AMB Country Risk Report

August 24, 2016

Our Insight, Your Advantage.

Country Risk Tier

CRT-5

Venezuela
The Country Risk Tier (CRT) reflects A.M. Bests assessment of three
categories of risk: Economic, Political and Financial System Risk.
Venezuela, a CRT-5 country, has a high level of economic risk
and very high levels of political and financial system risk. Despite
abundant natural resources, political interference and erratic
economic policies have limited growth. Gross domestic product
(GDP) growth is projected to contract by 8.0% for 2016, with the
economic contraction expected to continue through 2019.

Very
High

Very
High

Very
High

High

High

High

Moderate

Moderate

Moderate

Low

Low

Low

The map below depicts the countries A.M. Best evaluates in

South America. Regional growth will rely, in part, upon U.S. and
European growth rates as well as domestic demand growth and
improved economic policies. As various factors will affect each
country differently, the economic expansion process will not be
homogenous within the group.

Mexico

Bahamas

Dominican
Republic

Cuba

Puerto
Rico

Haiti

Cayman Islands

Belize

Jamaica

British
Virgin Anguilla
Islands
St. Maarten

St Kitts & Nevis

Honduras

Very
Low

Very
Low

Very
Low

Guatemala
El Salvador

St Vincent & the Grenadines

Curacao
Grenada

Costa Rica
Panama

Political
Risk

Financial
System
Risk

Cape Verde

St Lucia
Barbados
Trinidad & Tobago

Venezuela

Guyana

Colombia

Economic
Risk

Antigua & Barbuda

Dominica

Nicaragua

Suriname
French
Guiana

Ecuador
Peru

Brazil

Bolivia

Country Risk Tier 5 (CRT-5)

Very High Level of Country Risk
Country Risk Tier 4 (CRT-4)
High Level of Country Risk

Chile

Paraguay

Argentina

Uruguay

Country Risk Tier 3 (CRT-3)

Moderate Level of Country Risk
Country Risk Tier 2 (CRT-2)
Low Level of Country Risk
Country Risk Tier 1 (CRT-1)
Very Low Level of Country Risk

Falkland Islands
South Georgia
Tierra Del Fuego

Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.

AMB Country Risk Report

Venezuela

Regional Summary: Latin America

Vital Statistics 2015

Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Literacy Rate
Urbanization
Dependency Ratio
Life Expectancy
Median Age

USD bn
mil
USD
%
%
%
%
%
Years
Years

239.57
30.9
7,745
-5.7
121.7
96.3
89.0
52.4
74.5
27.2

Insurance Statistics

Superintendency of Insurance
Activity

Insurance Regulator
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2014 - 2015)

USD mil
USD mil
%

119
7,382
-1.5

Regional Comparison
Country Risk Tier
CRT-5
CRT-5
CRT-4
CRT-2
CRT-4
CRT-4

Venezuela
Argentina
Brazil
Chile
Colombia
Peru

Venezuela has one of the largest oil reserves

in the world. Oil accounts for about 96% of
export earnings and 45% of fiscal budget
revenues. Low oil prices continue to challenge
the countrys stability as it is vulnerable price
shocks and changes in global oil demand.

Economic Growth

In 2016 the IMF projects that Venezuela will

have the highest rate of inflation globally
at over 450%, rising to over 4000% by
2020. South Sudan has the second highest
projected inflation rate at over 200%.

CPI Inflation

4500
4000
3500
3000
2500

2000
1500
1000
500

2007

2008

2009

2010

2011

2012

The deteriorating economic outlook for

commodity exporters is exacerbating
ongoing political tensions for some
countries in the region including Brazil and
Venezuela.

Economic Risk: High

5000

Macroeconomic challenges affecting the

region include a slowdown in external
demand, exchange rate volatility, currency
depreciation, high levels of inflation, rising
income inequality, tightening financial
conditions and the need to address
structural problems in order to raise
investment and create jobs.

Consumer and business confidence

remains subdued in the region due to
slowing economic growth and political
uncertainties. Most countries could improve
transparency and reduce the level of
corruption.

Source: IMF, Axco, Swiss Re and A.M. Best

Real GDP

Economic growth is expected to remain

subdued over the medium term, particularly
for countries that are commodity exporters
and those countries that are experiencing
weak investment.

2013

2014

2015

2016

2017

2018

2019

-500

Source: IMF World Economic Outlook and A.M. Best

2020

2021

The government is highly involved in the

economy and the risk of expropriation is
high. The automotive, basic goods, food,
retail and service sectors are vulnerable
to expropriation and price controls. There
has been a increased military involvement
in economic sectors. Chronic electricity
and basic goods shortages remain a key
challenge to doing business.

AMB Country Risk Report

Venezuela

Political Risk Summary

Political Risk: Very High

Score 1 (best) to 5 (worst)

Venezuela

World Average

President Maduro narrowly won the April

2013 election in which he garnered 50.7%
of the votes to his opponents 49.1%. The
country had previously been ruled by
socialist leader Hugo Chavez, who ruled
since 1998.

International Transactions
Policy

5
4

Legal System

Monetary Policy

3
2
1

Regional Stability

There is growing public discontent

over economic mismanagement and the
shortage of basic goods, such as food and
medicine. As a result the government has
started to increase its dependence on the
judiciary and military to maintain order.
The government crackdown on opposition
parties has increased.

Fiscal Policy

Social Stability

Business Environment

Government Stability

Low economic growth, high inflation,

rampant corruption, high rates of violent
crime and widespread electricity shortages
contribute to growing social unrest in the
country.

Labor Flexibility

Source: A.M. Best

In an effort to keep pace with inflation,

the government raised the minimum wage
by 30% in 2015. In 2016 it increased the
minimum wage by an additional 15%, this
however, remains well below the current
inflation rate.

Financial System Risk: Very High

GDP Per Capita and Population

for Selected Countries
250

16,000
GDP Per Capita

Population

14,000
200
12,000

10,000

150
Millions

USD

The Superintendency of Insurance Activity

is responsible for the supervision of the
insurance sector.

8,000

100

6,000

4,000
50

Venezuelas high levels of government debt

have raised fears about the potential for
a default. The government has avoided a
default by selling gold and restricting the
amount of money spent on importing goods.
There continues to be an ongoing disparity
between the formal and informal exchange
rates. The difference between the rates
is substantial with the official rate at 10
bolivar/1 USD and the unofficial rate at
1,000 bolivar /1 USD in mid-2016.

2,000

Venezuela

Argentina

Brazil

Chile

Colombia

Peru

Source: IMF and A.M. Best

The country imposes strict price controls

that has led to a shortage of goods and high
inflation.

AMB Country Risk Report

Venezuela

GUIDE TO BESTS COUnTry rISk TIErS

A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims-paying ability of an insurer. Country risk is
evaluated and factored into all Bests Credit Ratings. Countries are placed into one of five tiers, ranging from CRT-1 (Country Risk Tier 1), denoting
a stable environment with the least amount of risk, to CRT-5 (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest
challenge to an insurers financial stability, strength and performance.
A.M. Bests Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.

Country risk Tiers

Country risk Tier

Definition

CRT-1

Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.

CRT-2

Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.

CRT-3

Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.

CRT-4

Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.

CRT-5

Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.

Country risk reports

A.M. Best Country Risk Reports are designed to provide a brief, high-level explanation of some of the key factors that determine a countrys Country
Risk Tier assignment. It is not intended to summarize A.M. Bests opinion on any particular insurance market or the prospects for that market.

Categories of risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are (1) Very Low; (2) Low; (3) Moderate; (4) High
and (5) Very High.

Category of risk

Definition

Economic Risk

The likelihood that fundamental weaknesses in a countrys economy will cause adverse developments for an insurer.
A.M. Bests assessment of economic risk evaluates the state of the domestic economy, government finances and
international transactions, as well as prospects for growth and stability.

Political Risk

The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity
of the legal system and of the business infrastructure, the efficiency of the government bureaucracy, and the
appropriateness and effectiveness of the governments economic policies.

Financial System Risk

Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial
volatility may erupt due to inadequate reporting standards, weak banking system or asset markets, and/or poor
regulatory structure. In addition, it includes an evaluation of whether the insurance industrys level of development and
public awareness, transparent and effective regulation and reporting standards, and sophisticated regulatory body will
contribute to a volatile financial system and compromise the ability of an insurer to pay claims.

Political risk Summary

To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of one to five with one being the least
amount of risk and five being the highest amount of risk.

Category

Definition

International Transactions
Policy

Measures the effectiveness of the exchange rate regime and currency management.

Monetary Policy

Measures the ability of a country to effectively implement monetary policy.

Fiscal Policy

Measures the ability of a country to effectively implement fiscal policy.

Business Environment

Measures the overall quality of the business environment and ease of doing business.

Labor Flexibility

Measures the flexibility of the labor market, including the companys ability to hire and fire employees.

Government Stability

Measures the degree of stability in a government.

Social Stability

Measures the degree of social stability, including human development and political rights.

Regional Stability

Measures the degree of stability in the region.

Legal System

Measures the transparency and level of corruption in the legal system.

Country risk Tier Disclosure

A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Bests Credit Rating Methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor does it address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.
Version 091714

Copyright 2016 by A.M. Best Company, Inc.

Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.