AM Best revises Spain’s non-life insurance segment from negative to stable

Global credit ratings agency AM Best has revised its outlook on Spain’s non-life insurance segment from negative to stable, driven by segment growth supported by economic development and resilient profitability on the back of premium rate increases.

The agency has confirmed that it expects non-life insurance premium growth in Spain to continue in 2024, in line with 2023, when gross written premiums (GWP) grew by 7%.

Looking back at 2023, non-life premiums totalled more than €40 billion with growth seen across all lines of business, heavily due to increased consumer demand and risk awareness.

It is important to note that the main subsegments within Spain’s non-life segment are motor, health and multi-peril.

The agency is anticipating to see continued growth in all lines during 2024, driven by further increases in premium rates (particularly for motor) combined with growth in policyholder numbers.

Additionally, Best is also expecting inflationary pressures to continue to pose challenges for non-life insurers in 2024 by pushing up claims costs, in line with previous years.

The agency notes however, that premium rate increases applied in 2023, together with further rises in 2024, are expected to offset the impact of increasing claims costs on overall profitability. Therefore, Best expects that the segment will remain profitable in 2024 with an average combined ratio sitting within the low 90s, in line with the previous year.

An interesting factor to highlight, is that motor is expected to be one of the most challenged subsegments, which Best attributes towards large increases in repair and replacement costs, which remain above premium rate increases, in addition to an increasing claims frequency following the COVID-19 pandemic.

As for the health line, that is expected to remain profitable in 2024 with a combined ratio in the low 90s and further expected rate increases, but, Best warns that the subsegment continues to be challenged by an increase in medical expenses since the pandemic, as well as the progressive aging of the country’s population.

Furthermore, the multi-peril line is expected to remain profitable with a combined ratio in the mid-90s, in line with 2023. Best also noted, however, that the segment is likely to remain pressured by higher claims costs due to inflation and increased weather-related events.

Lastly, Best notes that economic growth and stabilising inflationary pressures in Spain are expected to support nonlife insurance premium growth in the near term.

The agency also anticipates that profitability levels will improve, which analysts say will be driven primarily by higher investment returns and, to a less extent, partial improvements in technical margins as further rate increases are implemented to partially offset rising claims costs.

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