El mercado reasegurador en España (1870-1952)

This thesis is focused on the evolution of reinsurance practices in Spain from 1870 to 1952, including the development of the market during the first wave of globalization, the difficulties arising from the process of disintegration of the international economy in the 1930s and the autarkic beginnings of francoist regime. Little previous research exists on the performance of reinsurance in peripheral countries featured by a late economic development. The Spanish case is remarkable since the country experienced a great influence from foreign companies during the stages of formation of the insurance market. After that, it was characterised by increasing regulations in line with principles of economic nationalism, which were far surpassed by the autarkic claims of Franco dictatorship. Within this context, this thesis contributes to previous knowledge by analysing the impact of global reinsurance networks in the modernisation of the Spanish insurance market in an environment of changing regulation, as well as it enhances our understanding on the motivation, ways and effects of reinsurance regulation in an almost closed economy. This research employs extensive corporate and institutional sources and two novel datasets collected from archive documentation. Due to this heterogeneity, a mixed methodology design has been used, including qualitative methods and regression analysis. To interpret the results, the research has been placed in the framework of ruin theory, insurance and risk diversification theory, internationalization theory, agency theory and corporate networks theory. By utilizing these various contexts, it has been possible to explain the elements affecting the reinsurance decision and the planning of risk diversification strategies according to the financial position of the company, its organisational form and its connections and links within the market. The results show that, despite the relative backwardness of the Spanish insurance market, the opening to global risks networks favoured the spreading of the use of advanced financial devices as reinsurance. Indeed, reinsurance treaties were an essential device for the entrance of foreign companies in the Spanish market, as well as for the internationalization processes performed by domestic companies. In front of a set of small local companies and mutual societies, a complex net of risk transfer was built to connect with global reinsurers through national leaders as La Union y el Fenix Espanol. This practice has been identified as a structural dynamic by which the use of reinsurance enhanced the underwriting capacity of the Spanish insurance industry and contributed to overcome the financial shortcomings affecting the business, especially the lack of capital funding. Furthermore, the research has shown that, having regard to the different periods analysed, reinsurance was a major provider of underwriting capacity for Spanish primary insurers, facilitating risk-mitigation and financial services for the developing Spanish economy. Deepening in the design of reinsurance strategies, this thesis shows the impact of the organizational form in the performance of risk diversification practices and the implications of agency problems in the modelling of the portfolio. Mutual societies in Spain have been systematically more prone to reinsure than stock companies. This orientation served in a planned and conscious strategy to gain market share, which roused the constant opposition of private companies and the surveillance of the state. Moreover, even when new regulations in the 1940s excluded mutual societies from the reinsurance market, there were several movements to keep their position by the creation of dependent reinsurers. Public regulations and controls deeply affected the performance of reinsurance in Spain. The research has shown how the attempts to minimize the outflows generated by reinsurance abroad during the two World Wars resulted in episodes of partial substitution of global networks by national companies. While in the First World War this leaded to a weak core of undercapitalized reinsurers, in the Second World War this converged with the exacerbated economic nationalism of francoist dictatorship and the pressing needs to preserve the availability of foreign currency, which resulted in the consolidation of a domestic reinsurance market in Spain. However, far from being a competitive market, this last stage was marked by a continuous State interference and by the consolidation of corporate networks involving leader companies in the insurance market and dependent or subsidiary reinsurers which supplied preferential services of risk mitigation to primary insurers. These processes, catalysed by the disintegration of the global economy and the isolation of Spain, came to an end with the slow return of the country to the international scene in the early 1950s.