Fresh reinsurance capital failing to boost competition in Spain

New reinsurance capital is failing to boost competition in the commercial ad corporate insurance market as it is not resulting in the entry of new sources of capacity, an audience of risk professionals was told in Madrid. Despite this, there has been a moderation in the pace of rate increases for Spanish companies, although not all insurance lines or geographies are following this trend, said Pablo Trueba, the CEO of Marsh Spain. Speaking at the 34th annual congress of risk management association Agers, Trueba said that some recent market developments show that rate increases have no longer been as aggressive as in recent years. For example, a growing number of long-term agreements (LTAs), have been signed, which shows that both parties in the contract are happy with the rates and conditions and are willing to guarantee them in the long run. Casualty lines have also loosened somewhat, and underwriters have been able to balance their books after several years of hard market. In 2022, out of 39 global insurers whose results were analysed by Marsh, only five have posted losses in their latest earnings, he said. Nineteen have improved their results compared to the previous year. But property lines remain under pressure, especially in the case of risks with catastrophic exposure, and in some countries the hardening of the market remains well under way. Latin America is a case in point, he noted. “We are going through a period of moderation in rate increases,” Trueba said. “But this moderation is not homogeneous.” In property, there is some stabilisation too, but in some cases, buyers can face significant increases due to the impact of inflation, and catastrophic risks are liable to suffer capacity restrictions. Trueba stressed that there has been much demand for alternative risk transfer solutions, especially captives and parametric insurance, as buyers look for a way to deal with persistent risk retention demands from their insurers. He said casualty lines are stabilising, and in financial lines there has been a softening of conditions. In Spain, 30% of Marsh’s D&O contracts were last renewed with a reduction of costs, and in 10% of cases buyers were able to increase their limits, thanks to the arrival of new capacity to the Spanish market. “The cyber market is stabilising and we are seeing some rate reductions. More importantly, it has been possible to add covers that, not long ago, could not be incorporated to programmes,” Trueba remarked. Future trends, in Trueba’s view, will depend on the behaviour of the reinsurance market. In the past two years, the reinsurers have imposed significant restrictions to cedants, which improved their technical results in the first quarter of 2023. “In general, this results in the arrival of new capacity into the market. Usually, this new capacity will go to new markets, which want to be aggressive and develop their businesses. It then generates competition,” he said. “This year, most new capacity has gone to incumbent markets, so competition has not been boosted.” Factors like the Ukraine war, which has already generated $17bn in insured losses, are also creating uncertainty in the market, fuelling a situation that Trueba described as “an atypical balance”.

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