Fitch: Spanish insurers' growth prospects better than peers'

The Spanish insurance sector appears to have good prospects for profitable growth, in contrast to most other major European insurance markets, Fitch Ratings says in a new report.

The rating agency pointed out "this is credit-positive for insurers already established in the country and could also attract foreign rivals. The degree that prospects materialise will depend on the path that Spain's economy takes and the future treatment of private pensions".

The following was released by Fitch Ratings (click here):

Spain's continuing economic recovery should help near-term insurance market growth. We believe there is significant longer-term growth potential too given the gradual reduction of state pensions and the relatively low penetration of insurance into the Spanish market. Spain is one of the most profitable insurance markets in Europe, with return on equity averaging 13% over the past 10 years despite pressures from the eurozone crisis and then subsequent low interest rates.

Rising employment and recovering house prices should boost consumers' propensity to buy long-term savings products, while GDP growth tends to spur non-life premium volumes, particularly through its positive impact on new car sales. Motor insurance premium volumes have been rising since 2015, helped by rising car sales as the economy recovers from the 2008-2014 financial crisis.

Spanish insurers may have an opportunity to sell more pensions business as the state cuts back its pension provisions due to the cost burden of an ageing population. By 2050, Spain is forecast to have the second-highest old-age dependency ratio among OECD countries, with 77 people over 65 for every 100 people of working age (defined as between 20 and 64), according to the OECD.

Spain's state pension age is being gradually increased to 67 by 2027 from 65 in 2013, and the average state pension is likely to be cut significantly in the long term. By 2070, it will fall to 38% of the average wage, from 58% in 2016, according to the European Commission - a steeper fall than in most other major European economies. Life insurers are the natural providers to fill the gap. However, there is no sign of rising demand for life insurers' pension products so far, and customers' enthusiasm may remain limited unless tax or other incentives are increased.

Life insurance penetration in Spain is lower than that in Europe's largest life insurance markets, which suggests there is scope for growth. Spain's ratio of life insurance premiums to GDP is 2.5% (based on provisional 2017 data from Swiss Re), well below the corresponding ratios for the UK (7.2%), Italy (6.2%) and France (5.8%), and even below Germany (2.6%) where ultra-low interest rates have depressed sales volumes over several years.

Most life insurance business in Spain is sold through the bancassurance channel. Annuities are particularly popular due to tax advantages, and account for nearly half of Spain's total life insurance reserves. Insurers limit their exposure to interest-rate risk from annuities and other products with investment guarantees by holding fixed-income assets of similar duration. This is credit-positive relative to markets with large asset-liability duration gaps, notably Germany.

We view the Spanish insurance sector as strongly capitalised, supported by insurers' ability to generate robust earnings. The sector's Solvency II coverage ratio is among the strongest in Europe (end-2017: 242%, according to the Spanish insurance regulator).

The report "Spanish Insurance in Strong Position" is available at

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