Best’s Report on Spanish Non-Life Sector Finds Profits, Future Challenges

October 10, 2012

“The Spanish non-life insurance sector remained profitable in 2011, but growth remains challenging, as it continues to face one of the bleakest economic environments since the 1930s,” according to a new report from A.M. Best Co.

Best explained that non-life insurers “continue to benefit from solid distribution networks that encourage customer loyalty and ensure that the market continues to make underwriting profits.”

However, the rating agency’s report also warns that Spanish insurers “could face deteriorating technical results as they compete on pricing. Insurers are under pressure to offer competitive rates, as the country’s troubled economic position suppresses demand for cover and household spending remains under strain.

The report – Spanish Non-Life Insurance Sector Profitable, but Challenges Lie Ahead – notes the non-life insurance market faced suppressed demand for insurance, “with earned premiums falling 3.4 percent in 2010, although in 2011 non-life earned premium stabilized and increased a modest 0.6 percent to €31.2 billion [$40.15 billion]. Growth in property and funeral expenses business helped offset decreases in motor and liability insurance. Gross and net claims improved in 2011.”

Even with the current profitability, Spain’s non-life insurance market faces “significant challenges in the event of further erosion of Spain’s sovereign creditworthiness and continued negative developments regarding the euro zone sovereign debt crisis.”

Sam Dobbyn, associate director, analytics, commented: “A.M. Best remains concerned regarding the prospects for Spanish government bonds and financial institutions debt, which have been impacted negatively by Spain’s economic and financial deterioration. Although A.M. Best does not expect Spanish government bonds to default, any material write-down would have a significant impact on the risk-adjusted capitalization of the non-life sector.”

The report notes that rates across the Spanish market tend to be under pressure, reflecting the favorable loss history of the market and the competitive environment.

The author of the report and director of industry research – Europe and emerging markets, Yvette Essen, pointed out: “There is excess capacity, with more than 100 non-life insurers in the Spanish market, while the 10 largest companies controlled 38 percent of the market in 2011. Competition in certain lines such as liability is aggressive; although insurers are struggling with a volatile investment environment, the non-life market remains among the most profitable in Europe.”

Source: A.M. Best

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