As Spain’s economy shows signs of improvement, there are indications that the decline in the country’s non-life insurance market has slowed in 2014, aided by growth in the health insurance sector, according to a new A.M. Best special report. This was brought on, in part, by deterioration in the scope of state provisions and from more families moving into private health care coverage.
In addition, a premium decline in the life insurance sector during the first six months of 2014 does not necessarily constitute a trend as that market is cyclical and more volatile, according to the Best’s special report on Spain’s insurance market titled “Spain’s Insurers Remain Profitable as Economy Shows Signs of Improvement.”
Total premiums in the market were down 2.9 percent in the first half of 2014 when compared with the same prior-year period. Despite low interest rates, most Spanish insurers remain heavily invested in domestic fixed-income instruments, which offer higher interest rates than German or British bonds, but have an implicit credit risk that they are content to absorb.
“Spanish insurers are adopting an investment policy that is in line with the risk profile of policyholders, and one that will have a higher credit risk component than major multinational players based in other European countries,” said Carlos Wong-Fupuy, senior director of analytics. “This has caused multinational insurance groups to become more cautious with regard to opportunities in Spain, especially on life business, since their investment policies are more conservative, making it more difficult for them to compete with local participants.”
Other key findings in the report include:
- Despite the challenging economic environment over the past five years, non-life and life markets have maintained robust solvency and profitability metrics.
- Although volume in Spain’s motor business has declined, the business remained profitable, which can be explained by lower claims ratios tied to reduced economic activity and fewer people driving.
- Spain’s insurance market remains competitive with a significant number of players; there were 264 operating entities as of Dec. 31, 2013, compared with 270 in 2012. Industry competition has been increasing as a result of the rising use of web portals, company websites and the emergence of online insurance businesses, despite these still representing a small fraction of the total sector.
Source: A.M. Best
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