The Spanish insurance sector faces the presentation of results with a bittersweet taste. The improvement in the financial income of its investment portfolio, impacted by the rise in rates of the European Central Bank (ECB), will help it to offset the increase in claims, after the end of the Covid restrictions, and the increase in operating costs as a result of high inflation. Even so, everything points to the fact that the combined ratios of the insurance companies, which measure the profitability of Non-Life insurance, will be above the forecasts they made at the beginning of the year.
By 2023, the outlook is that companies will rely on investment rotation and rising premium prices, which have a longer run, to improve combined ratios. In relation to the latter, insurers will continue to index premiums to price developments. Also in 2023 it must continue to improve financial income. Analysts recall that portfolio asset rotation is a slow process, which is not over yet. “As debt maturities occur, they will be rotated to higher yields”, which may also compensate this year 2023. For Jaume Pallarés, an analyst at GVC Gaesco, this is still difficult to quantify. “It is early to know if it will be enough to offset the rise in claims costs in the Non-Life branch”, but help.
Mapfre will be the first company in the insurance sector to present results. Specifically, next February 9, although the insurer chaired by Antonio Huertas has already advanced to the market the volume of premiums at the end of 2022, which registered a growth of 10.8%, thanks to the pull of Non-Life, with Brazil, Latin America South and North America growing at double digits (especially Brazil, the second market for Mapfre, which decreased an increase of 43.2%).
The analysts explained that this result is impacted precisely by the increase in the accident rate, together with the increase in operating costs due to inflation, to which it was necessary to add that “in 2022 they had to face the shortage of supplies”, as Nuria Álvarez, an analyst at Renta 4, recalls, as in salaries (Mapfre has distributed two ‘extra’ payments to its employees to offset the inflationary effect).
This will therefore put pressure on the combined ratio, which will experience a sharp rise, reaching close to 99% (specifically 98.73%) compared to the 97.5% with which it closed 2021 and well above the objective included in its strategic plan of between 94 % and 95% for the period 2022-2024. Even so, Mapfre’s dividend charged to 2022 will be 0.14 euros per share, in line with the 14.5 euros distributed for 2021.
Catalana Occidente and Linea Directa will improve results
Both Catalana Occidente and Linea Directa will also reflect a fourth quarter pressured by the rise in costs and the increase in the accident rate. But in this case, the improvement in financial income will improve the final photo of the results in the case of Catalana Occidente. The company will earn, according to consensus estimates, 512 million euros compared to 361 million euros, which will mean improving net profit by almost 42%. The combined ratio will also continue to rise. We must not forget that in the third quarter it rose, although to a lesser extent (2.3 basis points to 90.3%). Precisely, Pallarés points out that Catalana Occidente is among his favourites, because the insurer is concentrated in Spain and “has done well in the first nine months of the year”.
For Linea Directa, the profit will be around 66 million, compared to 110 million euros a year ago. The big unknown is what will happen to the combined ratio. In the third quarter of 2022, it grew by 6.5 basis points to 92.9%. Its exposure to the automotive sector can take its toll, experts say. Likewise, the rise in the price of premiums due to inflation has not yet left its effects, as it has a higher run, since the loss ratio grew by 6.9 basis points to 72.8%. Precisely, this exposure to the automotive sector means that it is not among the preferences of analysts.
