• A new solvency regime for entities is established and corporate governance standards are improved
  • The Bill reinforces the role of the General Directorate of Insurance with new supervisory powers

The Council of Ministers has approved the Draft Law on the Regulation, Supervision and Solvency of Insurance and Reinsurance Entities. The rule was already approved in the first round on December 5 and will now be sent to the General Courts for parliamentary processing. With this Law and the future Regulation, Solvency Directive II is transposed, a norm that supposes a boost to the internal market of the insurance sector. With this, competition and efficiency of these entities are favored, which will benefit the user. Specifically, a new methodology for calculating the solvency of insurers is established to ensure that they have sufficient capital, transparency and corporate governance are improved and supervision is reinforced.

The European Directive is based on three pillars that are reflected in the Bill:

  • New solvency regime, based on a broad set of risks, which are evaluated in a stressed scenario.
  • Improvement of supervision
  • Higher information and transparency requirements

The project transfers these elements to the Spanish legal system. It incorporates a new methodology for the solvency regime, which guarantees that entities have sufficient capital even in a hypothetical stress scenario and if there are simultaneously a series of risks (market, counterpart, 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 norm approved today also reinforces the corporate governance of insurance companies. It includes specific rules on the honorability and aptitude of those who carry out the effective management (board of directors and managers); the control of the activity of all departments in different matters, such as risk management or compliance with the directive, is reinforced; 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), which is attributed the ability to issue technical guides (criteria, practices or procedures deemed appropriate to comply with supervisory regulations) and resolutions is reinforced . In turn, the new solvency criteria imply a profound change of the supervisory model, since it is passed to a system of authorizations prior to one of multiple procedures: internal models, marriage of assets and liabilities, application of volatility adjustment measures and Classification of tranches of capital.

The bill also addresses other issues that do not derive directly from Solvency Directive II. This simplifies the administrative burdens of the insurance intermediation market and establishes the possibility of carrying out the supervision of commercialization practices of the insurance entities by the DGSFP officials, without the need to previously identify the so-called mistery shopping.

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