The value of insurance companies’ investments in Spain grew by 8.1%, taking advantage of the new interest rate environment

The 2023 fiscal year was positive for insurance companies’ investments, following the adaptation to the high interest rate scenario that began the previous year. In Spain, its portfolios were valued at 284.45 billion euros, 8.1% higher than a year ago, as reflected in the report “Savings and investments in the insurance industry,” prepared by MAPFRE Economics, MAPFRE’s Research Service.

The upward trend is shared by all the markets analyzed in the report, which includes both developed markets (United Kingdom, Japan, Eurozone, United States and Spain) and emerging markets (Brazil and Mexico). All recorded revaluations in their portfolios and, overall, the investments of the insurance industry studied increased in value by 4.7 percent to 22.997 billion euros. The most notable increases were Mexico (+33.8%), Brazil (+24.8%) and the United States (+21.3%).

“Insurance companies in these countries benefited in 2023 from their economies’ resistance to rising interest rates, economic growth backed by lower global inflation, higher public spending and household consumption supported by accumulated savings,” says Manuel Aguilera, Director of MAPFRE Economics.

With regard to the structure of investments, the report notes that, although variations between asset categories are usually small in insurance companies (due to the need to match terms, interest rates and currencies with their liabilities, and due to capital consumption), in 2023 changes in weight occurred mainly in fixed income, especially in duration (rate risk mitigation), in anticipation of market rate movements and central banks (due to inflation), and to a lesser extent, changes in weight by rating (mitigation of issuer’s credit risk).

The weight of fixed income remains greater in Spanish insurance companies

In Spain, insurance company investment distribution by asset type shows a fixed income percentage of 72.8%, much higher than the Eurozone average (49.2%) and the United States average (60.9%). Of this figure, 51.6% corresponds to sovereign debt and 21.2% to corporate debt. In other categories, equity represents 7.2% of the portfolio of Spanish insurance companies, mutual funds, 12.1%, deposits and cash, 5.1% and real estate, 3.6%.

The report by MAPFRE Economics also takes stock of the reassignment of insurance companies’ assets in recent years. Since 2019, Spanish insurance companies have reduced their fixed income investments by 2.6%, while they have increased equity by 1.6% and mutual fund investments by 3%. During the same period, the group of insurance companies in the Eurozone fell dropped 8.2% in their fixed income investments, while equity investments increased by 5.5% and mutual funds by 1.7%.

MAPFRE Economics highlights that, of the developed markets analyzed, Spain demonstrated both the highest proportion in its fixed income portfolio and the highest concentration in sovereign fixed income. However, if markets such as Brazil and Mexico are taken into account, their fixed income investment percentages are even higher. “In this regard, it is evident that relatively less developed insurance markets (measured by the volume of assets in their investment portfolios), the percentage of investments in fixed income securities tends to be higher,” explains Ricardo González, Director of Macroeconomic and Financial Analysis at MAPFRE Economics.

In Spain, the business associated with unit-linked products, in which the policyholder assumes the investment risk, is 12.8%, compared to 87.2% of the traditional insurance business, in which the risk is retained on the insurance companies’ balance sheets. This is a lower percentage than 20.8% of the Eurozone average, a proportion that reaches 56.6% in the United Kingdom. However, there is an upward trend in this type of business in Spain, which has more than doubled since the 2016 minimum, when it only represented 5.5%.