Portuguese insurers warn Spanish peers of hard times ahead after EU aid

Pedro Seixas Vale, the Chairman of Associação Portuguesa de Seguradoras (APS), the Portuguese insurance association, made the warning during a meeting of Iberian risk transfer companies in the Spanish town of Burgos last week that was attended by Commercial Risk Europe. Mr Vale spoke with first-hand knowledge of the problem, following Portugal’s €78bn rescue by the EU in May of last year. He spoke of the effects on the insurance industry of austerity measures imposed by the so-called troika that comprises the EU, International Monetary Fund and European Central Bank.hideMr Vale warned that the most dangerous threat for the insurance industry is a loss of independence. “The greatest challenge for insurance companies is to remain independent from the state,” he said. “The worst thing would be to suffer an intervention.” The warning seems timely as the Spanish state was recently forced to nationalise Bankia, the country's third largest bank, after the company was hit by doubts about its solvency. Representatives from the Spanish insurance market were however particularly keen to stress that the sector does not share the problems currently faced by the country’s banks. “Nobody doubts that the insurance sector is solvent,” said Manuel Marcaraque, the Head of Non-life Insurance at Unespa, Spain's insurance association. “We do not have any relationship with the banking sector.” But, as Mr Vale warned, it looks unlikely that Spanish insurers will be able to escape the eurozone storm. Fitch downgraded the rating of Mapfre, the country's largest insurance firm only last week, citing the downgrade of Spain's sovereign debt rating some days before as a key reason. Mr Vale said that Portuguese insurers have seen their revenues and profits decline as individuals and companies have reduced their consumption of insurance products and opted for cheaper options in order to save money. Even worse, they have seen their investment portfolios shrink in times of increasing capital requirements due to the underperformance of capital markets in Portugal. This is a problem that Spanish insurers are also contending with. “The main problem that you will all feel is the devaluation of the assets held by companies,” he said, stressing the sharp losses already posted by the Madrid Stock Exchange, which has fallen by more than 30% in the past 12 months. Mr Vale made his points during an appearance at the second edition of Foro Ibérico de Seguros, the Iberian Insurance Forum. It is a meeting organised by the Spanish and Portuguese broker associations that will take place every two years from now on. During the event, representatives from the insurance associations and supervisory bodies of both countries discussed some of the main challenges that will face the insurance industry in the years to come. They also strived to differentiate the insurance sector from the bank sector in both countries, noting that insurers have sailed through the crisis in a much better shape than banks that are the focus of current concerns. No insurance firm has had to be rescued by the government in either country, they noted. But participants also acknowledged that conditions are not easy for the insurance industry and are unlikely to improve markedly in the near future. “In Portugal there is no new investments and, as a result, no new insurable assets,” said Fernando Rego, the Chairman of APROSE, Portugal's brokers association. Brokers have been particularly affected by the crisis and market developments such as the spreading of direct sales via the internet and other channels. “Some brokers have been absorbed by larger rivals and a number have unfortunately gone bankrupt,” Mr Rego remarked. Fernando Dias Nogueira, Head of Instituto de Seguros de Portugal (ISP), the country’s insurance supervisory body, stressed that premium growth in 2011 was negative in Portugal. This was particularly acute for life insurance and the situation has deteriorated further this year, he added. As a result, the market has fallen back, in terms of revenues, to the levels of 2001 or 2002, he said. As much as insurers and commercial companies, Portuguese brokers have made efforts to spread their activities into the emerging markets of Latin America and Africa in a quest to find new sources of revenue. But this is a solution that is not available to all players, said José Ignacio Aldasoro, the General Director at Fidelidade Mundial in Spain. He noted that small and medium-sized brokers in particular have struggled to follow their clients abroad. “We feel that it is tremendously difficult for them to go abroad in terms of organisation and sometimes because of a lack of confidence too,” Mr Aldasoro said. CRE will publish Risk Distribution, its annual analysis of the European broking sector, its state of health, strategic direction and how brokers could and should help customers with emerging risks in October. Non risks managers and non-subscribers can order a copy of the report, that is sponsored by Lloyd’s of London, by emailing Hugo Foster at HFoster@commercialriskeurope.com

Portuguese insurers warn Spanish peers of hard times ahead after EU aid

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