Hard market easing for Spanish buyers but risks still need to be sold

After more than three years of hard market, insurance rates and conditions seem to be moderating in Spain, although insurers remain selective and buyers still need to make an effort to sell their risks. These are some of the conclusions of a panel on the state of the insurance market during the annual Igrea conference, which took place in Málaga recently. Participants believe that the most radical market corrections have already taken place, and the improvements in underwriters’ results in 2022 indicate that prices have reached a level that is more in tune with their expectations. But insurance buyers should not expect underwriters to return to their most accommodating practices, at least in the near future. Monetary tightening by central banks in Europe and the US means that the insurance market is fighting for capital. And insurers are becoming more selective as they adapt their businesses to new ESG rules by the EU and national governments across Europe. “Now it is up to us to sell our risks,” commented David González, the risk manager of construction group Sacyr, during the panel debate. Luis San Juan, the country manager – Iberia at Swiss Re Corporate Solutions, stressed that competition for capital today is fierce. Even after years of a hard market, insurers face a tough task drawing investors from other assets, he added. “Last week, nine-month Spanish Treasury Bills were paying 3.49%,” he said. “The average return on equity of the Spanish insurance sector was 2.85%. Will anyone put capital in the insurance sector when even ultra-safe Treasury bills pay more than we do, and we take investors to high-volatility situations? And then there are the banks. Santander posted ROE of over 11% in the first quarter.” San Juan added that this scenario has persuaded underwriters to reorganise their decision-making processes to gain more control over the risks they take and deliver better governance. But he denied that local units in countries such as Spain have lost authority to close deals with their clients, a common complaint from insurance buyers in Spain and across the rest of Europe. “We are forced to pick very carefully where we deploy capital, which means that we have to be very selective with the risks that we take,” he said. Patricia Puerta, the country manager at QBE in Spain, said that rates have been falling fast in segments such as financial lines, but added that, in general, the market has reduced the breadth of covers available to corporate buyers. Analysis of QBE’s portfolio has shown that there were no reductions in the company’s risk portfolio in recent years, but Puerta said that emerging and systemic risks have sparked the addition of new exclusions. “If before there were pandemic exclusions, now there are infectious diseases with much broader clauses. War clauses have become much broader and more sophisticated,” she said. “We have the obligation to [deliver] for our companies’ results, but also for the solvency of the insurance sector.” Puerta added: “(Corporate risks) are not the most profitable, and they are the most volatile. But they interest us.” More risk selection may become the rule as insurers integrate ESG trends into underwriting. Participants noted that the adoption of ESG standards by the insurance industry is an unstoppable process, despite setbacks such as the flight from the UN-sponsored Net Zero Insurance Alliance over the past couple of months, allegedly over antitrust concerns. ESG issues should therefore become a bigger and bigger issue when insurers select the risks they take. “We are moving very quickly towards initiatives like providing support to renewable energies,” Puerta said. “And we have directives to not provide access to insurance for groups that do not abide to (ESG) ethics.”

Hard market easing for Spanish buyers but risks still need to be sold

ESG playing increasing role in underwriting decisions

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