Any insurance company takes risk when they insure a property or a person. Reinsurance allows the insurance company to reduce this risk by diversification. In 20th century, Spanish insurance companies used reinsurance in an unregulated market. However, after 1940, the government regulated the market, which created several challenges for the insurance companies. Nevertheless, the regulations open-up many new opportunities also.
The financial crisis of 2008 had its impact on the Spanish insurance sector too, and the industry has seen a slow growth since then. According to the market research report “Reinsurance in Spain, Key Trends and Opportunities to 2020“, with the revival of economy in recent times, the insurance industry has also shown some signs of increased growth. There are currently around 10 professional reinsurance firms in Spain. With the present shape of economy, this is not expected to change and the number might not change in near future. Although the initial capital required for entering the market is not large, but excess competition and slow economic growth rate does not prove to be a lucrative deal for new entrants.
Reinsurance business thrives on the primary business of insurance. Unless the insurance industry of Spain show a significant growth, reinsurance will not be able to thrive much and growth might be slow. Direct insurance premiums have fallen in past few years because of high unemployment rate and low family income. In addition, because of the economic slow-down, the business is also slow which has further slowed down the insurance premium flow. This has resulted in fallen reinsurance premiums.
To simulate the growth, Spanish insurance and reinsurance firms have started to diversify and expand their operations. They are going global to counter the effect of slow Spanish economy. Latin America is one of the favourite targets for expanding Spanish firms because of similarities in language and culture. Mapfre, Catalana, CESCE, Santa Lucia, Llod are few of the firms which are working in this sector and are internationalising their business to simulate the growth. With the passage of Solvency II directive in 2016, companies are now forced to update their balance sheets to mitigate risk. This will be very beneficial for the reinsurance firms as they help in proper risk management, which reduced risks to significant levels.
The reinsurance market in Spain was growing rapidly until the economic crisis. However, past few years have not been very positive for the sector. With new government regulations, healing economy and increase in confidence among the Spanish population might provide the required boost to this sector and an improved growth can be seen in near future.
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