Ratings firm praises maintained strong profitability and continued growth for Spain’s non-life insurers
Fitch Ratings has reported favourably on the profits and growth prospects for Spanish non-life insurance.
The rating agency issued a report saying Spain offers significant opportunities for growth given the insurance penetration rate of 5.5%, lower than in other developed economies.
Return on equity (RoE) for the insurance sector has averaged 13% over the last 10 years, although returns have been more modest in recent years, as persistent low interest rates have depressed investment returns.
However, profitability remains robust, with the sector’s reported RoE at 11% in 2018, Fitch noted in its report, “Spanish Insurers Remain Resilient”.
In 2018, the non-life insurance sector expanded for the fifth year in a row, according to the ratings firm.
Premiums increased 4%, the same rate as the previous year, with positive contributions from most lines.
Fitch expects the Spanish non-life insurance sector to continue growing in line with or slightly above GDP in 2019-2020.
However, growth is expected to slow because of a forecast decline in private consumption, according to Fitch.
Motor insurance demand is likely to decrease as car sales declined in October 2019 by 6.3% year-on-year, after they had been recovering between 2012 and 2018.
The Spanish non-life market should maintain strong technical profitability and a combined ratio at around 95% in 2019-2020.
The ratio was strong in 2018 at 93.7% and 94% for 2017, Fitch added.
The operating profitability of the life segment has been strong over the last eight years.
In 2018, the sector’s operating profit decreased to EUR2.3 billion in 2018 (2017: EUR3 billion) as low interest rates offset growth in assets under management.
“We expect profits to remain positive, but under pressure,” said Fitch.
The Spanish insurance sector is strongly capitalised, supported by robust earnings, the rating agency said.
“The Solvency Capital Requirement (SCR) coverage ratio was 239% at end-2018 (2017: 242%), one of the strongest in Europe.
“Nearly all Spanish insurers use the standard formula approach in their calculations of the SCR and make use of transitional measures on their annuity portfolios,” Fitch said.