Due to a benign catastrophe year and stable capacity, reinsurance rates in Spain generally fell at the January 1, 2012, reinsurance renewal. This comes despite the effects of the European financial situation (especially in Spain) on the primary market. Primary property and casualty (P&C) rates have been fairly stable in Spain - both for personal and commercial risks. The exception was motor, which was flat to down 5 percent in 2011. Industrial risks sustained some significant rate decreases (down 5 percent to 10 percent) for claims-free large policies. Rates were kept stable - as opposed to declining - by the effects of the financial crisis in Europe, low profit margins and the difficulty involved in raising fresh capital.
Financial market conditions have led to some M&A activity in the region, as banks, which were hit particularly hard, have been forced to sell their insurance operations in order to meet their minimum capital requirements. For savings banks especially, supervising authorities have required a significant number of divestitures and mergers for this reason.
In 2012, a slight increase in gross domestic product growth is expected - from 0.7 percent to 1 percent, according to government sources. Meanwhile, financial institutions and economic consulting firms are forecasting a recession. Unemployment is projected to deteriorate from the current rate of 21 percent to 22.2 percent in 2012. The insurance sector resisted broader economic forces well until the end of 2010, but by the end of the third quarter of 2011, the non-life sector was flat year over year, with property growing at a 3 percent rate and casualty motor down 2.5 percent.
The insurance industry is growing at a rate of 6 percent, but the outlook for 2012 is less optimistic.
There was no catastrophe loss activity in 2011 following difficult experiences in 2009 and 2010. Guy Carpenter saw declared estimated premium income at the January 1, 2012, reinsurance renewal reduced for nearly all lines of business. Rate decreases continued, with the exception of motor. For property treaties, the decreases came from lower exposure, the result of a depressed economic environment.
Loss-free catastrophe excess of loss programs sustained ROL increases for pure Spanish exposures of 1.5 percent. Capacity was sufficient, with a few new players entering the market and none leaving.
ROLs for per risk excess of loss programs were down 10 percent at the January 1, 2012, reinsurance renewal, with motor down 6 percent. Motor high risk excess programs saw increases at higher layers, but the cost remained essentially unchanged. Capacity and retention levels were unchanged for per risk.
For proportional treaty, there were few (and limited) changes, with only a handful of cedents seeing modest property rate increases. The average estimated premium decline year over year in property pro rata was 7.7 percent. Ceding commissions did not change much for non-life business. And in life, a tendency emerged to reduce reinsurers’ expenses below 5 percent in the profit commission calculation formula. Capacity remained stable.