Spanish risk managers told soft market is coming to an end

Insurers and brokers presented their views on what lies ahead for insurance buyers in Spain during the 16th edition of the annual Renewals Day organised by Asociación Española de Gerencia de Riesgos y Seguros (AGERS), Spain's risk management association, on November 18 in Madrid. Insurance companies presented their argument that deteriorating results and upcoming regulatory changes, both at European and domestic levels, will put further pressure on prices. Some lines, such as D&O insurance for the financial services, are expected to carry on hardening in 2011, following a trend observed this year. But at the same time insurers conceded that there is plenty of capacity available for most lines, especially considering that demand has been affected by Spain's severe economic downturn.hide“We believe the soft market will maintain for the next round of renewals,” said Ignacio Martínez de Baroja, the Chairman of AGERS, after the meeting. “Our members do not expect premium increases in January, and, if they eventually come, they will be very small. And that should hold for most business lines, with a few exceptions of course, like those that have been affected by catastrophic events like the Chile earthquake and the Deepwater Horizon oil leak in the Gulf of Mexico. Even then, it should be no more than a slight increase only,” said Mr Martínez de Baroja, who is also the Head of Risk Management at Hispasat, a telecommunication services firm. Insurers noted during the event that the economic crisis has turned insurance into a product that is less easily sold to Spanish companies, as they have strived to reduce their operational costs by all possible means. “Today, the discourse that insurance is an investment for companies sounds like something from the old times,” said José Antonio Ruibal, the Head of the Industry and Telecommunications area at Mapfre Global Risks. “Nowadays, insurance has become simply another cost.” Insurance companies strived to highlight their current plight during the event. Mr Ruibal, who was talking about property damage lines, said that the industry is facing high claims rates in areas like natural catastrophes, whilst competition has become fiercer with the entry of new players in the market. As there is still plenty of capacity in the market, he said, insurers will have, in some cases, to reduce prices somehow to keep their best contracts on board. He also forecast that brokers will be forced to reduce their margins as well. “There is much competition in the market, but no new business,” he said. “The insurance industry has begun to lose money this year,” he added. “Maybe it is more accurate to say that insurers have not earned as much money (as before),” noted Juan Carlos López, the Risk and Insurance Manager for Arcelormittal Spain. For his part, Peter McClean, the Director of Insurance Financial Services Ratings at Standard & Poor's, said that the reinsurance market should keep on softening, unless there is a major incident that causes huge losses for reinsurers. One particular line that has recovered remarkably since the start of the financial and economic crises has been credit insurance, according to José María Segon, Head of the Credit Insurance Practice at the Spanish unit of brokers AON. It is a smaller market today, with 35% of the policies that were in place in 2008 having been decimated by the crisis. But after sky-rocketing in 2008 and 2009, the volume of claims has fallen significantly this year, and capacity has returned to the market of late. Mr Segon forecast that the credit insurance market is set to soften in the near future, but warned that risks still remain. “Non-performance loans among consumers are still a worry,” he said. “If companies stop making payments to banks too, we will see the cycle start all over again.” He believes that Spain could witness a hike of claims in the credit insurance sector by 15-20% next year. But Mr Segon also said that the crisis forced credit insurance firms to spruce up their acts, by enhancing their credit management capabilities. For instance, the activity of checking the capacity of borrowers to pay their loans, which was previously relegated to third parties, has now been internalised by insurers. On civil responsibility, Alejandro Jiménez, General Director at WR Berkley in Spain, stressed that the premium volumes in the Spanish market have been decreasing 'by a rate of two digits' this year, although results remain stable for insurers. “The Spanish market is in a bad shape right now, but has a growth potential that surpasses other European countries,” Mr Jiménez said. Alfonso Urquijo, the Director of Business Development Corporate Environment at Willis Spain, told insurance buyers that they should be careful when buying coverage for environmental liability risks. The introduction of new European regulations is tightening the rules in this particular area, but the insurance industry has not always reacted accordingly, he stressed. “You have to be careful with what is on offer in the market today,” he warned. Capacity in the environmental sector is limited, he said, and often contracts are not clear. “It is a huge problem to interpret the conditions of an environmental responsibility policy,” Mr Urquijo said. “There are coverages empty of content that are sold at low prices to break the market wide open. Sometimes they don't cover the actual needs of clients and include terms and conditions that are not clear at all.” According to Mr Martínez de Baroja, a subject that concerns risk managers, and which was highlighted by Mr Urquijo, is a change in the Spanish law that opens up the possibility of companies being criminally responsible for damages to the environment. Previously, only individual executives could be indicted in criminal cases for the same reason. The new development raises the question of how companies are going to transfer this new risk. The imminent application of a legal requirement that forces companies to set up financial guarantees for environmental risks is another concern, as many Spanish firms, especially among SMEs, are still unsure how this is going to work. Several speakers also raised the subject of the looming Solvency II directive that will likely put pressure on insurers to raise prices, as their costs go up in order to meet new capital requirements. Regulatory changes were one of the reasons presented by Tom Bolt, the Director of Performance Management at Lloyd's, to justify his view that discounts are likely to become less common in the Lloyd's market next year. Jesús Bueres, Head of Market Management at Allianz Global Corporate & Speciality in Spain, made a similar claim. “The regulatory burden will be enormous for insurers with Solvency II, and this means higher costs,” he said. Mr Martínez de Baroja, for his part, stressed the belief among AGERS members that the new directive will trigger a process of consolidation in the insurance market, especially in Spain, where the sector is much fragmented. “We still don't know what effect the consolidation of the market will have on prices, but some effect it is certain to have,” he said. Award AGERS announced that it is starting to receive submissions for the second edition of the Premio International de Investigación en Gerencia de Riesgos Julio Saenz, an award for original works on risk management that pays €18,000 for the winners. Works must be written in Spanish, be between 150 and 450 pages long and can be submitted until January 31st. The award is named after a late risk manager from retailers El Corte Inglés, which sponsors the initiative. More information is available via the email gerencia@agers.es.

Spanish risk managers told soft market is coming to an end

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Related Articles