Completion of the new insurance regulations

With the approval of Royal Decree 1060/2015, the insurance industry´s adaptation to fit with Directive 2009/138/CE (otherwise known as Solvency Directive II) ends.

On 2 December 2015 Royal Decree 1060/2015 of 20 November was published on the topic of the management, supervision and solvency of insurance and reinsurance companies was published, ending the adaptation of the insurance sector to the European regulation Solvency Directive II (Directive 2009/138/CE of the European Parliament and Council of 25 November 2009 on life insurance, access to and exercise of the insurance and reinsurance business), all of this following the prior approval of Law 20/2015 of 14 July on the regulation, supervision and solvency of insurance and reinsurance companies, which entered into force as of 1 January 2016.

Solvency Directive II was structured in 3 pillars which have been transferred to both Law 20/2015 of 14 July and Royal Decree 1060/2015. These pillars or principles are: I. assets, debts and capital, II: regulation and III: market discipline and transparency.

Gone was the preparatory period of 2014 and 2015 established by the guidelines of the European Authority of Insurance and Retirement Pensions, otherwise known as the European Insurance and OccupationalRetirement Pensions Authority (EIOPA), under Solvency Directive II, so that certain insurance and reinsurance companies present to the national supervisory authority – in Spain, the General Directorate of Insurance and Pension Funds (DGSFP) – quantitative information (principally balance, assets, technical provisions, equity, solvency capital requirement and the minimum capital requirement) and qualitative (governance system, capital management, assessment for solvency purposes, and the information policy of the institution) necessary for supervisory purposes. Such a preparatory period was not of a punitive nature in the case of non-compliance.

Currently, with Royal Decree 1060/2015 that also came into force on 1 January 2016, these new insurance regulations involving legal changes in many aspects such as the solvency system, organisation, management of insurance companies, transparency etc., all of which are aimed at avoiding possible cases of insolvency in insurance entities, therefore bettering their control and risk management, are deemed to be completed.

This legislation aims to protect consumers whilst at the same time promoting transparency and the development of the insurance business.

In addition to regulating access to the insurance and reinsurance business, accounting obligations and corporate operations, amongst other issues, the main changes of Royal Decree 1060/2015 are the following:

Governance System: in order to guarantee prudent business management, the requirements of repute and competence required of partners and of those exercising management or fundamental functions that make up the governance system of the organisation are built upon.

Insurers and reinsurers will have written policies, at least in relation to risk management, control and internal audit and, where relevant, the outsourcing of roles or activities.

To ensure effective management, the roles of risk management, internal assessment of risk and solvency, and actuarial functions are established.

Solvency: the new solvency regime expanding the regulations for the calculation of technical provisions, equity, solvency capital requirement, investments and minimal capital requirement is established.

In this section a special solvency regime for other entities which do not exceed certain quantitative limits and certain entities of fixed characteristics is also picked up. However, the prior approval of the Directorate General of Insurance and Pension Funds (DGSFP) will be necessary in order to qualify for this special regime, in addition to meeting the aforementioned requirements.

Market conduct: the minimum contents of the statutes of insurance companies, policy conditions and premium rates, as well as the regulations of the technical bases, are established.

Further, developed in this chapter, in the defence of consumers, is the obligation to inform policyholders or those insured, particularly with regard to life insurance, death and disease.

Group supervision: new agencies such as the college of supervisors or the supervisor of the group are created when different entities operating belong to the same group and require close collaboration. It may even be decided by joint decision of the college of supervisors that the General Directorate of Insurance and Pension Funds (DGSFP) assume the role of group supervisor, although the group would be given the opportunity to express their opinion in this respect beforehand.

Situations of financial deterioration: the General Directorate of Insurance and Pension Funds (DGSFP) may request that the European Insurance and Retirement Pensions Authority (EIOPA) declare a situation of exceptional adverse circumstances affecting insurance or reinsurance companies that represent a significant market share or line of business affected. In these cases, the procedure for adoption of special control measures in order to guarantee the rights of policyholders, insured persons, beneficiaries and injured third parties, establishing a recovery plan and a short-term financial plan, is regulated. In addition, the Directorate General of Insurance and Pension Funds (DGSFP) may agree to the intervention of the insurer to ensure correct compliance with the special monitoring measures or the intervention in its liquidation to safeguard the interests of policyholders and insured persons, beneficiaries and those harmed or those of other insurance companies.

Finally, in its additional provisions, Royal Decree 1060/2015 regulates, amongst others, the registration of compulsory insurance and the special administrative register of insurance brokers, reinsurance brokers and their senior positions, and in its final provisions amends the regulations on societies for social benefit, extraordinary risk insurance and the regulation of pension plans and funds. On the other hand, the accounting system of insurance companies is adapted.