Best’s Briefing: Enterprise Risk Management to the Fore as Catalonia’s Sovereign Status Remains Unclear

Insurance Weekly News

By a News Reporter-Staff News Editor at Insurance Weekly News -- The political uncertainty created by events following Catalonia's independence referendum has created volatility in Spanish insurers' investment portfolios and raised concerns about future access to business, A.M. Best states in a new briefing.

A.M. Best is in ongoing dialogue with rated companies regarding the potential impact of Catalonia becoming an independent nation, post its referendum held on 1 October 2017. While the status of Catalonia's independence from Spain remains unclear, rated insurers have continued to focus on enterprise risk management (ERM) practices.

The new Best's Briefing titled, "Enterprise Risk Management to the Fore as Catalonia's Sovereign Status Remains Unclear," states that A.M. Best considers the volatility in the bond market to be a concern for Spanish (re)insurers.

Jessica Botelho, financial analyst, said: "The investment portfolios of many companies typically have a high concentration in Spanish sovereign fixed-income securities. Life insurers are likely to be the most adversely impacted by unsettled bond markets owing to their longer-tail risk and need to manage asset-liability mismatches."

The research also notes that at the forefront of insurers' concerns will be their need to ensure stability for customers and other stakeholders. In order to achieve this, many banks and (re)insurers (including Seguros Catalana Occidente) have already announced plans to move legal domiciles to non-Catalonian destinations such as Madrid, Alicante and the Balearic Islands, which offer more political, judicial and economic stability.

A.M. Best considers the quick response of companies following the result of the referendum and anticipated uncertainty surrounding the relationship between Spain and Catalonia to highlight the effective ERM frameworks in place to ensure minimal disruption to operations and stakeholders during this time. Furthermore, some insurers in the market have started incorporating stress tests relating to the potential loss of a division or business due to political unrest, to quantify the potential impact on their solvency positions and manage such scenarios effectively.

Yvette Essen, director of research, said: "A.M. Best also notes that business leaders based in Catalonia have expressed their concerns to the regional government as they attempt to maintain stability and unity. Domestic insurers continue to monitor this fluid situation as it develops, with the aim of minimising disruption to their stakeholders."

The report notes A.M. Best is maintaining close contact with those (re)insurers it rates during this period of uncertainty. All rated Spanish entities currently have a Long-Term Issuer Credit Rating of "a-" or above, demonstrating companies are well-capitalised and have an excellent ability to meet their financial obligations. The majority of the rating outlooks are stable.

To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=267145. A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED. View source version on businesswire.com: http://www.businesswire.com/news/home/20171013005663/en/

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