The Council of Ministers has approved the Preliminary Draft Law (APL) on the Organization, Supervision and Solvency of Insurance and Reinsurance Entities, the purpose of which is, mainly, to incorporate into the Spanish legal system the Solvency II Directive, modified by the Omnibus II Directive. The most notable novelties that this standard introduces are: a new calculation method for solvency requirements, strengthening 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 issue technical and circular guides.
Regarding the solvency rules, a new regime is established that guarantees that the entities have sufficient capital to ensure that the entity does not fail, with a probability of 99.5% and a time horizon of one year. For the calculation of this Solvency Capital Requirement (SCR), a standard formula may be used, where the market, counterparty, life and non-life insurance business and operational risks are homogeneously calibrated 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, the entity must have sufficient own resources to achieve the required solvency capital. These equity resources are classified into three levels based on their ability to absorb the entity's possible losses. In addition, complementary funds are accepted as own funds, with prior authorization from the General Directorate of Insurance and Pension Funds, provided they meet the requirements established in the regulation.
In relation to the rules of the government system, the APL approved today reinforces the currently existing mechanisms. Specific rules are established on the honorability and aptitude of the members of the administrative body and of those who carry out effective management, as well as those responsible for fundamental functions. At least four key functions are established: risk management, regulatory compliance, actuarial verification and internal audit.
Furthermore, the APL 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 reports on the financial situation and solvency.
The role of the Directorate General of Insurance and Pension Funds as supervisory authority is reinforced, which will see its functions and supervisory capacity reinforced. The supervision of insurance groups is harmonized at European level, for which the figure of the colleges of supervisors is created.
The supervisory model introduces additional procedures subject to prior authorization, such as internal models, adjustment for marriage of assets and liabilities (matching), application of transitory 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 adequate to comply with supervisory regulations) and circulars (provisions for the development of insurance regulations).
In other respects, the standard, for example, simplifies administrative burdens and facilitates the operation of the insurance intermediation market, eliminating the obligation to register administrative assistants.
Finally, the so-called mystery shopping, which contemplates the possibility of supervising the marketing practices of insurers by officials of the General Directorate of Insurance and Pension Funds, without the need to previously identify them.
