Thought leadership from our experts

Leaving the storm behind

The Spanish economy grew in 2013 at its fastest pace in almost six years, raising well-grounded hopes that the country is finally on the road to recovery. Even if the insurance sector had resisted the crisis strongly, these prospects are welcomed by insurers and mediators who have lived through these times under strong economic pressure only compensated by historical low levels on claims and losses. Among the signs of recovery, a higher number of M&A opportunities and joint ventures have been good indicators. The market has continued moving forward on VIF monetization reinsurance deals, and three new deals in Spain and Portugal have been closed (Banco Popular/Eurovid with Scor, BES Vida with Munich Re and Banco Sabadell/Mediterraneo Vida again with Scor) after the three big Spanish banks made their own movements back in 2012 and early 2013. Other players are looking for fresh opportunities both in Spain and Portugal regarding VIF deals and it is very likely that further movements will happen across 2014.

Not only are VIF reinsurance deals pushing the M&A market as a result of financial sector reorganization but also banks and savings banks have prompted the rearrangement of joint venture agreements (that is to say, Mapfre and Bankia, as successor to Caja Madrid, which signed bancassurance and assurbanking agreements in early 2014), to achieve an amicable understanding – that is to say, Zurich and CaixaBank regarding the bancassurance joint venture, the latter with CAN Seguros Generales, now part of CaixaBank), or to continue pending arbitrations on the resolution of the existing agreements (ie, Aviva and NCG/Banesco). 2014 will witness (after the Caixa Catalunya privatization and some other minor changes) the final reordination of the bancassurance market, a result that would certainly weigh the importance of insurance distribution to banks after these years of crisis.

Trends detected in the last few years, for example cross-border mergers as a reaction to Solvency II, continue and will increase once the complete Solvency II regime impacts. This is a real and present danger for big and small players; in so much as the efforts undertaken by the Spanish Insurance Regulator lately have included the circulation of a draft Act for the incorporation into Spanish law of the Solvency II regime, as well as to consider some ancillary Solvency II regulations. But probably the regulations more eagerly awaited by the insurance sectors are the reform of the Spanish Insurance Contract Act and the reform of the Personal Damages Valuation system. On the first matter, the change of focus from the last project considered (the one discussed in 2011) is complete if we refer to the instrument to be used: instead of a new Insurance Contract Act replacing the existing one from 1980, the Government has chosen to draft a brand new Commerce Code where, amongst other aspects, regulations about insurance contract and insurance mediators are covered. But even if the new text is promoted by a different Administration, the main elements of the 2011 proposal are still there, which can be translated into the introduction for every class of insurance of a reasoned offer / reasoned rejection system, like the existing one on Car Directives. This change can be a radical departure of existing procedures on claims handling, and its effects are still difficult to predict. On the other hand, the Personal Damages Valuation system, which must be mandatorily used in car accidents but is widely applied to all kind of personal damages claims, is on the last steps of an in-depth reform, which will mean an increase on premiums which some observers calculate can mean 25% on car insurance; in any event, to reform a system that has been in place for almost 20 years, is clearly needed so the possible negative aspects of such a reform must be read with a sense of perspective.

Regarding claims and losses, D&O claims continue to boom within the Spanish market, due to the proliferation of financial & political scandals affecting banks, big companies and different professionals, which have made the D&O business a mine field in terms of dealings in renewals and discovery periods; on the P&C side despite the signs of domestic reactivation, the clear trend for insurers covering Spanish headquartered companies risks is the increase of claims abroad: the insurer follows the Spanish companies which, at its own, must move abroad to pursue engineering, construction and infrastructure projects. Not only Latin America, but also the Middle East & the Far East are a new frontier for claims affecting Spanish insured, something that is a new challenge for claims handlers and service providers.