A.M. Best Special Report: Sticking to the Basics Ensures Resilience of the Spanish Insurance Sector

LONDON--(BUSINESS WIRE)-- Spain’s insurance market has continued to show resilience, with companies focusing on profitability as the country’s economy showed further signs of recovery. According to a new report from A.M. Best, total gross written premium (GWP) contracted further in 2014, although the pace at which the market has shrunk has slowed. In particular, the non-life sector has been affected by competitive conditions for motor insurance, its predominant class of business, although a recovery in car sales is expected to assist this line in 2015.

However, the Best’s Special Report, titled, “Sticking to the Basics Ensures Resilience of the Spanish Insurance Sector,” finds while total GWP has contracted in the past few years, the Spanish insurance market has maintained its underwriting performance. The report states the market continues to execute its business plans according to its traditional roots and remains relatively resilient.

Pablo Vasquez, financial analyst, explained: “The traditional nature of Spanish management seems to be present in all domestic (re)insurers, and appears to be the reason behind what is fundamentally a risk-averse approach. In good times, prudence hurts margins and erodes competitiveness; meanwhile in bad times, a cautious approach provides better rewards to all stakeholders involved.

“Although returns on equity have come under pressure during the first half of 2015, Spanish insurers seem to avoid complicated formulas for growth or profitability, preferring the simplicity and reliability of a good wine over the paraphernalia of a fancy cocktail.”

The report states the Spanish insurance market’s preference for sticking to the basics is also reflected in conservative investment profiles, with insurers investing more than two-thirds of their assets in fixed income securities. Bank deposits and money market placements remain as the second choice, followed by equities and real estate.

Yvette Essen, director, research & communications – EMEA, and report author, said: “The risk appetite of Spanish insurers as institutional investors remains stable and is not expected to change materially over the coming years. Domestic insurers are likely to explore alternative ways of increasing investment yield, but with a conservative approach. A.M. Best expects the weight of any alternative asset in investment portfolios will remain minimal.”

The research also examines why insurance penetration in Spain remains below European standards. It states historically, domestic consumers have not had the incentive to save through insurance products and principal guaranteed long-term deposits have been the bread and butter of the risk-averse household in Spain. However, A.M. Best expects Spanish savers will continue to evolve towards a new reality in which long-term investment risk moves from state guaranteed benefits to households’ own accounts, which, in turn will create opportunities for life insurers.

To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=242745.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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A.M. Best Company

Pablo Vasquez, +(44) 20 7397 0311

Financial Analyst

pablo.vasquez@ambest.com

or

Yvette Essen, +(44) 20 7397 0322

Director, Research & Communications –

EMEA

yvette.essen@ambest.com

or

Edem Kuenyehia, +(44) 20 7397 0280

Associate Director, Market

Development & Communications

edem.kuenyehia@ambest.com

or

Jim Peavy, +(1) 908 439 2200, ext. 5644

Assistant Vice President, Public Relations

james.peavy@ambest.com

Source: A.M. Best Company