- A new solvency regime for entities is established and corporate governance standards are improved
- The Draft Law reinforces the role of the General Directorate of Insurance with new supervisory powers
The Council of Ministers has approved the Draft Law on Planning, Supervision and Solvency of Insurance and Reinsurance Entities. The rule was already approved in the first round on December 5 and will now be forwarded to the Cortes Generales for parliamentary processing. With this Law and the future Regulation the Solvency II Directive is transposed, a norm that supposes an impulse to the internal market of the insurance sector. This favors the competition and efficiency of these entities, which will be beneficial to the user. Specifically, a new methodology is established to calculate the solvency of insurers to ensure that they have sufficient capital, transparency and corporate governance are improved, and supervision is strengthened.
The European Directive is based on three pillars that are reflected in the Draft Law:
- New solvency regime, based on a broad set of risks, which are evaluated in a stressed scenario.
- Improved supervision
- Greater demands for information and transparency
The project transfers these elements to the Spanish legal system. It incorporates a new methodology for the solvency regime, which ensures that entities have sufficient capital even in a hypothetical stress scenario and if there are simultaneously a series of risks (market, counterparty, life and non-life insurance business) and operational risk). This new capital calculation model will not imply new capital needs for the Spanish insurance sector, since all entities have sufficient solvency.
The rule approved today also reinforces the corporate governance of insurance companies. It includes specific rules on the honorability and aptitude of those who carry out effective management (board of directors and executives); the control of the activity of all the departments in different matters is reinforced, such as risk management or compliance with the directive; and it is ensured through an internal audit that the internal procedures of the entities are adequate. The law also improves and unifies the information systems of the insurance entities to the supervisor and increases the transparency of their financial and solvency situation.
In addition, the role of the General Directorate of Insurance and Pension Funds (DGSFP) is strengthened, which is attributed the ability to issue technical guides (criteria, practices or procedures that it considers appropriate to comply with supervisory regulations) and resolutions. . In turn, the new solvency criteria represent a profound change in the supervisory model, as it moves to a system of prior authorizations to one of multiple procedures: internal models, marriage of assets and liabilities, application of volatility adjustment measures, and capital tranches classification.
The bill also addresses other issues that do not stem directly from the Solvency II Directive. This simplifies the administrative burdens of the insurance intermediation market and establishes the possibility of supervising the marketing practices of insurance entities by DGSFP officials, without the need to previously identify themselves, the so-called mystery shopping.