Two-paced Spanish market softening in places with long-term agreements back on the table

The latest renewals showed that insurers have more appetite for Spanish risks, resulting in a significant softening in several market segments, brokers told Commercial Risk Europe. But they stress that the market is two-paced, with some risks still difficult and expensive to transfer.

The brokers said they were surprised by the conditions obtained by some clients in D&O, where rate reductions reached up to between 30% and 40% in January for some big accounts.

The softening is the result of growing competition between underwriters for Spanish companies. Several insurers either entered the Spanish market or upped their capacity for local buyers in 2023.

Cyber insurance is another segment where the market is now more friendly to buyers than before.

“Eighteen months ago, we were telling clients that the cyber market risked disappearing, that there was not capacity available because it was a systemic risk,” said Agustin Espinosa de los Monteros, the chief broking officer of commercial risk in Spain at Aon. “Now many new companies have entered the market, including some that only work with cyber. We have moved from a market that was almost extinct to one where competition is very fierce.”

Companies such as Arch and Resilience are among the new entrants to the Spanish cyber market, but, perhaps more importantly, a higher number of insurers are now willing to offer primary capacity, rather than participating in excess layers only.

Brokers say that the average cyber capacity on offer from insurers still remains modest, at around €5m, and only reaches twice that amount in exceptional circumstances. But Espinosa de los Monteros pointed out that it was possible to build capacity to the tune of €200m for one big Spanish cyber programme by layering many different insurers.

In some cases, Spanish cyber buyers have been able to obtain rate reductions too, and critical covers, such as ransomware, are increasingly available.

And cyber is not the only sector where insurers are gaining interest in the Spanish market. Underwriters like Everest, Mitsui, Starr and Berkshire Hathaway are making a push in the local market, improving the situation for buyers in segments such as energy, civil liability and professional indemnity.

Paloma Migoya, the head of carrier management at WTW in Spain, said, however, that insurers have not relaxed their underwriting strategies and continue to pay great attention to the quality of risks they take on their books.

“We clearly have a two-level market, where good risks are seen as more attractive to insurers,” she said. “Therefore, it is fundamental for buyers to differentiate themselves from the overall market, to show that they manage their risks actively and to fulfil their investment commitments on risk management and prevention.”

With underwriters more willing to reward risk management practices, even companies that work in sectors that are on the market’s blacklist, such as food and drink, have been able to achieve favourable rates and conditions when the quality of their risk management is considered top notch.

“We have been able to put together specific solutions for the food sector that have proven to be very successful,” Espinosa de los Monteros said. “It is a very important sector for the Spanish economy, but one that has been poorly served because of high loss levels.”

Despite the improvements for buyers, the Spanish insurance market remains tough for some sectors. As in other European countries, waste recycling, chemicals, wood processing, some renewable energies and the food industry are examples of industries that insurers are very reluctant to work with. But even here, more underwriters are at least willing to take a look at proposals on a case-by-case basis.

“Insurers are a tad more willing to evaluate those kinds of risks,” Migoya said. “They want to grow, and to achieve that, they have to gain new business.”

Espinosa de los Monteros added that cover for motor fleets is particularly hard to set up, as inflation and new liability regulation in Spain have spooked insurers. “In this case, the market is not only hard, but getting harder,” he said.

High deductibles continue to be in place for many Spanish risks. But more companies are using captives, captive cells and structured solutions to mitigate the impact of higher deductibles on the cost of risk financing.

There are indications that all parties seem to believe rate hikes will no longer be the rule in Spain. Migoya noted that latest renewals saw the return of long-term agreements (LTAs), which enable buyers to lock complex covers for more than one year.

“LTAs had completely disappeared during the worst stretches of the hard market,” she said. “But now they have become more common.”

Migoya added that the risk management function has become more professional in Spain in recent years, which has helped insurers to be more confident about the quality of the risks that Spanish companies place.

Espinosa de los Monteros pointed out that this can be particularly noted in cyber insurance.

“Clients have improved their awareness about cyber risks, and also improved the quality of their risks,” he says. “This is enabling more companies to have access to the insurance market.”