## Detailed Assessment of Observance of IAIS Insurance Core Principles

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---

### A. General and Methodology
- Assessment based on the Insurance Core Principles and Methodology of the IAIS, dated October 2003.
- Assessment carried out by Manuel Aguilera-Verduzco (President of the Comisión Nacional de Seguros y Fianzas, Mexico).
- Mission dates: June 22 to July 1, 2005.
- Evidence reviewed included:
  - Self-assessment by Dirección General de Seguros y Fondos de Pensiones (DGSFP).
  - Comentarios a la Autovaloración de la Dirección General de Seguros y Fondos de Pensiones sobre los “Insurance Core Principles” de la IAIS.
  - Ley de Ordenación y Supervisión de los Seguros Privados (LOSSP) and Reglamento de Ordenación y Supervisión de los Seguros Privados (ROSSP).
  - Ley de Mediación de los Seguros Privados (LMSP) and Ley de Contrato de Seguro (LCS).
  - Relevant secondary regulations (Real Decreto, Órdenes Ministeriales, Consultas, Criterios and Instrucciones).
- Meetings and consultations:
  - Mission meetings with officers of the ME and the DGSFP (June 22–July 1, 2005).
  - Meetings with UNESPA, CCS, ICEA, and private insurance companies.
  - DGSFP provided information notes and presentations; Annual Reports and web/Intranet materials consulted.

### C. Institutional and Macro Prudential Setting — Market overview and key statistics
- Market size and ranking (2004):
  - Net premium income: €45.5 billion.
  - Market ranking: tenth largest in the world and sixth largest in Europe.
  - Nonlife sector ranking: eighth globally and fifth in Europe.
  - Life sector ranking: sixteenth internationally and eighth in Europe.
- Penetration and density:
  - Penetration index (premiums to GDP): 5.77 percent (ranked twenty-seventh globally and fourteenth in Europe).
  - Density (premiums per capita): €1,080 (ranked twenty-fourth internationally and fifteenth in Europe).
- Market structure and concentration (end-2004):
  - Total insurance entities: 330.
    - 227 insurance companies (Sociedades Anónimas) — 81 percent of total premiums written.
    - 44 mutual societies (Mutuas) — 18.5 percent.
    - 59 social mutual societies (Mutualidades de Previsión Social) — 0.2 percent.
  - One-third of 2004 premiums written by insurers owned by international insurance corporations (dominated by European domiciles).
  - Sector split: nonlife sector ≈58 percent of premium income.
  - Major lines of business shares (2004):
    - Automobile insurance: 24.5 percent.
    - Multi-risk insurance: 9.3 percent.
    - Health insurance: 8.7 percent.
    - Third-party liability insurance: 3.5 percent.
    - Funeral insurance: 2.7 percent.
- Assets and growth (2002–04 and end-2004):
  - Total assets: €177,444 million.
  - 61 percent of assets held by life insurers.
  - Assets growth 2002–04: life sector grew by 2 percent; nonlife sector grew by 60 percent.
  - Unit-linked products: 8 percent of total life technical provisions at end-2004.
- Concentration metrics (2004):
  - Top five life insurers: 34.1 percent of total premium income.
  - Top five nonlife insurers: 27.7 percent of total premium income.
- Distribution channels (end-2004):
  - 154,049 insurance agents and 5,012 brokers operating.
  - Nonlife distribution: brokers 40.4 percent of premiums; agents 34.4 percent.
  - Life distribution: banks and cajas branches 71.1 percent of premiums; agents 14.9 percent.
- Comunidades Autónomas role:
  - Have legal capacity to license/supervise insurers and intermediaries; some exercise this mainly for a limited number of social mutual societies and agents/brokers.
  - About 33 percent of total brokers licensed by Comunidades Autónomas; remainder licensed/supervised directly by DGSFP.
  - Coordination with DGSFP via Foro de Colaboración.
- Solvency and provisioning (end-2004):
  - Investment profile: fixed income 65 percent; equity shares 6.3 percent; real estate 3.4 percent.
  - Assets covering technical provisions exceeded statutory level by 15 percent.
  - Overall solvency margin surplus: about 158 percent.
  - Surplus by sector:
    - Non-life: surplus on technical provisions 34 percent; surplus on solvency margin 227 percent.
    - Life: surplus on technical provisions 11 percent; surplus on solvency margin 101 percent.
- Guarantee margin requirement:
  - LOSSP requires guarantee margin equal to one third of the solvency margin requirement and cannot be less than:
    - €3 million for life, bail, credit or third-party liability insurers.
    - €2 million for other kinds of insurers.
  - Most insurers comply; transitory period ends in December 2008.
- Market infrastructure (private and government):
  - ICEA, TIREA, OFESAUTO, AGROSEGUROS described as market bodies.
  - Consorcio de Compensación de Seguros (CCS) roles and characteristics:
    - Coverage: extraordinary risks, automobile insurance for those unable to obtain private insurance, coinsurance/reinsurance for crop insurance.
    - Subject to same LOSSP requirements as private insurers.
    - Board composition: public officers and insurance industry representatives in equal proportions.
    - Government guarantee for extraordinary risks and crop insurance.
    - Accumulated provision at end-2004: €2,808.3 million.
    - Winding-up: administrative liquidation; a 0.3 percent levy charged to every insurance policy for this purpose.
    - Historical recovery in winding-up: around 70 percent of credits to policyholders.
- Coverage and guarantee funds:
  - No comprehensive insurance guarantee fund in Spain; full protection only for mandatory automobile, travelers and hunters insurance.
  - Expected EU Directive to impose obligation for EU State members to create an insurance guarantee fund.
- Sector resilience and risks:
  - Sector absorbed interest rate reductions and adverse equity market movements in 2001–03 smoothly.
  - Nonlife sector growth since 2000; life sector slowed in 2003 then resumed growth.
  - Contributing stability factors: strengthened asset-liability management, limited impact of guaranteed-life products, conservative investment portfolio, limited credit risk transfer from banking, effective catastrophic compensation mechanism.
- Regulatory challenges ahead:
  - Implementation of pending EU Directives and outcome of Solvency II Project (risk management and stress testing).
  - Five EU Directives pending implementation at time of mission.
  - Need to implement forthcoming IASB international accounting standards on insurance.
  - Spain identified as a leader in risk management and stress testing areas.

### Institutional framework, governance, and supervisory capacity
- Regulatory and institutional setup:
  - Regulation and supervision fall directly under ME through DGSFP (DGSFP part of the ministry).
  - DGSFP has no legal capacity to issue binding secondary regulation by administrative means; ME retains that capacity.
  - LOSSP and ROSSP define responsibilities and supervisory procedures; DGSFP issues Consultas, Criterios and Instrucciones which are not binding.
- Independence and governance:
  - DGSFP is not independent from ME.
  - No procedures for appointment/dismissal of head of supervisory authority.
  - No evidence of undue political influence.
  - DGSFP does not publish financial statements.
- Financial resources and staffing:
  - No specific source to finance insurance supervision; DGSFP does not have its own budget.
  - Allocated budget appears insufficient to attract/retain highly skilled personnel and develop supervisory infrastructure/tools.
  - DGSFP total staff at assessment: 241.
  - Inspectors for on-site supervision: 28.
  - Entities under supervision: 332 insurance companies, 49 fund managers, 1,163 pension funds, and 3,362 brokers.
  - With current resources, on-site examinations of insurance companies possible only once every four or five years.
  - DGSFP conducts about 20 inspections of other entities under surveillance annually.
- Confidentiality and legal protection:
  - LOSSP (Article 57) requires DGSFP staff to maintain safeguards for protection of confidential information.
  - DGSFP staff members of Administración General del Estado and receive specialized insurance training; staff protected against costs of defending actions while discharging duties.
  - Authority may hire external specialists subject to budget constraints; cannot outsource on-site inspection activities.

### Key regulatory processes and supervisory powers (selected ICPs and assessments)
- Licensing (ICP 6):
  - License required; suitability (fit and proper) checks for owners, Board members, senior management and auditors.
  - Current regulation lacks specific requirements for actuaries responsible for technical issues.
  - Licensing considers business plan, projected costs, capital requirements, risk management, internal control, IT, products, outsourcing, solvency margins, reinsurance.
  - LOSSP does not allow insurers to operate life and nonlife jointly.
  - DGSFP may request additional requirements; Insurance Law term to resolve application: six months.
  - Supervisor monitors granted license for a three-year period against original plan.
- Suitability of persons (ICP 7):
  - LOSSP (Articles 14 and 15) establishes fit and proper requirements at licensing and during operation; DGSFP may withdraw license if requirements not met.
  - Responsibility to assess suitability of auditors rests with ICAC; ICAC can act on motivated request by DGSFP.
  - No specific fit and proper requirements for actuaries.
  - No legal requirement for insurers to notify supervisor about circumstances affecting fitness/propriety.
- Changes in control and portfolio transfers (ICP 8):
  - Significant participation defined as ownership of 10 percent or more.
  - Any significant participation must be informed to DGSFP; DGSFP can deny authorization within a three-month period.
  - Prior approval of ME required for total/partial portfolio transfer (LOSSP, Article 23); ROSSP (Article 70) regulates portfolio transfer requirements.
  - LOSSP and ROSSP establish mechanisms to protect policyholders of transferor and transferee.
- Corporate governance (ICP 9) and internal control (ICP 10):
  - Corporate governance rules (Orden del Ministerio de Economía 3722/2003 and CNMV Circular 1/2004) apply only to listed insurers; at assessment only two insurers were listed.
  - No general corporate governance requirements for majority of insurers in law or Insurance Law.
  - Regulation does not explicitly require internal control frameworks with internal auditing, risk management systems, assessment of outsourced functions, and clear board responsibilities.
  - Some major insurers maintain internal control regimes consistent with parent company requirements.
- Supervisory cooperation and process (ICPs 4 and 5):
  - LOSSP (Articles 2.2, 75.3, 77) provides legal framework for collaboration and information exchange with other supervisors; DGSFP has bilateral MoUs with BE and CNMV.
  - DGSFP procedures (LOSSP, Articles 26–48, 70–72) are clear and regularly updated; companies can appeal decisions before ME and judicial system.
  - DGSFP publishes via Web Page and Annual Report.
- Off-site monitoring and reporting (ICP 12):
  - ROSSP (Article 66) and DECs mechanism define scope/frequency (annual and quarterly) of reports.
  - External auditors provide annual opinion; DGSFP can request more detailed/frequent information.
  - DGSFP conducts off-site analysis using SIAT (Sistema de Indicadores y Alertas Tempranas) for risk profiles and ranking; SIAT in early implementation stage.
  - Assessment: Observed.

### Assessment summary by IAIS ICP (selected)
- Observed (17 principles): 1, 2, 4, 5, 8, 12, 13, 14, 15, 16, 19, 20, 23, 24, 25, 26, 27.
- Largely observed (6 principles): 6, 7, 10, 21, 22, 28.
- Partly observed (5 principles): 3, 9, 11, 17, 18.
- Not observed: none.
- Not applicable: none.

### Key findings and supervisory gaps (selected)
- DGSFP limitations:
  - No legal power to issue binding secondary regulation (ICP 3).
  - Lack of formal governance/independence procedures for appointment/dismissal of supervisory head (ICP 3).
  - Budgetary inflexibility and insufficient resources to attract/retain skilled staff; limiting supervisory reach (ICP 3).
  - No general corporate governance requirements for most insurers; existing rules apply mainly to listed insurers (ICP 9).
  - Regulatory framework lacks explicit requirements for internal control frameworks, comprehensive risk management policies, board oversight of investments and derivatives, and specific staff qualification requirements for actuaries and investment roles (ICPs 10, 18, 21, 22).
  - Limited systematic market-wide analysis and stress testing; market analysis conducted case-by-case and requires additional data (ICP 11).
  - Group-wide supervision constrained by MoUs focused on case-by-case exchanges and insufficient DGSFP resources (ICP 17).
  - AML/CFT: insurance agents and brokers not subject to AML/CFT requirements; insurance brokers not required to adopt AML/CFT measures (ICP 28).

### Recommended Action Plan (selected actions)
- Principle 3 — Supervisory authority:
  - Implement institutional arrangements enabling:
    - (i) establishment of procedures regarding appointment and dismissal of supervisory head and governing body members to strengthen regulatory governance and independence;
    - (ii) supervisor empowered to issue secondary regulation by administrative means binding on industry;
    - (iii) budgetary scheme to allocate more financial resources to insurance supervision, flexible resource allocation, increase staff, attract/retain high skilled personnel, and provide resources to enhance supervisory infrastructure and tools.
- Principle 6 — Licensing:
  - Include specific suitability requirements for actuaries participating in technical management as part of licensing.
- Principle 7 — Suitability of persons:
  - Add specific fit and proper requirements for actuaries.
  - Introduce obligation for insurers to inform supervisory authority timely of circumstances affecting fitness and propriety of key functionaries.
- Principle 9 — Corporate governance:
  - Establish general corporate governance requirements for insurers including clear board and senior management responsibilities.
- Principle 10 — Internal control:
  - Require insurers to maintain internal control frameworks including internal auditing, risk management systems, assessment of outsourced functions, and clear board responsibilities.
- Principle 11 — Market analysis:
  - Implement regular analysis of market conditions including trends, scenarios, stress tests.
  - Require insurers to submit systematic financial and statistical information sufficient for regular market analysis.
- Principle 17 — Group-wide supervision:
  - Strengthen coordination between insurance supervisor, BE and CNMV to enable group-wide analysis and supervision of financial conglomerates.
  - Provide DGSFP with resources to participate effectively in group-wide supervision (see ICP 3).
- Principle 18 — Risk assessment and management:
  - Explicitly require comprehensive risk assessment and management policies/systems covering identification, measurement, assessment, reporting and control of risks.
  - Include regular supervisory assessment of aggregation, correlation, diversification and overall effect of risks.
- Principle 21 — Investments:
  - Require board-approved strategic investment policy reviewed regularly addressing investment risks.
  - Introduce fit and proper requirements for investment staff.
  - Require audit procedures covering investment operations and contingency plans.
- Principle 22 — Derivatives:
  - Require board expertise on derivatives, board approval/review of derivatives policy, and risk management/audit procedures covering derivatives.
- Principle 28 — AML/CFT:
  - Provide DGSFP necessary resources to maintain effective AML/CFT supervision.
  - Draft legislation to impose AML/CFT requirements on insurance agents and brokers.

### Authorities’ response and planned initiatives (DGSFP)
- General:
  - DGSFP appreciates and broadly shares the assessment contents, with comments on specific aspects.
- On Principle 18 (Risk assessment and management):
  - DGSFP notes that on-site inspections include evaluation of financial and non-financial risks; Inspection Manual includes questionnaire on risk assessment.
  - Clarifies that lack of system to quantify impact of diversification, aggregation and correlation does not imply risk management systems are not verified.
- Regulatory initiatives under way or planned (selected):
  - Principle 6 (Licensing):
    - Spanish regulations assign responsibility for management to directors; Article 29.1 of ROSSP requires technical provisions to be certified by an insurance actuary; companies must choose an actuary and are accountable.
  - Principle 7 (Suitability of Persons):
    - Insurance actuaries are university graduates (licenciatura in actuarial and financial sciences).
    - Forthcoming legislative amendment will include requirement of propriety for insurance actuaries; company that appointed the actuary remains accountable for noncompliance.
  - Principles 9 and 10 (Corporate Governance and Internal Control):
    - Draft amendment to ROSSP to require establishment, documentation and maintenance of internal control procedures adapted to company size (principle of proportionality).
    - Draft: ultimate responsibility with board; management implements; internal control to include independent expert supervision, risk assessment, contingency plans, and annual board report to supervisory body.
  - Principles 21 and 22 (Investments and Derivatives):
    - Text in preparation to establish board responsibility for investment policy and risk management.
    - Forthcoming rules for derivatives/structured products to specify categories, purposes, maximum positions, counterparties, segregation of functions, and periodic documentation.
  - Principle 28 (AML/CFT):
    - Article 2.1 of Regulations to Law No. 19/1993 provides that insurers accountable for actions of dealers/intermediaries; forthcoming amendment to maintain company accountability for agents and ensure insurance brokers remain directly bound by AML obligations, requiring amendment of Article 2.1.

*This assessment is contained in "Detailed Assessment of Observance of IAIS Insurance Core Principles" (mission June 22–July 1, 2005) as provided in the source content.*

### 1.   Detailed Assessment of Observance of IAIS Insurance Core Principles ..........................10

### Detailed Assessment of Observance of IAIS Insurance Core Principles

### A. General
- Assessment based on the Insurance Core Principles and Methodology of the IAIS, dated October 2003.
- This assessment of observance of the IAIS Insurance Core Principles in Spain was carried out by Manuel Aguilera-Verduzco (President of the Comisión Nacional de Seguros y Fianzas, Mexico).
- The assessment took place from June 22 to July 1, 2005.

### B. Information and Methodology Used for the Assessment
- Evidence reviewed included:
  - Self-assessment prepared by the Dirección General de Seguros y Fondos de Pensiones (DGSFP) based on the IAIS Insurance Core Principles and Methodology.
  - Comentarios a la Autovaloración de la Dirección General de Seguros y Fondos de Pensiones sobre los “Insurance Core Principles” de la IAIS.
  - Ley de Ordenación y Supervisión de los Seguros Privados (LOSSP).
  - Reglamento de Ordenación y Supervisión de los Seguros Privados (ROSSP).
  - Ley de Mediación de los Seguros Privados (LMSP).
  - Ley de Contrato de Seguro (LCS).
  - Relevant secondary regulations (Real Decreto, Órdenes Ministeriales, Consultas, Criterios and Instrucciones) issued by the Consejo de Ministros, Ministry of Economy and Finance (ME) and the DGSFP.
- Meetings and consultations:
  - Mission meetings with officers of the ME and the DGSFP from June 22 to July 1, 2005.
  - Meetings with representatives from UNESPA, CCS, ICEA, and private insurance companies.
  - Consultation of several Annual Reports of the DGSFP and information published on its webpage and Intranet.
  - DGSFP provided information notes and presentations on regulatory and supervisory issues.

### C. Institutional and Macro Prudential Setting—Overview
- Market size and ranking:
  - Net premium income in 2004: €45.5 billion.
  - Spanish insurance market ranking: tenth largest in the world and sixth largest in Europe.
  - Nonlife sector ranking: eighth largest globally and fifth in Europe.
  - Life sector ranking: sixteenth internationally and eighth in Europe.
- Penetration and density:
  - Penetration index (premiums to GDP): 5.77 percent (ranked twenty-seventh globally and fourteenth in Europe).
  - Density (premiums per capita): €1,080 (ranked twenty-fourth internationally and fifteenth in Europe).
- Market structure and concentration:
  - At end-2004, 330 insurance entities comprising:
    - 227 insurance companies (Sociedades Anónimas) accounting for 81 percent of total premiums written.
    - 44 mutual societies (Mutuas) accounting for 18.5 percent.
    - 59 social mutual societies (Mutualidades de Previsión Social) with 0.2 percent market share.
  - One-third of 2004 premiums were written by insurers owned by international insurance corporations, strongly dominated by those domiciled in the European area.
  - In 2004, the market was dominated by the nonlife sector representing about 58 percent of premium income.
  - Most important lines of business and shares of total premiums in 2004:
    - Automobile insurance: 24.5 percent.
    - Multi-risk insurance: 9.3 percent.
    - Health insurance: 8.7 percent.
    - Third-party liability insurance: 3.5 percent.
    - Funeral insurance: 2.7 percent.
- Assets and growth:
  - Total assets managed by the insurance sector in 2004: €177,444 million.
  - 61 percent of assets held by life insurers.
  - Assets growth 2002–04: life sector grew by 2 percent; nonlife sector grew by 60 percent.
  - Unit-linked products represented 8 percent of total life technical provisions at end-2004.
- Concentration metrics 2004:
  - Top five life insurers: 34.1 percent of total premium income.
  - Top five nonlife insurers: 27.7 percent of total premium income.
- Distribution channels (end-2004):
  - 154,049 insurance agents and 5,012 brokers operating in the Spanish market.
  - Nonlife distribution: brokers 40.4 percent of premiums written; agents 34.4 percent.
  - Life distribution: banks and cajas branches distributed 71.1 percent of total written premiums; agents 14.9 percent.
- Comunidades Autónomas role:
  - Comunidades Autónomas have legal capacity to license and supervise insurance companies and intermediaries; only some exercise this power mainly for a limited number of social mutual societies and agents/brokers.
  - About 33 percent of total brokers are licensed by Comunidades Autónomas; the rest licensed and supervised directly by the DGSFP.
  - Comunidades Autónomas entities maintain coordination with DGSFP via Foro de Colaboración.
- Solvency and provisioning framework:
  - Regulatory pillars: (a) sufficiency of technical provisions; (b) existence of a solvency margin; (c) adequate investments covering both requirements.
  - Investment profile at end-2004:
    - Fixed income investments: 65 percent of total portfolio.
    - Equity shares: 6.3 percent.
    - Real estate investments: 3.4 percent.
  - By end-2004, assets covering technical provisions exceeded statutory level by 15 percent.
  - Overall solvency margin surplus: about 158 percent.
  - Surplus on technical provisions and solvency margin by sector at end-2004:
    - Non-life: surplus on technical provisions 34 percent; surplus on solvency margin 227 percent.
    - Life: surplus on technical provisions 11 percent; surplus on solvency margin 101 percent.
- Guarantee margin requirement:
  - LOSSP obligation for insurers to maintain a guarantee margin (fondo de garantía) equal to one third of the solvency margin requirement and cannot be less than:
    - €3 million for life, bail, credit or third-party liability insurers.
    - €2 million for other kinds of insurers.
  - Most insurers already comply; transitory period ends in December 2008.
- Market infrastructure (private):
  - ICEA: Investigación Cooperativa de Entidades Aseguradoras, conducts studies and provides technical support.
  - TIREA: Tecnologías de la Información y Redes para la Entidades Aseguradoras, standardizes protocols for information exchange.
  - OFESAUTO: Oficina Española de Aseguradores de Automóviles, Green Card National Bureau.
  - AGROSEGUROS: Asociación Española de Entidades Aseguradoras de los Seguros Agrarios Combinados, manages agricultural insurance system under co-insurance.
- Market infrastructure (government):
  - Consorcio de Compensación de Seguros (CCS):
    - Offers coverage on extraordinary risks, automobile insurance for those unable to obtain private insurance, and coinsurance/reinsurance for crop insurance.
    - CCS is subject to the same LOSSP requirements as private insurers.
    - CCS board composed of public officers and insurance industry representatives in equal proportions.
    - For extraordinary risks and crop insurance, CCS has Spanish government guarantee.
    - At end-2004, CCS had accumulated a provision of €2,808.3 million.
    - For winding-up, CCS conducts administrative liquidation of insurance entities; a 0.3 percent levy is charged to every insurance policy for this purpose.
    - Historically, the winding-up mechanism has paid around 70 percent of the credits to policyholders involved in a liquidation process.
- Coverage and guarantee funds:
  - No comprehensive insurance guarantee fund in Spain; only full protection for mandatory insurance for automobile, travelers and hunters.
  - Expected EU Directive to impose obligation for EU State members to create an insurance guarantee fund.
- Sector resilience and risks:
  - Spanish insurance sector absorbed effects of interest rate reductions and adverse equity market movements in 2001–03 smoothly.
  - Nonlife sector maintained clear growth since 2000.
  - Life sector experienced slowdown in 2003 and resumed growth subsequently.
  - Contributing stability factors:
    - Strengthened asset-liability management techniques.
    - Limited impact of interest rate guaranteed life products due to transitory regimes and prudential rules.
    - Conservative investment portfolio structure.
    - Limited credit risk transfer activity from banking to insurance sector.
    - Effective compensation mechanism for catastrophic and extraordinary risks.
- Regulatory challenges ahead:
  - Implementation of pending EU Directives and the outcome of the Solvency II Project, especially regarding risk management and stress testing.
  - At time of mission, five EU Directives on insurance pending implementation (listed by directive numbers in source).
  - Authorities must also implement forthcoming international accounting standards on insurance to be produced by the IASB.
  - Spain identified as a leader in risk management and stress testing areas.
- Specific transitional and supervisory notes:
  - Transitory regime in place for guaranteed interest rate life products to cover annual insufficiencies in provisions.
  - DGSFP analysis indicated implicit surplus from conservative accounting on real estate investments could compensate interest rate guarantee effects.
  - Slower life market in 2003 partly explained by finalization of transition period for commercial and industrial companies moving pension obligations off balance sheets.

### II. General Preconditions for Effective Insurance Supervision
- Regulatory framework:
  - Insurance regulation and supervision in Spain relies on a clear legal framework that already considers implementation of most EU Directives on insurance.
  - Secondary regulation issued through Real Decreto and Órdenes Ministeriales.
  - DGSFP administrative mechanisms include Consultas, Criterios and Instrucciones, which are not binding.

*This assessment is contained in "Detailed Assessment of Observance of IAIS Insurance Core Principles" (mission June 22–July 1, 2005) as provided in the source content.*

### 23.      Regulation and supervision of the insurance activity falls directly under the control of

### _cr06219 - 23.      Regulation and supervision of the insurance activity falls directly under the control of

### Overview
- Regulation and supervision of insurance activity falls directly under the control of the ME through the DGSFP, which is part of the ministry.
- Spain has a professional and reliable judicial system and commonly uses private arbitration for conflict resolution.
- The accounting and auditing professions are well developed; the Instituto de Contabilidad y Auditoría de Cuentas (ICAC) implements EU accounting principles and policies in Spain.
- There is an organized actuarial profession (Instituto de Actuarios Españoles, IAE; Colegio de Actuarios de Cataluña, CAC).

### Institutional framework and legal powers
- The LOSSP and ROSSP define responsibilities and supervisory procedures; DGSFP enforces rules but:
  - DGSFP has no legal capacity to issue secondary regulation by administrative means that are binding on the insurance industry; the ME retains that capacity.
  - In areas where LOSSP and ROSSP are not explicit, DGSFP issues general recommendations that are not binding.
- Independence and governance:
  - DGSFP is part of the ME and is not independent from the ME.
  - There are no procedures regarding the appointment and dismissal of the head of the supervisory authority.
  - No evidence of undue political influence was found.
  - DGSFP does not publish financial statements.
- Financial resources:
  - There is no specific source to finance insurance supervision; DGSFP does not have its own budget.
  - Allocated budget appears insufficient to attract and retain highly skilled personnel and to develop supervisory infrastructure and tools.
- Confidentiality:
  - LOSSP (Article 57) requires DGSFP staff to maintain appropriate safeguards for protection of confidential information.

### Human resources and supervisory capacity
- Staffing and workload:
  - Total staff of the DGSFP at assessment: 241.
  - Inspectors for on-site supervision: 28.
  - Entities under supervision: 332 insurance companies, 49 fund managers, 1,163 pension funds, and 3,362 brokers.
  - With these resources, DGSFP can conduct on-site examination of insurance companies only once every four or five years.
  - DGSFP conducts about 20 inspections of other entities under its surveillance every year.
- Legal protection and training:
  - DGSFP staff are members of the Administración General del Estado and receive specific and specialized training on insurance.
  - Staff have a legal protection scheme and are protected against costs of defending their actions while discharging duties.
  - Subject to budgetary constraints, the authority may hire external specialists, but this cannot extend to on-site inspection activities.

### Key regulatory processes and requirements
- Licensing (ICP 6):
  - A license is required to conduct insurance activity; licensing requirements include fit and proper checks for owners, Board members, senior management and auditors.
  - Current regulation does not include specific requirements for actuaries responsible for technical issues.
  - Licensing process considers projected business plan, projected costs, capital requirements, projected development of business, risk management systems, internal control systems, IT systems, products, outsourcing, solvency margins, and reinsurance.
  - International insurers (EU and third countries) operating through branches or subsidiaries are subject to supervision.
  - LOSSP does not allow insurers to operate life and nonlife insurance business jointly.
  - DGSFP may ask for additional requirements; Insurance Law establishes a term of six months to resolve an application.
  - If a license is denied, the resolution must explain reasons; once a license is granted, the supervisor monitors for a three-year period in compliance with the original plan.
- Suitability of persons (ICP 7):
  - LOSSP (Articles 14 and 15) establishes fit and proper requirements for owners and key personnel at licensing and during operation; DGSFP may withdraw a license if requirements are no longer met.
  - Responsibility to assess suitability of auditors rests with the ICAC; ICAC can act on a motivated request by the DGSFP.
  - No specific fit and proper requirements for actuaries.
  - No legal requirement for insurers to notify the supervisory authority about circumstances that could affect fitness and propriety of key personnel.
- Changes in control and portfolio transfers (ICP 8):
  - Significant participation is defined as ownership of 10 percent or more of the capital of an insurer.
  - Any significant participation must be informed to the DGSFP; DGSFP can deny authorization within a three-month period.
  - Prior approval of the ME is required for any total or partial portfolio transfer (LOSSP, Article 23); ROSSP (Article 70) regulates portfolio transfer requirements.
  - LOSSP and ROSSP establish mechanisms to protect policyholders of both transferor and transferee.
- Corporate governance (ICP 9) and internal control (ICP 10):
  - Corporate governance rules (Orden del Ministerio de Economía 3722/2003 and CNMV Circular 1/2004) apply only to listed insurance companies; at assessment only two insurance companies were listed.
  - No general corporate governance requirements in general law or Insurance Law for the majority of insurers.
  - Regulation does not explicitly require internal control frameworks with internal auditing areas, risk management systems, accountability for outsourced functions, and clear board responsibilities.
  - Some major insurers maintain internal control/auditing regimes consistent with parent company requirements.

### Supervisory cooperation, transparency and processes
- Supervisory cooperation and information sharing (ICP 5):
  - LOSSP (Articles 2.2, 75.3, and 77) provides legal framework for collaboration and information exchange with other supervisors, including EU collaboration protocols and conditions for non-EU authorities, subject to confidentiality.
  - DGSFP has bilateral MoUs with the BE and the CNMV for exchange of information and cooperation.
- Supervisory process (ICP 4):
  - DGSFP has clear and comprehensive supervisory procedures (LOSSP, Articles 26 to 48, 70, 71, and 72) that are regularly updated and applied consistently, considering different risk profiles.
  - Insurance companies can appeal DGSFP decisions before the ME and judicial system.
  - DGSFP publishes information via its Web Page and Annual Report on market condition, supervisory activities, regulatory developments, and relevant international topics.

### Assessments (ICP status and selected comments)
- Principle 1. Conditions for Effective Insurance Supervision
  - Assessment: Observed.
  - Comments: None.
- Principle 2. Supervisory Objectives
  - Assessment: Observed.
  - Comments: None.
- Principle 3. Supervisory Authority
  - Assessment: Partly observed.
  - Comments:
    - DGSFP lacks legal powers to issue binding secondary regulation; ICP 3 requires supervisor to be fully empowered to issue secondary regulation.
    - No regulatory governance scheme for independence and appointment/dismissal procedures for head of supervisory authority.
    - Institutional arrangements create inflexibility in budget use and limit ability to attract and retain highly skilled personnel and develop supervisory tools.
- Principle 4. Supervisory Process
  - Assessment: Observed.
  - Comments: None.
- Principle 5. Supervisory Cooperation and Information Sharing
  - Assessment: Observed.
  - Comments: None.
- Principle 6. Licensing
  - Assessment: Largely observed.
  - Comments: Regulatory framework does not include specific requirements for actuaries responsible for insurers' technical issues.
- Principle 7. Suitability of Persons
  - Assessment: Largely observed.
  - Comments:
    - Fit and proper scheme does not include specific requirements for actuaries participating in technical management.
    - No legal obligation for insurers to notify the supervisor about circumstances affecting fitness and propriety of key personnel.
- Principle 8. Changes in Control and Portfolio Transfers
  - Assessment: Observed.
  - Comments: None.
- Principle 9. Corporate Governance
  - Assessment: Partly observed.
  - Comments: General law and Insurance Law do not establish corporate governance requirements for most insurers; existing regulation applies only to a limited number of listed insurers.
- Principle 10. Internal control
  - Assessment: Largely observed.
  - Comments: Regulatory framework does not explicitly require an internal control framework including internal auditing, risk management systems, assessment of outsourced functions, and clear board responsibilities.
- Principle 11. Market Analysis
  - (Assessment and further details begin following the provided excerpt.)

*Source: IMF staff assessment (excerpt)._cr06219 - 23.      Regulation and supervision of the insurance activity falls directly under the control of*

### conclusions and takes action as appropriate.

### _cr06219 - conclusions and takes action as appropriate.

### Market analysis and supervisory market monitoring
- Description: The DGSFP conducts analysis of market conditions only on a case-by-case basis.
- Findings:
  - The insurance supervisory authority does not require insurers to engage in market-wide systematic reporting, or to analyze and monitor particular market-wide events of importance for the financial stability of insurance markets.
  - To conduct particular analysis, the insurance supervisory authority usually requires additional data, because the information filed by insurers on a regular basis lacks the required level of detail.
  - The DGSFP produces aggregated market data that are publicly available. The insurance industry also makes public aggregated data through UNESPA and ICEA.
- Assessment: Partly observed.
- Comments: No regular analysis of market conditions (including dynamic solvency tests and stress tests); such analysis is case-by-case and requires additional information.

### Principle 12 — Reporting to Supervisors and Off-Site Monitoring
- Description:
  - ROSSP (Article 66) establishes detailed regulation on regular information insurers must submit.
  - DECs mechanism (Documentación Estadístico-Contable) defines scope and frequency (annual and quarterly) of reports.
  - External auditors provide an opinion annually; DGSFP can request more frequent/detailed information.
  - Requirements for branches and companies incorporated in the country align with EU Directives; third country insurers face equivalent requirements.
  - Information requirements cover solo and insurance group-wide basis; DGSFP may request information on any subsidiary (LOSSP, Article 72.1 and ROSSP, Article 67).
  - General accounting principles: Real Decreto 2014/1997.
  - DGSFP conducts regular off-site analysis using SIAT (Sistema de Indicadores y Alertas Tempranas) to create risk profiles and ranking for resource allocation.27
- Assessment: Observed.
- Comments: None.
- Note: 27 — At the time of the assessment, the SIAT had just been concluded by the DGSFP and it was in an early implementation stage.

### Principle 13 — On-Site Inspection
- Description:
  - DGSFP has wide-ranging powers (LOSSP, Article 72) and clear procedures (ROSSP, Articles 112–9) for on-site inspections.
  - Examinations can be full scale or focused; only DGSFP inspectors may conduct on-site examinations.
  - Inspectors can discuss findings and corrective actions; formal resolution followed by comprehensive follow-up mechanism (see ICPs 14, 15, 16).
  - Supervisory authority can extend inspections to obtain information from entities with outsourced functions (pension funds already; amendment to ROSSP to extend to insurers).
- Assessment: Observed.
- Comments: None.

### Principle 14 — Preventive and Corrective Measures
- Description:
  - LOSSP (Articles 38 and 39) enables MGSF (Medidas de Garantía de la Solvencia Futura) — e.g., require financial recovery plan, higher solvency margin (LOSSP, Article 39).
  - LOSSP (Article 39) defines MCE (Medidas de Control Especial) — can require correction plans, short-term financing plans, restrict asset transfers, suspend dividends, limit new policy issuance/renewals.
  - LOSSP (Article 39.7) allows publicizing MCE application if insurer fails timetable actions.
- Assessment: Observed.
- Comments: None.

### Principle 15 — Enforcement or Sanctions
- Description:
  - LOSSP (Article 46) defines legal power to impose sanctions (LOSSP, Articles 40–45).
  - DGSFP can apply MCE and MGSF, prevent issue of new policies, suspend dividends, require additional solvency margin; may replace directors/managers or take control.
  - Sanctions: fines up to €300,000 or 1 percent of free capital of the insurer, or withdrawal of license; fines applicable to managers and directors; individuals can be barred from future responsible capacities (LOSSP, Article 42).
  - DGSFP ensures consistency in sanctions; action taken against unlicensed operators (LOSSP, Articles 43 and 44).
- Assessment: Observed.
- Comments: None.

### Principle 16 — Winding-up and Exit from the Market
- Description:
  - Exit scenarios and winding-up procedures clearly defined (LOSSP, Articles 26, 27, and 28–37).
  - EU Directives: high priority to policyholders/beneficiaries in liquidation regarding resources covering technical provisions.
  - Guarantee fund operates only for mandatory insurance; CCS winding-up procedure allows timely payment to policyholder beneficiaries and high recovery level of unearned premiums.
- Assessment: Observed.
- Comments: None.

### Principle 17 — Group-wide Supervision
- Description:
  - Definition of insurance group: LOSSP, Article 20 and ROSSP, Articles 56, 57, 58, 60, 66–69, and 110.
  - Financial conglomerates: Ley 13/1992 and Real Decreto 1343/1992; Ley de Supervisión de los Conglomerados Financieros defines scope.
  - Reporting systems required for insurance groups and financial conglomerates.
  - MoUs signed with BE and CNMV for coordination; focused on case-by-case information exchange; limited group-wide supervision from insurance perspective.
  - DGSFP may deny/withdraw license when group structure hinders supervision (LOSSP, Articles 5.2 and 8).
- Assessment: Partly observed.
- Comments:
  - MoUs limited to case-by-case information exchange in practice.
  - No evidence of group-wide analysis or group-wide supervision of financial conglomerates from insurance standpoint.
  - Lack of human resources at DGSFP is a key hindrance.

### Principle 18 — Risk Assessment and Management
- Description:
  - LOSSP (Article 5.6) requires general internal control procedures as part of licensing.
  - Regulation does not require comprehensive risk management policies/systems to identify, measure, assess, report and control risks.
  - Most relevant insurers (subsidiaries of multinational corporations, insurers integrated in financial conglomerates, major Spanish insurers) have such systems.
  - DGSFP checks existence and operation of risk management systems but does not assess impact of risk diversification, aggregation, correlation, or overall effect of risks on global position.
- Assessment: Partly observed.
- Comments:
  - Regulatory framework lacks specific requirements on risk assessment and management.
  - On-site processes do not include revision of existence and adequate operation of these policies/systems.

### Principle 19 — Insurance Activity (Underwriting and Reinsurance)
- Description:
  - LOSSP (Article 25) and ROSSP (Articles 76–80) require underwriting and pricing policies.
  - DGSFP checks that insurers evaluate risks, set adequate premiums, and can review methodologies and assumptions.
  - DGSFP can adopt corrective measures if systematic insufficient premiums or inadequate technical provisions detected (LOSSP, Article 38 and ROSSP, Article 77).
  - LOSSP (Article 58) requires insurers to design reinsurance programs considering financial capacity.
  - DGSFP regularly reviews reinsurance arrangements and recoverability/accounting of reinsurer claims.
- Assessment: Observed.
- Comments: None.

### Principle 20 — Liabilities (Technical Provisions)
- Description:
  - LOSSP (Article 16) and ROSSP (Articles 29–48) regulate calculation of technical provisions based on prudent actuarial and accounting principles.
  - Regulators specify liabilities to include, methods and assumptions to cover expected and some unexpected claims and expenses.
  - Valuation principles for reinsurance recoverables included.
  - ROSSP (Article 29.1) requires actuary certification of methodology; DGSFP has powers to verify and assess technical provisions via off-site and on-site mechanisms and can require increases if insufficient.
- Assessment: Observed.
- Comments: None.

### Principle 21 — Investments
- Description:
  - Regulatory requirements: mixture of investments (ROSSP, Article 49), diversification criteria (Articles 50, 53, and 55 and the Orden Ministerial de 23 de diciembre de 1998), safekeeping (Article 51), asset-liability matching (Article 33.2 and Orden Ministerial), liquidity (ROSSP, Article 50).
  - Valuation methods: Plan de Contabilidad de las Entidades Aseguradoras.
  - ROSSP (Article 65) — Libro de Inversiones mechanism for control of investments.
  - LOSSP (Articles 15 and 71) and ROSSP (Article 110) require staff to have appropriate skills generally, but no specific requirements for investment staff.
  - No explicit regulatory obligation for overall strategic investment policy approved and regularly reviewed by board; no explicit requirement that board retain ultimate oversight/accountability (see ICP 9).
  - No explicit requirement for audit procedures to include full coverage of investment activities and contingency plans (see ICP 10).
  - LOSSP (Articles 33.1 and 33.2) and Orden Ministerial require procedures for managing asset-liability position.
- Assessment: Largely observed.
- Comments:
  - Regulatory gaps: obligation for board-approved strategic investment policy with specified elements; oversight/accountability by board; staff-specific skill requirements for investment roles; audit procedures covering investment operations and contingency plans.

### Principle 22 — Derivatives and Similar Commitments
- Description:
  - Regulatory aspects: internal controls (ROSSP, Article 110.2), valuation (Article 52.1), accounting principles (Norm 13, Plan de Contabilidad de las Entidades Aseguradoras), admissible types of derivatives (Articles 4 and 5, Orden Ministerial), and limits (Article 5, Orden Ministerial).
  - Annual report (Memoria) includes general disclosure requirements.
  - No explicit requirement for board to ensure necessary expertise on derivatives or to approve/review a derivatives policy; no explicit requirement for risk management systems and audit procedures covering derivatives (see ICPs 10 and 18).
- Assessment: Largely observed.
- Comments: Absence of explicit board expertise requirement and explicit risk management/audit procedures for derivatives.

### Principle 23 — Capital Adequacy and Solvency
- Description:
  - Regulatory scheme addresses valuation of technical provisions, assets covering provisions, asset-liability matching, capital adequacy and mechanisms to meet them.
  - Current solvency scheme adopted by the EU: capital adequacy requirements sensitive to size, complexity and risks; to be enhanced with Solvency II Project intended to be fully implemented by 2008.
  - Solvency control levels established by DGSFP; LOSSP (Article 39) allows intervention and requirement to adopt MCE when solvency falls below control levels.
- Assessment: Observed.
- Comments: None.

### Principle 24 — Intermediaries
- Description:
  - Ley de Mediación de Seguros Privados (LMSP) requires intermediaries to be licensed; defines agents and brokers.
  - Proposed LMSP modification to implement EU Directive 2002/92/CE to encourage licensing of independent agents.
  - LMSP (Articles 12, 16, 17, 21.3, and 21.1) requires adequate knowledge, ability and good reputation; DGSFP powers to take corrective actions and cancel licenses.
  - Agents and brokers must have safeguards for policyholders’ funds; amendment will enhance disclosure on independence.
  - LMSP (Articles 26 and 27) establishes sanctions for unlicensed intermediation.
- Assessment: Observed.
- Comments: None.

### Principle 25 — Consumer Protection
- Description:
  - LOSSP and LMSP require insurers and intermediaries to act with due skill, care, and diligence.
  - Orden ECO/734/2004 requires special claims departments with necessary resources to treat consumers fairly.
  - LOSSP (Article 60), ROSSP (Articles 104, 105, and 106), and Orden ECO/734/2004 (Article 9) regulate client information for fair treatment.
  - Ley 44/2002 requires proper handling of clients’ claims by financial institutions including insurers.
- Assessment: Observed.
- Comments: None.

### Principle 26 — Information, Disclosure and Transparency Towards the Market
- Description:
  - LOSSP (Article 66) requires insurers and insurance groups to provide information.
  - Insurers must report audited financial statements annually and include Memoria, management report, and audit report with detailed information on valuation methods, technical information, coverage of technical provisions and solvency margin.
  - DGSFP monitors disclosures and can take actions to ensure compliance.
- Assessment: Observed.
- Comments: None.

### Principle 27 — Fraud
- Description:
  - Insurance fraud is criminal under Ley Orgánica 10/1995 del Código Penal.
  - Supervisory authority can enforce regulations, report to competent authorities, and collaborate with local and foreign authorities.
  - DGSFP reviews internal control systems for fraud detection/prevention as part of on-site inspections.
  - DGSFP has no legal power to require insurers to take measures to prevent fraud; industry actions exist: UNESPA MoU with State Secretary of Security; agreements with Gobierno Vasco and Generalitat de Cataluña; UNESPA through ICEA conducts regular activities on prevention and control.
- Assessment: Observed.
- Comments: None.

### Principle 28 — Anti-Money Laundering, Combating the Financing of Terrorism (AML/CFT)
- Description:
  - Life insurers subject to Ley 19/1993 on anti-money laundering; specific rules amended January 2005 (Real Decreto 54/2005).
  - Ley 19/2003 regulates capital flows and economic transactions abroad.
  - FIU (Servicio Ejecutivo de la Comisión de Prevención del Blanqueo de Capitales) centralized in BE participates with all financial supervisory authorities.
  - DGSFP can conduct on-site examinations for AML/CFT compliance (LOSSP, Articles 71 and 72) and has a MoU with FIU to define verification aspects.
  - Insurance agents and intermediaries are not subject to AML/CFT requirements.
- Assessment: Largely observed.
- Comments:
  - DGSFP undertakes AML/CFT examinations.
  - Insurance brokers are not required to adopt AML/CFT measures.
  - Majority of agents work for a single insurer and rely on company systems; proposed LMSP amendments encouraging independent agents would necessitate AML/CFT requirements.
  - Similar need for brokers to have AML/CFT requirements to fully observe ICP 28.
  - Note: 28 — A full AML/CFT assessment by FAFT will take place in September 2005.

### Other
- Table 2: Summary Observance of the IAIS Insurance Core Principles (I) is included in source (table not reproduced here).

*Source: _cr06219 - conclusions and takes action as appropriate.*

### 1.    Conditions for effective insurance supervision X

### 1.    Conditions for effective insurance supervision X

### Assessment summary: Observance of the IAIS Insurance Core Principles (II)
- Table 3: Summary Observance of the IAIS Insurance Core Principles (II)
- Principles Grouped by Assessment Grade
  - Assessment Grade
    - Observed 17: 1, 2, 4, 5, 8, 12, 13, 14, 15, 16, 19, 20, 23, 24, 25, 26, 27
    - Largely observed 6: 6, 7, 10, 21, 22, 28
    - Partly observed 5: 3, 9, 11, 17, 18
    - Not observed - -
    - Not applicable - -

### Recommended Action Plan (Table 4): actions to improve observance of IAIS ICP
- Principle 3. Supervisory authority
  - Implement an institutional arrangement for insurance supervision that enables:
    - (i) strengthening of regulatory governance in terms of independence of the supervisory body (i.e., the establishment of procedures regarding the appointment and dismissal of the head of the supervisory authority and members of the governing body);
    - (ii) the supervisory authority to issue secondary regulation by administrative means that is binding to the insurance industry; and
    - (iii) a budgetary scheme that could allocate more financial resources to insurance supervision and a more flexible scheme for the allocation of resources; increase supervisory authority’s staff and to attract and retained high skilled personnel; and provide the necessary resources to enhance supervisory infrastructure and tools.
- Principle 6. Licensing
  - To include, as part of the licensing process for insurance companies, specific suitability requirements for the actuaries that will participate in the technical management of the company.
- Principle 7. Suitability of persons
  - To consider, as an additional element for the fit and proper scheme applicable to key functionaries, specific fit and proper requirements for actuaries.
  - To introduce the obligation for insurers to inform the supervisory authority, in a timely manner, of circumstances that may affect the fitness and propriety of its key functionaries.
- Principle 9. Corporate governance
  - To establish general requirements on corporate governance applicable to insurers in which clear responsibilities for the board of directors and senior management are included.
- Principle 10. Internal control
  - To explicitly consider in regulation the requirement for insurers to maintain a framework for internal control that includes internal auditing procedures, risk management systems, assessment of outsourced functions, and clear responsibilities for the board of directors.
- Principle 11. Market analysis
  - To implement regular analysis of the conditions of the market, not only in terms of the past developments and present situation, but also to identify trends, scenarios and issues that could have an impact on future development, financial position, and/or financial stability of the market.
  - To include as part of the systematic financial and statistical information required of insurers for supervision purposes, the information required to conduct regular analysis of market conditions.
- Principle 17. Group-wide supervision
  - To strengthen the coordination and collaboration framework between the insurance supervisory authority, and the BE and the CNMV, in order to create and implement effective mechanisms for group-wide analysis and effective group-wide supervision of financial conglomerates.
  - To provide the necessary resources to the insurance supervisory authority so it can participate effectively on group-wide supervision (see recommendation on ICP 3).
- Principle 18. Risk assessment and management
  - To include explicitly in the regulatory framework specific requirements on risk assessment and management for insurers, in order to recognize the wide range of risks that they face and to assess and manage them in a comprehensive and effective manner.
  - To include, as part of the supervisory process, a regular assessment of the aggregation and correlation of risks, risk diversification, and the overall effect that specific financial and technical risks might have on the global position of supervised insurers.
- Principle 21. Investments
  - To incorporate in the insurance regulatory framework explicit requirements for insurers to have in place an overall strategic investment policy approved and reviewed regularly by the Board of Directors, that addresses the different aspects linked to investment risks (see recommendation on ICP 9).
  - To include in the regulation specific fit and proper requirements for staff involved with investment activities, in terms of appropriate levels of skills, experience, and integrity.
  - To consider within the regulatory framework requirements for insurers to implement audit procedures to ensure the timely identification of internal control weaknesses and operating system deficiencies on investment operations that include contingency plans (see recommendation on ICP 10).
- Principle 22. Derivatives and similar commitments
  - To consider in the regulatory framework explicit requirements on the board of directors to satisfy itself that it has the necessary expertise to understand the important issues related to the use of derivatives; to approve and review periodically a policy on their use; and to have in place risk management systems and audit procedures covering the risks from derivatives (see recommendations on ICP 9, 10, and 18).
- Principle 28. Anti-money laundering, combating the financing of terrorism (AML/CFT)
  - To provide the necessary resources to the insurance supervisory authority so it can maintain an effective supervision on AML/CFT requirements to insurers (see recommendation on ICP 3).
  - To draft legislation on AML/CFT requirements for insurance agents and brokers.

### Authorities’ response to the assessment (DGSFP summary and planned initiatives)
- General
  - The DGSFP appreciates the quality, precision and rigorous analysis carried out by the IMF mission and the assessor in connection with the IAIS Insurance Core Principles observance assessment.
  - The DGSFP shares the contents of the assessment but comments on some specific aspects.
- Principle 18. Risk assessment and management
  - DGSFP notes the statement that it does not check, as part of its supervisory process, the existence and adequate operation of policies and systems on risk assessment and management does not take into consideration on-site inspections, which include actions oriented to control and verify financial and non-financial risks.
  - Inspection plans include specific references to that kind of evaluation. The Inspection Manual, in its section on internal control and risk assessment, includes a questionnaire on risk assessment by insurers.
  - The self-assessment questionnaire responses may have led to confusion: stating that no checks are performed with respect to the effects of different risks aggregations aims to underline that, up to date, there is a lack of a system to weigh and quantify in a reliable manner the impact of diversification, aggregation and correlation of risks, in order to measure the effect of specific risks in the global risk position of an insurance entity. This does not imply that risk management systems of supervised insurers are not verified.
- Regulatory initiatives under way or about to be launched (selected by principle)
  - Principle 6. Licensing
    - Regulatory framework does not specifically require the appointment of an insurance actuary nor specify the latter’s qualifications because Spanish regulations assign responsibility for the management of an insurance company to its directors.
    - Spanish law requires insurance companies to have an insurance actuary at their disposal. Article 29.1 of the Private Insurance Organization and Supervision Regulations (ROSSP) requires that the technical provisions be certified by an insurance actuary; the insurance company must therefore choose an insurance actuary and be accountable for the appointed actuary’s actions.
  - Principle 7. Suitability of Persons
    - Insurance actuaries in Spain are university graduates; fitness is demonstrated by possession of a bachelor’s degree (licenciatura) in actuarial and financial sciences, issued by the Ministry of Education and Science.
    - Propriety of insurance actuaries is understood to be verified by insurance company managers, with the company responsible for their actions.
    - A forthcoming legislative amendment will include the requirement of propriety for insurance actuaries, although the insurance company that appointed the actuary remains accountable for noncompliance with this requirement.
  - Principle 9. Corporate Governance and Principle 10. Internal Control
    - A draft amendment to the ROSSP is being considered to provide for the establishment, documentation, and maintenance, at all times, of internal control procedures adapted to the company’s organization, recognizing the principle of proportionality but ensuring insured persons’ protection.
    - Draft amendment: ultimate responsibility for establishing procedures rests with the board of directors; management implements them. Internal control will include supervision by independent expert staff, assessment of internal and external risks, contingency plans for company viability threats, and an annual report by the board assessing effectiveness and proposing solutions to be submitted to the supervisory body.
  - Principle 21. Investments and Principle 22. Derivatives and Similar Commitments
    - Text in preparation will clearly establish that responsibility for formulating and approving the investment policy rests with the board of directors, which must ensure identification, follow-up, measurement, reporting, and management of risk.
    - For financial derivatives and structured products, forthcoming rules will specify usable categories, purpose, maximum positions, authorized counterparties, sharing of authorization/execution/control functions, and periodic documentation of all activities.
  - Principle 28. AML/CFT
    - Article 2.1 of the Regulations contained in Law No. 19/1993, of December 28, 1993, on measures to prevent money laundering, approved by Royal Decree No. 925/1995, of June 9, 1995, provides that insurance companies are accountable for the actions of individuals and legal entities acting as dealers or intermediaries for them, an obligation that also applies to insurance brokers.
    - Since insurance brokers are independent from insurance companies, a forthcoming legislative amendment will propose to maintain company accountability for actions of their agents and will provide that insurance brokers remain directly bound by legal obligations with regard to specific measures to prevent money laundering, irrespective of the insurance companies for which they carry out trading activities. This will require amendment of Article 2.1 of the aforesaid Law.

*Source: _cr06219 - 1.    Conditions for effective insurance supervision X*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06219.pdf_