The Council of Ministers has approved the Proposed Draft Law (APL) on the Management, Supervision and Solvency of Insurance and Reinsurance Entities whose purpose is, mainly, to incorporate the Solvency Directive II into the Spanish legal system, as amended by the Bus II Directive. The most notable developments that this standard introduces are: a new method of calculation for solvency requirements, reinforcement of the government system, unification of information systems by entities and a new supervision model, with greater functions for the supervisor , a system of prior authorizations and the ability to dictate technical and circular guides.
Regarding solvency standards, a new regime is established that guarantees that entities have sufficient capital to ensure that the entity does not break, with a probability of 99.5% and a time horizon of one year. For the calculation of this solvency capital requirement (Solvency Capital Requirement or SCR), a standard formula may be used, where the market, counterpart, life and non-life insurance, and operational risks are calibrated in a homogeneous manner for all entities, or an internal model developed by the entity, which requires prior authorization by the supervisor (the General Directorate of Insurance and Pension Funds).
To measure solvency, it is required that the entity has sufficient own resources to reach the required solvency capital. These own resources are classified into three levels according to their capacity to absorb the possible losses of the entity. In addition, they are admitted as own funds, prior authorization of the General Directorate of Insurance and Pension Funds, complementary own funds provided they meet the requirements established in the standard.
In relation to government system standards, the APL approved today reinforces the existing mechanisms. Specific rules are established on the honorability and aptitude of the members of the administrative body and of those who perform the effective management, as well as of those responsible for the fundamental functions. At least four key functions are established: risk management, regulatory compliance, actuarial verification and internal audit.
The APL also unifies the information systems of insurance companies, both their national supervisors and, indirectly, the European Supervisory Authority (EIOPA). It will allow comparability between entities and countries, which will harmonize and make supervision more effective. Additionally, as of January 1, 2016, entities must publish their financial and solvency reports.
The role of the General Directorate of Insurance and Pension Funds as a supervisory authority, which will strengthen its functions and its supervisory capacity, is reinforced. The supervision of insurance groups at European level is harmonized, for which the figure of the colleges of supervisors is created.
The monitoring model introduces additional procedures submitted to prior authorization, such as internal models, adjustment for marriage of assets and liabilities (matching), application of transitional measures, complementary own funds and authorizations related to groups.
As a novelty, the General Directorate of Insurance and Pension Funds is attributed the ability to issue technical guides (criteria, practices or procedures that it considers appropriate to comply with supervisory regulations) and circulars (provisions for the development of insurance regulations).
In other aspects, the standard, for example, simplifies administrative burdens and facilitates the operation of the insurance intermediation market, eliminating the obligation of administrative registration of advisory assistants.
Finally, the so-called mystery shopping, which contemplates the possibility of carrying out the supervision of marketing practices of the insurers by officials of the General Directorate of Insurance and Pension Funds, without the need for them to be previously identified.
