Spain
IAIS Insurance Core Principles: Detailed Assessment of Observance
Author:
International Monetary Fund
Search for other papers by International Monetary Fund in
Current site
Google Scholar Close
Publication Date:
11 Jun 2012
eISBN:
9781475504262
Language:
English
Keywords:
ISCR; CR; financial market; risk management; corporate governance; board of directors; internal audit; sales staff
Download PDF (915.2 KB)

This paper provides an update on the significant regulatory and supervisory development in the Spanish insurance sector since 2006. The Spanish authorities have taken steps to address a number of shortcomings identified in the 2006 Financial Sector Assessment Program. Most notably, cooperation and coordination among the three sectoral supervisors have improved. The paper reveals that despite the lack of independence in the regulatory structure, there is no evidence to suggest that the General Directorate of Insurance and Pension Funds is not independent in carrying out its duties.

Abstract

This paper provides an update on the significant regulatory and supervisory development in the Spanish insurance sector since 2006. The Spanish authorities have taken steps to address a number of shortcomings identified in the 2006 Financial Sector Assessment Program. Most notably, cooperation and coordination among the three sectoral supervisors have improved. The paper reveals that despite the lack of independence in the regulatory structure, there is no evidence to suggest that the General Directorate of Insurance and Pension Funds is not independent in carrying out its duties.

I. Executive Summary, Key Findings, and Recommendations

1. Spanish insurance market is well developed, with a comprehensive range of products offered by domestic and foreign insurers. Life insurers accounted for about half of total gross premium written in 2010, and held approximately 80 percent of total industry assets. The majority of life products (including annuities) sold are guaranteed products. The main lines of non-life business are motor and property. The reinsurance market is relatively undeveloped for certain risks in Spain, due to the existence of the Insurance Compensation Consortium (CCS), which provides coverage for extraordinary natural and social-political perils through a compulsory surcharge based on sum insured. Thus, there is little need for insurers to seek catastrophic reinsurance.

2. The Spanish insurers have weathered the financial crisis well. Total written premiums increased in each of the past five years, except for a decline of 6 percent in 2010. Insurers remain profitable. The industry has maintained combined ratios below 100 percent in the last three years and the 2011first nine months’ ROE is over 15 percent in non life and 13.5 in life. Under Solvency I the industry show on average a sound solvency margin of around 200 percent above the required capital in the life sector and 350 percent in the nonlife sector.

3. The insurance sector is supervised under a sound regulatory framework. Supervision is carried out by competent supervisors, adhering to the European Union (EU) Directives that are consistent with international standards. The Spanish authorities have made progress in addressing several recommendations arising from the previous Financial Sector Assessment Program (FSAP) in 2006, while recommendations on strengthening the autonomy of financial supervisors have not yet been taken up.

4. The main vulnerabilities of the Spanish insurance supervisory framework are:

  • Lack of sufficient resources to effectively carry out its supervisory objectives. The State budget is likely to remain stagnant if not shrinking in the near future given the economic forecast. General Directorate of Insurance and Pension Funds (DGSFP)’s share of the State budget is not likely to increase. On the other hand, it is facing increasing demand on resources to implement new international prudential standards, and to provide ongoing cooperation and coordination in supervising cross-border insurance groups and financial conglomerates. The effectiveness of its supervision may be adversely affected given the competing demands on limited resources.

  • A third of the life insurance business carries guarantees backed by sovereign and corporate bonds. While regulatory capital of life insurers appears sufficient under existing Solvency I methodology, adoption of Solvency II could result in additional capital requirements for some insurers. As the QIS 5 exercise showed a breadth of results, further calibration is needed. To this end, DGSFP has been working closely with the European Commission Working Groups and the European Insurance and Occupational Pensions Authority (EIOPA) on the advanced design of Pillar 1 of Solvency II.

  • Product disclosure requirements for life insurance should be improved. The Spanish Association of Insurance and Reinsurance Institutions (UNESPA) has issued voluntary guidelines on disclosure to customers. To promote fair treatment of customers, DGSFP should be empowered to standardize and formalize the disclosure requirements at the point of sale to ensure customers receive adequate and non-misleading information, as well as requiring ongoing disclosures to customers to keep them abreast of changes to policy values. DGSFP’s cooperation with the Ministry of Justice in revamping the insurance contract law is a step in the positive direction.

A. Introduction

5. This assessment provides an update on the significant regulatory and supervisory development in the Spanish insurance sector since 2006. Spain undertook an initial FSAP in 2006, which included a formal assessment of Spain’s observance with the Insurance Core Principles (ICPs) issued by the International Association of Insurance Supervisors (IAIS) in 2003. Spain also volunteered to undertake a country peer review under the Financial Stability Board (FSB) Framework for Strengthening Adherence to International Standards in 2010.

6. The Spanish authorities have taken steps to address a number of shortcomings identified in the 2006 FSAP (Appendix I). Most notably, cooperation and coordination among the three sectoral supervisors have improved with the establishment of the Financial Stability Committee (CESFI)1 in 2006, meeting at least twice a year. Several identified weaknesses (such as corporate governance, risk management and internal controls, investments, and suitability of key persons and professionals) will be addressed when the EU Directive 2009/138/EC (Solvency II) is fully implemented. The necessary legislative amendments are targeted for the end of 2012. The recommendation to improve the autonomy of the insurance supervisory body, was noted, however it has not been taken up for the moment, as the authorities concluded that it is impractical and undesirable from a policy perspective to do so at this stage.

7. The current assessment was conducted by Rodolfo Wehrhahn [staff of the International Monetary Fund (IMF)] and Mimi Ho (insurance supervision advisor contracted by the IMF) during February 1-21, 2012.

B. Information and Methodology Used for Assessment

8. The current assessment is benchmarked against the revised ICPs issued by the IAIS in October 2011. It takes into account of laws, regulations and other supervisory requirements and practices that are in place at the time of the assessment, as well as market data provided by the authorities in the FSAP self-assessment questionnaire. Ongoing regulatory initiatives are noted by way of additional comments, in particular, the pending legislative amendments to implement Solvency II. The assessors also met a number of Spanish insurers, reinsurers, industry and professional associations, audit firms and rating agencies, who provided valuable input and insight to the assessment.

9. The assessors are grateful to the authorities for their full cooperation, thoughtful logistical arrangements and coordination of various meetings with industry participants. In-depth discussions with and briefings by officials from the DGSFP facilitated a robust and meaningful assessment of the Spanish regulatory and supervisory regime for the insurance sector.

C. Institutional and Market Structure—Overview

Institutional framework and arrangements

10. Spanish financial markets are supervised by three separate sectoral supervisors: banking by the Banco de España (BdE), securities by the Securities Market National Commission (CNMV) and insurance by DGSFP.

11. The key insurance legislations are:

  • Private Insurance Organization and Supervision Law (TRLOSSP - Texto Refundido Ley de Odenación y Supervisión de los Seguros Privados),

  • Private Insurance Intermediation Law (LMSP - Ley de Mediatión de los Seguros Privados),

  • Insurance Contract Law (LCS - Ley de Contrato de Seguro), and

  • Private Insurance Organization and Supervision Code (ROSSP - Reglamento de Ordenación y Supervisión de los Seguros Privados).

12. The Ministry of Economy and Competitiveness (MEC) is the agency empowered by the TRLOSSP to supervise insurance activities, with the exception of mutual insurers that operate solely within an Autonomous Community2 where the Autonomous Community has agreed to assume their supervision. By regulation, MEC has delegated the insurance supervisory responsibility to DGSFP, a department within MEC.

13. DGSFP supervises only private insurance; social insurances are not subject to DGSFP supervision. Social insurance is an integral part of the Spanish social security system, providing financial protection for disability, work injury, illness, maternity, unemployment, and old age (state pension).

14. There are four levels of insurance legislation. Insurance laws are initiated by the Government and legislated by the Parliament. Royal consents give effect to new laws. MEC, being the responsible ministry for insurance, has the power to issue insurance regulations, pursuant to power conferred by the primary insurance laws. MEC also has the power to issue administrative orders pursuant to power conferred by laws and regulations. Finally, DGSFP may issue rulings (resolution) which are binding on licensed institutions or individuals.

15. DGSFP is a department within the MEC funded by State budget. This implies that is organically dependent on the MEC. As such, it does not have autonomy in setting its budget. The organic dependency on the MEC entails additional drawbacks, affecting its organizational and operational autonomy, including the ability to hire the human resources needed to duly perform its tasks. The Director General of the DGSFP is directly appointed by the Minister of Economy. The DGSFP does not levy any fees on industry participants, except a one-time registration fee on intermediaries. Fees as well as administrative fines collected are passed over to the Treasury. DGSFP’s 2011 operating budget was € 12.8 million, and it collected € 700,000 registration fees.

16. Some of the largest insurers operating in Spain are insurance groups or belong to financial conglomerates. To enhance collaboration among supervisory authorities, both domestically and internationally, DGSFP has signed Memorandum of Understanding (MoU) with BdE, CNMV, the Swiss Federal Office of Private Insurance, and three South American insurance supervisors to exchange information on issues relating to prudential supervision, market development, and technical cooperation. DGSFP participates in 23 supervisory colleges and is the group supervisor for two international groups.

Market structure and industry performance

17. The insurance sector in Spain is well developed and mature. It is the 6th largest in Europe, with gross premium income of € 58.5 billion (US$79.9 billion) in 2010, a 6 percent decrease from 2009 (see Table 1). There is room for market development as evidenced by an insurance density (premium per capital) of US$1,680 and an insurance penetration rate (premium as percentage of GDP) of 5.6 percent, as compared to the average of US$1,850.20 and 7.5 percent, respectively, for the whole of Europe.3

Table 1

Spain: Market Size in Absolute Terms and Relative to the Economy

(In USD millions)

article image
Source: DGFSP.

18. There are a significant number of players in the Spanish insurance market, with representation by most of the major international groups. The number of life insurers has been slowly increasing, from 100 in 2007 to 113 in 2011. At the same time, there has been some consolidation in the non-life sector, with the total number of non-life insurers decreased from 195 in 2007 to 171 in 2011. (See Table 2). In addition, there were 653 companies authorized to write business in Spain in 2010, under the EU freedom of services arrangements.

19. DGSFP set up an electronic register of intermediaries in 2007. Many previously unregistered agents were captured with the enhanced system, leading to a surge in the number of intermediaries in 2008. Since 2008, the total number of agents has been on a yearly decline while the number of brokers has remained relatively unchanged (see Tables 2 and 3).

Table 2

Spain: Number of Licensed Insurers

article image
Source: DGFSP.
Table 3

Spain: Number of Licensed Intermediaries

article image
Source: DGFSP.

These are intermediaries registered with and supervised by the DGSFP.

These are intermediaries registered with and supervised by the Autonomous Communities.

20. The Spanish insurance market is characterized by the presence of many small insurers with a few large ones dominating the market. In 2010, the top 5 life insurers commanded 37.5 percent of the market (by assets), the top 5 non-life insurers 50.9 percent (by premium), and the top 5 composite insurers 53.8 percent (by assets). The DGSFP classified 66 (23 percent) of the 286 insurers as Small Dimension Entities, (ERD, Entidades de Reducida Dimensión) which are subject to simplified inspection regime due to the smaller scale of their operations. The criteria to qualify as ERD are annual premium less than € 12 million, assets less than € 30 million, and life technical provisions less than € 25 million.

21. Spanish market is concentrated, with foreign insurance groups having a prominent presence. Five out of the top 10 insurance groups are foreign, making cross-border cooperation an important factor in DGSFP’s supervisory approach. There are 70 insurance groups at the end of 2011. The top 10 groups had domestic premium volume of € 30.9 billion, or 52.8 percent of the market.

22. There is a diverse network of distribution channels, making use of virtually all established forms of insurance sales. Bankassurance is the main distribution channel of insurance products with a market share of 38 percent, due to its dominance in the life insurance market. For individual life insurance products, the bank channel generated 75 percent of new business premium in 2010. On the other hand, non-life insurance policies were mainly (82 percent) sold through agents and brokers. The sale of group life insurance business is evenly spread between bankassurance (46 percent) and intermediaries (45 percent) (see Tables 4 and 5).

Table 4

Spain: Distribution of New Business Premium by Channel in 2010

(In percent)

article image
Source: DGFSP.
Table 5

Spain: Distribution of Insurance Premium by Channel

article image
Source: DGFSP.

Insurance premium written has been relatively stable over the past three years. A mature and saturated market coupled with recent economic difficulties are key challenges for industry growth. There is a wide variety of life insurance products, distributed fairly evenly across participating, non-participating (including term), investment-linked and annuities. Annuity is the only clear growth product, with premium growth rate of 48 percent from 2008 to 2010. Majority of the annuities and unit-linked business sold are guaranteed investment products with little mortality or longevity risk to the insurers. The major non-life products are motor and property (about one-third each) and A&H (20 percent) (see Table 6).

Table 6

Spain: Distribution of Gross New Premium Written

(€ millions)

article image
Source: DGFSP.

23. The reinsurance market in Spain is shaped by the participation of the CCS5 in catastrophic insurance. The number of reinsurers remains at two in the past five years. A unique feature of the Spanish market is the protection offered by the CCS on catastrophic risks, funded by compulsory premium surcharges on every policy issued. CCS has acted in situations where the private sector capacity is severely impaired, such as credit insurance during the recent crisis, after special authorization by the Parliament. On an ongoing basis, the CCS provides capacity to the multi-peril crop insurance sector through a reinsurance arrangement with the Spanish Association for Combined Insurers for Crop Insurance (AGROSEGURO).6

24. Assets held by insurers as at end of 2010 totaled € 242.3 billion, or 22.8 percent of GDP. The 27 composite insurers accounted for 53 percent of total industry assets. (Table 7).

Table 7

Spain: Assets Held by Insurers

article image
Source: DGSFP.

25. Investment of insurance assets is predominantly in fixed income instruments, while exposure to real estate is low. Holdings in sovereign debts are around a quarter of the investment assets and around thirty percent in corporate debt. This investment strategy is aligned with the required matching of the long term liabilities that insurers, life and composite, have in their books. Exposure to sovereign debt and corporate debt is thus a significant risk for the industry through the credit risk. (Table 8).

26. Related party investments may also be an important source of risk to the life industry, particularly the composite insurers. While for capital requirements double counting and intra-group transactions are disallowed, the total intra-group and related company receivables are around five percent of the investments supporting the technical provisions. Furthermore, some insurers use deposits placed with their parent banks to provide the capital guarantee under the unit-linked business. Thus, intra-group exposure may be even higher than Table 8 indicates.

Table 8

Spain: Investments of Insurance Assets

article image
Source: DGFSP.

27. Despite the stagnation of premium income, insurers remain profitable. For the non-life business, catastrophic risks are covered by the CCS resulting in high retention of premium. For the life business, about 80 percent of life insurance (by new premium) is guaranteed return investment products with little mortality or longevity risks. Life insurers typically use asset/liability matching to manage interest rate risk. Nonetheless, the portfolio is subject to credit risks. The industry has maintain combined ratios below 100 percent in the last three years as indicated in Figure 2. The Institute of Insurance Entities Cooperation and Research (ICEA) data showed that the industry profitability as measured by return on equities has further improved in the first nine months of 2011 (Table 9).

Table 9

Spain: Return on Equity of Insurers (2011)

article image
Source: DGFSP.
Figure 1.
Figure 1.

Spain: Key Performance Indicators

Citation: IMF Staff Country Reports 2012, 139; 10.5089/9781475504262.002.A001

28. Based on solvency requirements prescribed by the DGSFP, both life and non-life industries appear to be adequately capitalized. Under Solvency I the industry show on average a sound solvency margin of around 200 percent above the required capital in the life sector and 350 percent in the nonlife sector (Table 10).

Table 10

Spain: Solvency Position

article image
Source: DGFSP.

29. Spain is working closely with EIOPA to further fine-tune the calibration of the parameters under Solvency II. A large part of the Spanish industry participated in the last Quantitative Impact Study (QIS) commanded by the European Commission in preparation for the implementation of Solvency II. 138 Spanish entities participated in the recent QIS5 exercise, accounting for over 60 percent of the insurers that will be affected by Solvency II, representing a market share over 95 percent in life, 94 percent in non-life and 91 percent in health. The main output is an average increment of 10 percent of the own funds, due to a reduction of the technical provisions (except in life) and a valuation of the eligible assets. The average risk margin is 2.59 percent for total business, 5.93 percent in non-life and 2.02 percent in life. This is within the normal range (see Table 11).

Table 11.

Spain: Impact of Solvency II on the Technical Provisions

Ratio of QIS5 (net) provisions to Solvency I (net) provisions for non-life obligations

article image

30. Under QIS 5 calibration the Spanish industry will require an average increment of 67 percent of capital. The impact of QIS 5 is more severe on insurers underwriting long-term business. While half of the assets and liabilities of this type of business are matched either in duration or in cash flow, current proposed form of Solvency II does not recognize this immunization to market changes. Recent discussions at EIOPA level on the introduction of a matching premium are likely to significantly improve the capital position for asset/liability matched long-term business through the reduction of the affected liabilities (see Table 12).

Table 12

Spain: Additional Capital Requirements Under QIS 5

article image
Source: DGFSP.

31. The Spanish insures show a high level of solvency under Solvency II regime as indicated by the QIS 5 exercise. Only10 of the 138 participants will have deficient Solvency II ratios (see Figure 2). The solvency ratio on average remains sound at around 200 percent of SCR. The Minimal Capital requirement (MCR) is on average 37 percent of the SCR and only three companies had insufficient funds to cover the CR (see Table 13).

Figure 2.
Figure 2.

Spain: Solvency Ratios Under Solvency II According to the QIS 5 Exercise

Citation: IMF Staff Country Reports 2012, 139; 10.5089/9781475504262.002.A001

32. Market risk has the highest impact to Spanish insurer’s solvency. The underwriting discipline and conservatism of the sector, the protection of extraordinary risk by the CCS and the transfer mechanism of the investment risks to policyholders leave market risk the most important risk factor for the sector. On average 75 percent of the Solvency Capital Requirement (SCR) was related to market risk. The underwriting risk accounted for 42 percent in nonlife mainly due to the risk of insufficient reserving and 24 percent in life due to the risk of lapses. Effective diversification reduced the SCR by 36.5 percent. Tax and profit sharing as well as other mechanisms transferring the investment risk to policyholder reduced the SCR by another 37.6 percent.

Table 13

Spain: Composition of the SCR in QIS 5

(In percent of SCR)

article image
Source: DGSFP.

D. Preconditions for Effective Insurance Supervision

Sound and sustainable macroeconomic and financial sector policies

33. The Spanish economy has shown to be resilient and policymakers responsive in the face of recent financial crisis. It has undertaken a series of measures targeting the main economic problems, most importantly: fiscal consolidation, financial system reform, and labor market reform. These measures have helped to improve market confidence, although unemployment rate remains high.

A well-developed public infrastructure

34. Spain has a clear legal system of business laws, an independent judiciary, complemented by well utilized alternative dispute resolution mechanisms, and well developed accounting and auditing standards consistent with international standards. Extensive macroeconomic data and country statistics are provided by the BdE and the National Statistics Institute (INE) as well as other independent institutions.

35. The legal system in Spain is based on continental Europe legal system. It relies primarily on Act (laws and regulations) and to a lesser extent in judicial decisions and customs. Also, it is a complex legal structure, comprising of different legal systems that coexist through the autonomous territorial organization. The hierarchy of rules in Spanish laws is:

  • Constitution.

  • International treaties.

  • The strict law or organic law which requires an absolute majority of Parliament, ordinary law and regulations with force of law (among which is the Royal Decree Law and the Royal Decree).

  • Norms issued by the executive, within its own hierarchy based on the body that promulgates can be in the form of a Royal Decree, Decree, Ministerial Order, etc.

36. Furthermore, the Spanish Constitution establishes the jurisdiction of the Autonomous Communities in the regulation of certain matters, and their ability to make rules with force of law through their own parliaments. A joint process between the Autonomous Community parliament and the national parliament promulgated the Statute of Autonomy, which is constituted as a fundamental rule of an Autonomous Community. After this, priority will be the laws passed by the parliaments of the Autonomous Communities in matters within their competence; and related regulation will be issued by the executive bodies of the Autonomous Communities. Local Authorities have not been given legislative power but do have regulatory powers. The relationship between Autonomous Communities and State norms is competence, with the powers set out in the Constitution and the respective Statutes of Autonomy. The Constitutional Court of Spain is the body responsible for deciding whether a rule is unconstitutional as well as for resolving conflicts of jurisdiction between the State, Autonomous Communities and Local Authorities.

37. The Accounting and Auditing Institute (ICAC) is the professional body that sets accounting and auditing standards in Spain under its separate Accounting Committee and Auditing Committee. The DGSFP sits on the boards of both committees. The DGSFP also issues insurance accounting standards which are consistent with the International Financial Reporting Standards (IFRS). There are some differences in the accounting valuation of assets and the valuation of assets for solvency purposes, for instance real estate for accounting purposes is valued at historical cost but for solvency purposes it is valued at market value. Only ICAC-registered auditors may practice in Spain. At the end of 2011, ICAC had 5,493 registered practicing members.8 To uphold professional standards, ICAC conducts education programs, inspection of its members and investigation of alleged poor quality of work.

38. There are three actuarial associations in Spain organized by geographic regions. The Spanish Institute of Actuaries (IAE) is the main one, covering all areas except Catalonia and the Autonomous Community of the Basque Country. The IAE has a membership of 1,500 which is approximately 75 percent of the total number of actuaries in Spain. Admission into IAE is based on the completion of a Master Degree in Actuarial and Financial Science in accepted universities. Foreign-trained actuaries may be admitted through a recognition program. The IAE has a professional code of conduct, and there is an established disciplinary process. DGSFP does not restrict the actuarial certification of technical matters to the members of any Spanish actuarial associations.

Effective market discipline in financial markets

39. CNMV has issued a Unified Good Governance Code for listed companies. There is no equivalent corporate governance framework for the insurance sector, aside from the voluntary corporate governance guidelines issued by the UNESPA. The law is clear on the requirements for new market participants, mergers, takeovers, and acquisition of equity interests in insurers.

Mechanisms for providing an appropriate level of systemic protection (or public safety)

40. CCS operates a guaranteed fund for extraordinary natural perils, terrorist risks and catastrophic loss of lives due to accidents. CCS also takes over the management of insurers in the winding-up of insurers to ensure orderly exits and that insurance claimants are paid before unsecured creditors. The CCS is a part of the MEC and is funded by compulsory surcharges on insurance policies.

Efficient financial markets

41. A variety of instruments and issuers operate in the Spanish financial market, in addition to the deep and sophisticated EU markets that serve Spain investors’ needs.

E. Main Findings

42. Despite the lack of independence in the regulatory structure, there is no evidence to suggest that DGSFP is not independent in carrying out its duties. However, the budgetary dependency appears to have limited DGSFP’s ability to expand its resources to match its expanded responsibility, particularly in the area of group-wide supervision. The competing demands on limited resources have resulted in a “fire-fighting” modus operandi. Current urgencies (such as implementation of Solvency II and participation in international supervisory colleges) are managed at the expense of less visible but equally important tasks such as ongoing supervision.

43. DGSFP is solely dependent on State budget. Unlike CNMV, it does not collect any fees from market participants, other than the one-time registration fee from intermediaries. In 2011, it collected about € 700,000 of registration fees (which were turned over to the Treasury) as compared to its operating budget of € 12.8 million. As DGSFP is unlikely to receive more allocation from the State budget in the foreseeable future, it should explore other funding models to reduce its reliance on State budget.

44. In the absence of additional budget, DGSFP should review its scope of work. With limited resources, unless this changes, DGSFP should consider delegating important but less critical areas of supervision like complaint handling to have a stronger focus on offsite supervision and inspection. DGSFP currently deploys 31 staff to handle a large number of complaints from the public against insurers and insurance intermediaries. The public trusts DGSFP to be impartial in resolving their disputes with insurers. While handling public complaint is an important function to promote fair-dealing with customers and is one of the early indications of emerging trend of poor business results, DGSFP may not be best placed to resolve disputes. DGSFP could explore other methods, such as an independent industry-wide ombudsman. The brunt of the cost should be borne by the insurers, although the complainant should bear some cost to discourage frivolous complaints.

45. Supervision is handicapped by the lack of resources. This problem will presumably be exacerbated when the Solvency II Regime comes into force. As an example, nowadays six analysts are responsible for the off-site monitoring of 280 insurers. As a result, there is a high dependency on system-generated ratios and ranking based on quantitative financial information. The consequence is that the analysis of internal control systems relies on an insurer’s own disclosure on an annual basis in an internal control report and on on-site inspection. But resources for on-site supervision only allow for an inspection cycle of 4 to 5 years.

46. A third of the life insurance business carries guarantees backed by sovereign and corporate bonds. While capital appears sufficient under existing Solvency I methodology, adoption of Solvency II could result in additional capital requirements for some insurers. As QIS 5 exercise showed a breadth of results, further calibration is needed. To this end, DGSFP has been working closely with European Commission Working Groups and the EIOPA on the advanced design of Pillar 1 of Solvency II.

47. Requirements on disclosures to customers should be strengthened to provide greater consumer protection. Investment products with guarantees are one of the key life insurance products sold in Spain. Point-of-sale disclosure should include investment strategies so that customers may form an informed opinion on the security of the guarantee. On an ongoing basis, policyholders should be provided with information on the changes to the policy values at least annually.

48. Shortcomings in suitability of persons, corporate governance, risk management and internal control will be addressed when Solvency II is implemented. In the meantime, DGSFP should work with the industry on its preparedness. In the area of corporate governance, DGSFP should consider issuing a Code of Corporate Governance for insurers and reinsurers in line with the Unified Good Governance Code issued by the CNMV for the listed companies. Should Solvency II be further delayed DGSFP should address these deficiencies with high priority.

Table 14

Summary of Observance of the Insurance Core Principles—Detailed Assessments

article image
article image
article image
article image
article image
article image
article image
article image

Summary of Observance Level

article image
Table 15

Recommendations to Improve Observance of ICPs

article image
article image
article image
article image
article image

F. Authorities’ Response to the Assessment

49. The Spanish authorities want to express their gratitude towards the huge and valuable work developed by the IMF to assess the implementation of the supervisory and regulatory competences. The Financial Sector Assessment Program has been extremely useful in a critical moment where the experience and know-how of the IMF is received as precious benchmark to inspire and implement the improvements to come.

50. The assessment concludes that the sector is supervised under a sound regulatory framework. Notwithstanding this good evaluation, the Spanish authorities have an ambitious agenda to introduce new regulation and tools to keep improving the supervisory action, making it more efficient and adapted to the current economic environment.

51. As the FSAP rightfully points out, the main vulnerability of the supervisory framework is the lack of sufficient resources. The Spanish authorities are well aware of this weakness and will take measures to make the system cope with its demands. The Spanish insurance industry has repeatedly expressed their willingness to financially support the supervisor.

52. The FSAP recognizes that the strengthening of the autonomy of the supervisor is a pending issue. This statement, together with the previously mentioned assessment, is one of the issues that will be dealt by the Spanish authorities as soon as the economic crisis allows it.

The Spanish authorities have already taken steps to address a number of shortcomings identified in the FSAP. Furthermore, the ongoing works to transpose Solvency II will duly tackle some of the concerns raised in the assessment regarding product disclosure for life insurance and capital requirements linked to the risk taken by the insurance companies.

II. DETAILED ASSESSMENT

Table 16

Detailed Assessment of Observance of the Insurance Core Principles

article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
article image
Table 17

Recommendations from the 2006 FSAP and Their Implementation

article image
article image
article image
1

Members of the CESFI are the State Secretary for Economic Affairs (acting as Chairperson), the Bank of Spain’s Deputy Governor, the Securities Market National Commission’s Vice-president, the Director General on Insurance and Pension Funds and the Secretary General on Treasury and Financial Policy (in charge of the Secretariat).

2

By law, these Autonomous Communities should consult DGSFP before granting a license. However, it is not always done in practice. As at the end of 2010, there were 159 such entities in seven Autonomous Communities with gross written premium of € 1.6 billion, or 2.7 percent of total Spanish insurance market in 2010. 87 percent of such entities by number (82 percent by premium volume) were in the Autonomous Community of the Basque Country.

3

Swiss Re: World Insurance in 2010, Sigma No. 2/2010.

4

Includes 27 composite insurers. DGSFP has stopped issuing composite licences since 1984.

5

CCS is a public institution but not part of the government. It has its own legal status and full capacity to act. It is not supervised by the DGSFP, although it must comply with the requirements in insurance laws and regulations. It is funded through mandatory surcharges on each insurance policy issued. At the end of 2011, it has a reserve fund of € 7.8 billion. It has a staff strength of 353.

The Director General of DGSFP is the chairman of CCS. Besides the chairman, there are 14 board members appointed by the Minister for MEC: 7 members from the insurance sector and 7 members from the public sector. CCS has three main functions:

  • 1. Permanent insurance functions—providing coverage for (a) extraordinary risks for natural (floods, storms, earthquakes and tsunamis, volcanic eruptions and falling of meteorites) and social-political (terrorism, rebellion, insurrection, riots and civil commotion, and actions of armed forces in peacetime) perils; (b) compulsory motor insurance for unaccepted or uninsured private vehicles and all official vehicles of government and public agencies; and (c) multi-peril crop insurance, working through AGROSEGURO.

  • 2. Other insurance functions—as and when required by public interest and market circumstances. A 2/3 majority of board approval is needed for CCS to take on additional insurance functions.

  • 3. Non-insurance functions—winding-up of insurers.

6

AGROSEGURO manages the agricultural insurance system under a co-insurance arrangement by private insurers in which CCS takes up 10 percent.

7

GDP of € 1,088.1 bn, 1,053.9 bn, and 1,062.6 bn for 2008, 2009 and 2010, respectively. Source: World Economic Outlook Database, IMF.

8

There were another 14,164 registered non-practitioners, who have not yet been qualified to practice.

9

New legislation implementing Solvency II will transfer the power to approve major corporate actions to the Director General of DGSFP.

10

The prolonged legislative process for LCS could be due to its complexity. The median duration of simpler legislative procedures is 9 months.

11

At the end of 2011, there were 66 ERDs, determined on the basis of: (a) total gross written premium less than € 12 million, (b) life technical provisions less than € 25 million, (c) assets less than € 30 million, (d) not under Special Control Measures, and (e) not part of any insurance groups.

12

See ICP 2 for a description of the process to become an “Inspector.”

13

Spain has been evaluated as non-compliant in Recommendation 6 (PEPs), R.7 (correspondent banking) □ and R. 24 (DNFBP - Regulation, supervision & monitoring), as well as partially-compliant in R. 5 (CDD), R. 23 (regulation, supervision & monitoring), SR I (implementation of UN instruments), R. 8 (new technologies & non face-to-face business), R. 12 & R. 16 (designated non-financial businesses & professions [DNFBP]), R. 18 (shell banks), R. 25 (guidelines & feedback), DR. 29 (supervisors), R. 30 (resources, integrity & training), R. 32 (statistics), and R. 33 (legal persons).

14

Articles 19 and 20 of Regulation (EU) 1094/2010 of the European Parliament and the Council of November 24, 2010 establishing a European Supervisory Authority.

15

The 2006 assessment was benchmarked against the ICPs issued by the IAIS in 2003.

Same Series

Other IMF Content

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Spain: IAIS Insurance Core Principles: Detailed Assessment of Observance
Author:
International Monetary Fund
Volume/Issue:
Volume 2012: Issue 139
Publisher:
International Monetary Fund
ISBN:
9781475504262
ISSN:
1934-7685
Pages:
83
DOI:
https://doi.org/10.5089/9781475504262.002
Figure 1.

Spain: Key Performance Indicators
Figure 2.

Spain: Solvency Ratios Under Solvency II According to the QIS 5 Exercise