The Great Fire of London was finally extinguished 350 years ago today. New insurance structures emerged in the aftermath of the Great Fire – which bear striking resemblance to some of ...05 September 2016
Spain: Impact of Solvency II in the Insurance Companies' Equity Capital
Concerning the first of the pillars, the requirements of the capital solvency will be determined by two levels of needs:
- The obligatory solvency capital, which varies depending on the risk assumed by the entity and it is based in a prospective calculation; and
- The minimum obligatory capital, which is simply a security minimum below which the financial resources should never drop.
These limits imply the need of a strict classification and organization of the equity capital of an insurance company. In this regard, the use of equity capital to cover the need of obligatory solvency capital shall only be possible if subject to an authorization of the Spanish Insurance Supervisor, the General Insurance and Pension Funds Directorate ("DGSFP").
The sole establishment of those solvency limits may condition the insurance companies' investment policies. Investment may not only have an impact in assets and liabilities, but also in such aforementioned solvency limits and in the ultimate amount of the equity capital.
In brief, the solvency image of an insurance company may be affected by the composition of the equity capital and the calculation of the solvency limits. Any increase of the equity capital may oblige the company to re-calculate at least the obligatory solvency capital due to the existence of new financial resources.
These decisions may indirectly have an enormous impact over (i) issuance of capital or debt, (ii) profit distribution, (iii) or even pricing policies.
The Insurance Act 2015 (the "Act") comes into force tomorrow. It represents a fundamental departure from existing insurance law. The changes impact on a number of key areas which are...11 August 2016
The Hogan Lovells’ Corporate Insurance Newsletter for July has been published. This provides a round-up of UK, EU and international regulatory developments relevant to UK based...04 August 2016