroeconomic close of 2024 and the beginning of 2025. The famous January 2025 Treasury maturity of $4 billion, more than a column in a ppt, It loomed like a wall. Brutal honesty, I was among those who believed that dollars were not enough. They didn’t give us the accounts. Now the situation changed, whitewashing meant US$22 billion in deposits in the financial system, with its correlation in the dynamism of credits in dollars and in the accumulation of international reserves, which added to the dollars that entered due to the taking on debt of the private sector, accounted for foreign currency purchases by the Bank Center for US$3,253 million in October and November. Thus, with 2024 almost closed, the gap is at levels close to 10% and the country risk at 750 points – from values above 50% and 1,500 points in July of this year. It seems that we are entering a certain virtuous circle financially, and the accounts are beginning to add up.
The government must think about a strategy on how to sustain the financial virtuous circle in 2025. Agreement with the IMF, disbursements from international organizations, FDI inflows and financing by the RIGI, disarmament of the blend in parts or in its entirety, greater flexibility of the stocks , all sensitive economic policy decisions.
It has been empirically demonstrated that there are two variables that markets usually see as extremely important when valuing country bonds and investing in them. Inflation and fiscal balance. The famous fundamentals are fine today. The opening of Argentina to new international investors can also be a new source of dollars, especially if the financial situation remains orderly. When we think about External Savings, we should always want more Foreign Direct Investment than purely financial investment, but sometimes, the first to react is the financial one.
The improvement in fundamentals was read positively by the markets, local and external, and this, added mainly to the results of the money laundering, allowed the financial front to be channeled and we stopped talking about a possible debt restructuring.
The cost of having good fundamentals has been enormous. An unprecedented adjustment of 30% annual primary spending, a complex social situation that continues to deteriorate, with the destruction of more than 200,000 jobs since November 2023 and a real salary that, although it wants to recover, continues at lower levels than the previous year (15% annual drop on average Jan-Aug) and consumption (read as a macro variable, the capital C) is suffering and will probably continue to suffer, among other things. The real economy can sometimes be dissociated from the financial front. Hopefully it won’t be like this for long.
Personally, I think that the macro remains fragile, beyond the fact that we are Argentina and the macro tends to be fragile, on the horizon there is a 2025 with positive growth and that is no small thing. The dynamism of deposits and credit that we are already seeing may be the first signs. This is extremely important for the insurance sector. We know of the correlation between economic growth and the growth of insurance premiums. I do not consider it prudent to fall into euphoria, because the system has important fragilities and weaknesses, but we know that a positive growth rate and a manageable financial front allows companies to plan investments and not dedicate themselves exclusively to stopping penalties..
However…
Be careful with labor litigation. Beware of fraud. Times of economic turmoil (such as 2024) can be a breeding ground for increased fraud. Unfortunately, this arises from conversations and discussions with colleagues in the sector, as there is no data source that allows fraud risk to be identified, analyzed and managed. This issue must be addressed consistently and sustainably over time. We need fraud numbers to show us where we stand sectorally. You can and should build an agenda.
A strong, proactive and independent Superintendency is something that is always desirable for the sector. These characteristics are often mentioned discursively, but the action is not necessarily consistent with that vision.
Let’s hope that the winds that blow from outside (commodity prices, protectionist world, global economy, etc.) are not a factor of retraction for our growth, there are always risks outside.
But, ultimately…
A 2025 that starts with growth prospects looks good for the insurance sector.
*Victor Fuentes Castillo is Founder of Tomás Moro Consultores and was Undersecretary of Financial Services
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by Victor Fuentes Castillo
