THE SPANISH INSURANCE MARKET 2004/2005

January 2005

2

POLITICAL ASPECTS

• Elections of March 2004: Socialist Party Government.

• Debate on the structure of the State and the reform of the Autonomy Statutes (Basque Country, Catalonia, others).

• Reform of the Personal Income Tax in 2006/2007: Reduction/elimination of tax deductions (pension plans, home, life insurance...).

3

SOCIAL ASPECTS

• Immigration:

- Total population in 2003: 42.7 million (+ 2.1 %).

- Foreign population in 2003: 2.7 million (+ 34.7%).

- Origin: Ecuador (14.7%), Morocco (14.2%), Colombia (9.2%), United Kingdom (6.1%), Romania (5.2%) and Argentina (4.1%).

- Impact on health assistance, education and households.

Registration in Social Security 2004 / 2003 (+ 3.2 %).

. Spanish citizens: + 2.4%.

. Foreign citizens: + 16.4%.

• Ageing population:

- Future of pensions.

- Impact on health assistance (public and private).

- Dependance.

 

4

ECONOMIC ASPECTS

• Macroeconomics.

• Economic policy.

• Real estate bubble? Construction of houses, economic driver.

• Development of infrastructures (America’s Cup 2007, World Fair 2008 and Olympic Games 2012?).

• Consumer household spending will slow down slightly.

• Greater dynamism in investment in equipment goods.

GDP (%

Inflation (%)

GDP (%

Inflation (%)

Spain 2.6 3.2 2.9 2.9-3.2

Euro-zone 1.6-2.0 2.1-2.3 1.4-2.4 1.5-2.5

2004 2005

5

SPANISH INSURANCE MARKET 2004

Insurance lines Premiums

(billion euros) %

2004/2003 Market

share (%)

Life 18.7 5.4 41.7

Motor 11.3 6.2 25.2

Multi-risks 4.2 11.5 9.3

Health 4.0 9.7 8.8

Other lines 6.7 11.6 15.0

Non life 26.1 8.9 58.3

Total market 44.8 7.4 100

Source: ICEA

6

INSURANCE MARKET TREND (Premiums)

15.0

23.8 23.026.6

18.717.7

23.9 26.1

21.619.017.017.0

44.8

41.6

48.242.040.8

32.0

0

10

20

30

40

50

60

1999 2000 2001 2002 2003 2004

Bill

ion

€

Life Non Life Total

7

LEADING 10 INSURANCE GROUPS IN 2003

Direct insurance (premiums written in Spain)

Premiums (billion euros)

Market share (%)

1 MAPFRE 5.8 13.92 GENERALI 2.4 5.73 ALLIANZ 2.3 5.54 AVIVA 1.8 4.35 CAIFOR 1.7 4.16 AXA 1.6 3.97 ZURICH 1.5 3.58 CASER 1.4 3.39 BBVA 1.3 3.2

10 WINTERTHUR 1.3 3.0

20.9 50.3

41.6 100

Source: ICEA

Group

2003

Total market

Total 10 leading groups

8

INSURANCE DISTRIBUTION CHANNELS IN 2002/2003 (% premiums)

Life Non Life

Channel

New business

(%)

New business

(%)

Agents/brokers 22.8/19.0 75.9/71.7

Bancassurance 68.5/72.7 9.5/9.3

Direct 8.7/8.3 14.6/19.0

Total 100 100 Source : ICEA

9

LIFE 2004

• Estimated premium growth, 5.4%.

• Estimated growth in mathematical provisions, 5.2%.

• High growth:

- Individual term insurance (very high in Banking Networks).

- Single premium (guaranteed interest).

- Annuities.

• Insured Previsional Plans: poor selling, low interest rates.

• End of externalisation of retirement payments, postponed 2006 (not very significant).

• Good results (good loss ratio, improved stock market).

10

• Forecast premium growth, 9%.

• Similar trends shown in 2004.

• Saving products and Insured Previsional Plans expected to develop in second semester after interest rates increase.

• Foreseeable negative influence of future tax reform.

LIFE 2005

11

MOTOR

2004

• Estimated premium growth, 6.2%.

• Increase of number of cars, 3.5%.

• Reduction of loss ratio (both frequency and average cost).

• Internal, external costs, contained.

• Improved results.

• Strong competition, direct sales companies.

2005

• Forecast premium growth, 3 – 4%.

• Driving regulations to contribute reduction of accidents, losses.

• Repair shops, towing, medical expenses, to increase.

• Increased competition: direct sales companies, banking networks.

• Aggressive “Rates war” not expected.

• Level of results, maintained.

12

PROPERTY 2004

• Personal risks:

- Estimated growth in multi-risks, 12%.

- Sustained growth.

- Stable profitability.

- Symptoms of market saturation.

• Commercial risks:

- Estimated premium growth, 14%.

- Increase in competition.

- Reduction in rates, especially for large risks.

- Loss ratio, still low.

13

PROPERTY 2005

• Personal risks:

- Forecast growth in multi-risks, 10%.

- Trends from previous year, maintained.

• Commercial risks:

- Change in trend expected, both results and loss ratio.

- New players more aggressive, looking for market share.

14

HEALTH

2004

• Estimated premium growth, 9.7%.

• Group insurance policies:

- The highest growth (less than expected for the favourable tax regulation).

- “Price war”.

- Generalisation of “tailored insurance policies”.

- Tendency to include it as a social benefit.

• The EU directive bill on sex risk discrimination creates big concern.

2005

• Forecast premium growth, 9-10%.

• Regulation on Dependency to be published in the immediate future? Long term care insurance, an unforeseeable consequence.

15

LIABILITY2004

• Estimated premium growth, 12%.

• Improved results after measures adopted in recent years.

• Reductions in premiums in large accounts.

• Pressure to establish a “universal scale” for bodily injury losses.

• Decrease in accidents at work with favourable effect on employer liability covers.

2005

• Similar trends observed in 2004: decrease in premiums of large accounts and stronger competition.

• Insurance companies more interested in professional liability.

• D & O insurance, niche of few companies (North America).

• Strong concentration in Public health insurance.

• Conditions in medium risks, maintained (more guarantees, same price).

16

LEGISLATIVE INNOVATIONS

2004

• An intense year with regards to insurance regulations: Extraordinary risks, Pension plans and funds, Liability, Protection of consumers of financial services, etc.

• Two important innovations:

- Modification of the Regulation and Supervision of Private Insurance.

- Modification of the Accounting Plan of Insurance Companies.

2005

• Law on Private Insurance Agents / Brokers.

• Cross border activities (pension funds).

• Governmental Central Record of life insurance policies.