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Reinsurance giants fined millions for Spanish decennial ‘cartel’

Spanish competition authority the Comisión Nacional de la Competencia (CNC) has fined local insurers Asefa, Mapfre and Caser as well as leading global reinsurers, Munich Re, Swiss Re and Scor a total of EUR120mn for operating what the watchdog described as a price cartel for decennial liability insurance in the Spanish market.

The CNC said that faced with heavy competition in the compulsory class in the second half of 2001, the main insurers - French-owned Asefa and Mapfre - and their three main reinsurers - Munich Re, Swiss Re and Scor - met with the intention of agreeing a minimum pricing schedule.

According to the commission a document detailing a minimum tariff was produced in December 2001 and for the next five years the (re)insurers enforced a homogenous pricing regime that squeezed competition out of the Spanish decennial liability market.

The CNC added that Spanish insurer Caser, the third largest insurer in the class, joined the cartel in 2006, explaining that the regime was enforced very strictly with infractions meeting with coordinated pressure from other members of the cartel.

Describing the infractions as "the most damaging to competition" which ultimately added to the cost of all new building in Spain, the CNC says it found evidence of retaliatory action and boycotts to punish brokers or insurers attempting to undercut the cartel, even resulting in transacted deals being unpicked in some cases.

The authority fined insurer Asefa EUR27.7mn, Spanish giant Mapfre EUR21.6mn, and Caser EUR14.2mn, whilst reinsurer Swiss Re was sanctioned EUR22.6mn, Scor EUR18.6mn and Munich Re fined EUR15.8mn, each according to the commission's view of their degree of participation in the operation.

Decennial liability is a compulsory class in Spain that covers constructors' 10-year statutory liabilities arising from latent defects in new-build properties. According to sources, during the Spanish construction boom years of 2003-2007, the class commanded annual premiums of approximately EUR400mn - a figure that has since dwindled to a fraction of that with the onset of the well-publicised Iberian property bust of the last 18 months.

The move also constitutes a double blow for Scor, which along with Société Mutuelle d´Assurance du Bâtiment et des Travaux Publics (SMABTP) jointly owns the recipient of the heaviest fine, Asefa.

Scor said it was disappointed by the decision of the Spanish authorities and that it would continue to defend its case, although it could not comment further as it was in the process of reviewing the court decision with legal advisors. "In terms of the impact on our accounts this is not material", the reinsurer concluded.

A spokesman for Swiss Re said: "We regret the Spanish Competition Commission's decision to fine Swiss Re with respect to our "Decennial" business in the Spanish market. We continue to believe that the allegations made are unjustified. We will now analyse the CNC resolution and then decide whether to appeal the case."

Munich Re said it was analysing the decision, which Spanish rules allow to be appealed "This is what we have to examine now", the reinsurer concluded.

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