Large insurers in Spain with a competitive
advantage in their distribution network through stronger banking
groups are likely to benefit from Spanish banking consolidation,
according to Moody’s Investors Service.

This is because of the major role that banks
play in the distribution of life products, says the report entitled
“Spanish Insurance: Banking Consolidation Will Further
Advantage the Strongest Insurers”.

The report notes that vast majority of Spain’s
savings banks, or cajas, have undergone a meaningful consolidation
process in the last two years, reducing in number to 13 from 45,
whilst simultaneously converting their legal status to retail
banks.

This is important because in Spain, as in many
other Southern European countries, the banking channel is the
largest distribution channel for life insurance products,
representing 73% of the premiums in 2010.

Many banks have sold 50% of their owned
insurance subsidiary through ad-hoc joint ventures (JV), or signed
exclusive distribution agreements with third-party insurance
companies.

A large number of cajas have also signed
exclusive distribution agreements with insurance providers.

Severe repercussions

Therefore if the cajas merge, the report
explains that distribution agreements will have to be renegotiated
or potentially cancelled in favour of new agreements with other
existing insurers within the enlarged bank, or in some cases
potentially with external ones.

According to the Moody’s report, each
individual savings bank merger is unlikely to significantly affect
the largest groups with stronger franchises, such as Mapfre or the
bancassurance operations of larger banks, such as Caixabank.

However, the ratings agency said the effects
could be more substantial for medium-sized insurance providers that
rely on bancassurance agreements such as Caser, Aviva or Aegon.

The Moody’s report said: “As stronger banks
with their own insurance operations – or agreements with large
players – participate in the ongoing consolidation, a more drastic
scenario with one single insurance provider per enlarged group
would probably materialise in some cases.

These banks intrinsically have a higher
ability to meet exit penalties of smaller bancassurance deals, and
would probably benefit from integrating their insurance operations
from a cost and operational perspective.

Moody’s said the degree of consolidation among
insurers in Spain will ultimately depend on:

  • the level of integration of the existing
    insurers with the leading bank in the enlarged banking group
  •  the size of any relevant exit
    penalties
  • the bank’s ability to meet these
    penalties

Diffentiate to innovate

In conclusion, the ratings agency only
anticipates significant improvements for those insurers that are
able to “differentiate their product offering” successfully from
banking products towards non-life or protection insurance.

This is because the study says life savings
products will continue to face strong competition from deposits, in
the short to medium term.