The report noted that the Spanish economy was one of the best in Europe during 2003, expanding by 2.4 percent.

Moody's noted that the Spanish market has a relatively low level of concentration, with the top 10 insurers together having a market share of 50.5 percent. If the largest player, Corporaci?n Mapfre, is excluded, the remaining carriers account for 36.5 percent of total premiums, Moody's reported.

In the non-life sector, Mapfre is the biggest with a 17.3 percent share compared with number two Allianz, which has 7 percent of the market.

By business segment, auto insurance has the largest share of non-life insurance premiums at 45 percent, and last year continued a profitable trend that began in 2002. Moody's said the percentage of auto premium in the marketplace should decline as the market matures.

Moody's said the proportion of insurance and pension products as a percentage of total family savings in Spain has grown from 5 percent to 11 percent from 1998 to 2003.

Compared with Germany's 52.7 billion euro and Great Britain's 41.5 billion euro property-casualty markets, Spain's stands at 21.6 billion euros, Moody's said.

Average per-capita spending for non-life insurance was 536 euros in Spain compared with 704 in Great Britain.

Moody's, in its new Industry Outlook on the sector, said a stable outlook is supported by the non-life sector's return to underwriting profitability in 2002 and 2003, while the overall industry's conservative asset allocation and solid risk-based capitalization are additional strengths.

The report, written by Lynn Exton, a Moody's senior vice president, said there are strong challenges in the marketplace from Spanish banks, particularly in the life segment, and modest investment returns.

Moody's said the Spanish non-life sector combined ratio has dropped steadily since 2000, reaching 96.8 in 2002 and the firm believes the ratio improved last year "to around 95."

Corporaci?n Mapfre (whose subsidiary Mapfre Asistencia has a Moody's insurance financial strength rating of A1) enjoying an estimated market share of 14 percent in 2003.

Given the fragmented nature of both the life and non-life sectors, Moody's said it anticipates further consolidation as competitive forces and margin pressures push the industry towards achieving improved operating efficiency through scale. In particular, the rating agency expects that those life-sector players without any bancassurance distribution capacity will be most at risk.

"Spanish insurers have successfully managed their investment allocations conservatively, with modest equity exposures of around 10 percent and a high proportion of good-quality fixed-income instruments," Ms Exton notes. However, the sizeable proportion of real estate assets (10 percent) prompts a degree of caution given the rapid inflation experienced in this segment over the past five years.

Moody's said it believed the stability of the Spanish insurance sector's solvency levels is a particular strength, as is the industry-wide focus on improving claims control and customer service, controlling overhead expenses and enhancing distribution networks' productivity.