Ricardo Lozano was born in December, 1962. He graduated in law from the University of Alcalá de Henares in 1986 and went on to obtain his doctorate of law from the Complutense University of Madrid in 1996. He also obtained a degree in actuarial and financial studies from the University of Alcalá de Henares in 1998. In 1991, he passed the public examination to become a State Inspector of Insurance, and has been a State Inspector of Finance since 2000.
Between 2002 and May, 2004, he held the post of Manager of Financial Advisory Services for Insurance Companies with KPMG, the auditing and consultancy company.
At the proposal of the Minister of Economy and Finance and on the basis of Royal Decree 1279/2004 dated 21 May, he was appointed as Director-General of Insurance and Pension Funds; by virtue of this appointment, he also became chairman of the Insurance Compensation Consortium, a corporation established under public law which operates privately.
"It is important to highlight the strength shown by the insurance sector during the recent crisis" The Spanish insurance sector is passing through an exceptional period. On the one hand, it is weathering the impact of the global financial and economic crisis with equanimity, despite the marked slowdown in growth; and on the other, as in the rest of Europe, it is fully occupied with the task of adapting to the new financial methodology imposed by Solvency II, which must be in place by January 2013. Spain held the Presidency of the European Union for the first six months of 2010. Now that this term of office has been completed, we asked Ricardo Lozano, Director- General of Insurance and Pension Funds, about the progress that has been made, his vision for the Spanish insurance industry and the roadmap for dealing with some of the key pending issues.
Spain held the Presidency of the European
Union for the first six months of 2010. Which
aspects stand out in terms of the work
accomplished in the insurance sector?
The Spanish Presidency's role focused mainly
on continuing the discussion of the draft for
Solvency II and the Level 2 measures, following
the approval of the Solvency II Directive.
What is Solvency II?
It is a new system of requirements for capital
adequacy, and a code of conduct for the insurance
companies as they carry out their activities.
It is being set up for the entire European
insurance sector. Solvency II is similar to the
framework that was adopted for the banking
industry some years ago -the Basel Accords,
which are being updated at the moment. Having
had several regulatory frameworks to
standardize solvency requirements over the
last 30 years, the insurance sector has now
tackled the job that was necessary: an update
of the entire methodology for approving these
new solvency requirements. But Solvency II
also incorporates some other important ideas
such as market transparency that is to say,
more information from the supervisory authorities
as well as the companies, for the insured
parties as well as the general public. Ultimately,
Solvency II entails the development of a
methodology that is more appropriate to the
risk profile of each individual company. More efficient insurers will need less capital and
will be subject to fewer requirements. On the
other hand, a less efficient company, or one
that takes on more risks, is likely to encounter
greater difficulties with its commitments and
will require more capital. At the same time, a
series of rules is being brought in to improve
all aspects of corporate governance, transparency
and information.
How will these changes affect supervision?
There are two aspects on which Solvency II
does not focus: one of them is the financial
architecture of supervision. The Spanish Presidency
played a clear part in pressing ahead
with the establishment of the new supervisory
bodies that will operate at financial level in
the future. There are also some aspects of
work that relate to Level II. There are precedents
in the Framework Directive regarding
supervisory bodies or systems for multinationals
and financial conglomerates. As regards
these two issues, some aspects fall more
within the scope of Solvency II and the
Level II measures, whereas others are of a
more generic nature.
Was there a specific Spanish initiative in connection
with the new Directives?
No initiative was launched during the six
months of the Spanish Presidency, because
the objective was to ensure the continuity
of the work in progress. At present, the
Commission has a fixed timeline in place for
the pending issues such as insurance mediation;
a new Directive on this aspect is planned
for the start of 2011. The main effort is focused
on the work related to Solvency II.
And what about the issue of a new financial
supervisory model for Europe?
Last summer saw the approval of a European
supervisory model based on three specialized
authorities: for banking, insurance and markets.
Given that the scope comprises the 27
member countries of the European Union (EU),
different supervisory models are emerging;
there will certainly be some new features, and
the frameworks that are currently in place will
be modified and restructured. Ultimately, this
is a problem of design and assignment of
authorities. The existence of three Community
supervisory agencies is perfectly compatible
with differences among the supervisory models
at the level of each individual country.
As far as Spain is concerned, is the government
still thinking of changing the current
system and reducing the three supervisory
agencies back to only two?
There is no proposal on the table at present.
And also, the point that keeps coming up is
that the overall situation of the financial system
calls first and foremost for solutions to the
most urgent issues. For example, a start has
been made on reorganizing the savings banks.
Once this process has been completed, the
discussion will again turn to new supervisory
scenarios.
Do you think that Spanish insurers will run
into major problems as they adapt to Solvency
II? Are there differences in the ways that
large, midsize and small firms will have to
adapt?
There are challenges, rather than problems.
After all, this involves a spectacular leap in
terms of quality. We are trying to involve as
many companies as possible in the impact
studies, so that managers can precisely identify
the requirements that Solvency II will impose
on them, allowing them to work on the planning.
UNESPA (Unión Española de Entidades
Aseguradoras y Reaseguradoras, Spanish Union
of Insurance and Reinsurance Companies) is
cooperating to the maximum extent in this
area, as is my organization and also the Confederación
Española de Mutualidades de Previsión
Social (Spanish Confederation of Mutual Provident
Societies).
In your view, will this prompt a new wave of
consolidation or concentration in the sector?
Not necessarily. That will depend on many
decisions, and on the managers that is to say,
on whether they will be able to cope with the
challenges of Solvency II. There will be a threshold
level for smaller-sized companies without
a "European passport" they will not have to
comply with sophisticated regulations such as
those which Solvency II may impose, so this
will not necessarily lead to concentration.
As regards the implementation of Solvency
II, for which impact tests are being conducted
at regular intervals, there is a timeline that
assumes everything will be ready by the end
of 2012. Are Spanish insurers going to meet
the deadline?
We shall try to but obviously, issues may arise
as the project progresses and we shall have
to take them as they come. The cooperation shown by UNESPA, the sector association, is
exceptionally good. It is sending out a very
clear message, and the work is excellently
planned. It is making a great effort to convince
the entire sector and to ensure that everyone
participates. It has a roadmap, and it has
identified in detail the requirements that Solvency
II will entail for the companies. We are
holding regular meetings with the sector to
offer suggestions, clarify issues and clear up
any doubts. We are also making major efforts
in our own organization. The Supervisory Law
is being drafted in stages; at the recent consultative
meeting of last 20th July, we saw a
new section of the draft. Everything is being
done in order to achieve the objective. Once it
has become a draft law, it must be adopted
by the Congress of Deputies (Spanish Lower
House) but in any case, the aim is to push
ahead with it as far as possible.
2005 | 2006 | 2007 | 2008 | 2009* | Variation 09/08 (%) | |
---|---|---|---|---|---|---|
Total for Sector | 48.950 | 53.255 | 55.078 | 59.447 | 60.374 | 1,56 |
Life insurance | 20.617 | 22.950 | 23.246 | 26.850 | 28.538 | 6,29 |
Non-Life insurance | 28.333 | 30.306 | 31.832 | 32.597 | 31.836 | -2,33 |
Total insurance companies | 312 | 298 | 297 | 296 | 294 |
* Provisional data
Not including Mutual Provident Societies
Source: Directorate-General of Insurance and Pension Funds (D.G.S.F.P.)
The International Insurance Society (IIS) held
its 46th annual seminar in Madrid. What were
the outstanding subjects discussed at this event?
There was much talk about Solvency II, solvency
models and capital adequacy calculations for the various insurance lines. There was
also quite an interesting discussion about the
two zones of influence, the American and the
European. Solvency II aims to bring the management
models for both zones closer together.
Its philosophy and methodology are based on
risk. Accordingly, those who do a better job of
managing risk require less capital. But the
European methodology has been preferred
because its antecedents are taken from other
models such as those of Canada, the USA or
Switzerland. Also, the methodological options
are more finely differentiated, as are the various
impact tests that are being conducted.
Another important issue for Spain is the current
situation regarding the future Law on
Insurance Contracts.
A process is in place to make headway with
this legislation, but it will retain a structure
that has been in operation for many years,
since the existing Law on Insurance Contracts
dates from 1980. Generally speaking, what is
under way is an updating process, given that
this is a commercial contract with general
terms and clauses. There are numerous aspects
related to case law, and controversial
points that come up time after time the wording
and the language that are used, to take
one example. The technical wording is inseparable
from the society in which we live, but we
have to provide explanations so that balanced
interpretations will be possible later on. And
the linguistic aspects are determined by the
scope of the official languages that are in
force.
No initiative was launched during the six months of the Spanish Presidency, because the objective was to ensure the continuity of the work in progress
Is there anything outstanding as regards the
future Law on Insurance Contracts?
No, I think that in overall terms, it has covered
(or has attempted to cover) every aspect. Some
points were missing, such as death and dependents'
insurance. Certain improvements
will be introduced in the area of consumer
protection; for example, refusal of extension
will not be permitted.
And what about insurance on the internet?
This is more a matter of distribution and channels,
but all aspects of information prior to
entering into a contract will be covered in an
Annex to the Law on Insurance Contracts. The
process involves updating all the relevant standardization.
Now we would like to discuss and debate this with the sector, and this is a process
that moves slowly.
The crisis that we are passing through, which
is to some extent structural in nature, has
triggered a reduction in state revenues and
cutbacks in social benefits. Will this situation
offer an opportunity for private insurance, for
example if private saving increases in an
attempt to complement public-sector pensions?
We always try to take the view that the capacity
of the private sector must be increased to
respond to society's requirements. I am convinced
that there is a need for balance, and hence for active participation, between the
public and private sectors. This is one of the
most important achievements of European
society. Logically, complex situations may arise
for each party, but overcoming these problems
calls for a global effort by society as a whole,
while respecting the various interests that are
always involved.
We take the view that the public/private dichotomy
has so far made it possible to develop a
welfare "formula" of a reasonably high standard,
enabling people to aim for increasingly
satisfactory standards of living; but clearly,
we shall have to see whether all the aspects
are sustainable.
Non-Life insurance | ||
---|---|---|
2009 | 2008 | |
Status of Non-Life solvency margin (Figures in EUR million) | ||
Own assets | 17.150 | 16.181 |
Minimum amount Solvency Margin | 5.047 | 5.051 |
Difference (surplus) | 12.103 | 11.130 |
Technical reserve cover (Non-Life) (Figures in EUR million) | ||
Technical reserves to be covered | 32.268 | 33.100 |
Assets allocated | 44.396 | 43.675 |
Difference (surplus) | 12.128 | 10.575 |
Source: Directorate-General of Insurance and Pension Funds (D.G.S.F.P.)
Life insurance | ||
---|---|---|
2009 | 2008 | |
Status of Life solvency margin (Figures in EUR million) | ||
Own assets | 13.311 | 11.817 |
Minimum amount Solvency Margin | 6.333 | 5.715 |
Difference (surplus) | 6.978 | 6.102 |
Technical reserve cover (Life) (Figures in EUR million) | ||
Reserves to be covered | 136.873 | 129.251 |
Assets allocated | 159.025 | 149.644 |
Difference (surplus) | 22.152 | 20.663 |
Source: Directorate-General of Insurance and Pension Funds (D.G.S.F.P.)
The insurance sector is bearing up to the crisis well
As an EU member, Spain has a regulatory
framework for insurance that is based on
European standards. What are the repercussions
of this for the Latin American markets?
How do they view us?
I think that they have a very special and very
fond view of us. For instance, we take the time
to work with those who request our help and
we have frequent contacts and exchanges of
information with them. Obviously, our relations
within Europe are easier and more regular,
because we participate in ongoing work with
the Committee of European Insurance and
Occupational Pensions Supervisors (CEIOPS)
and the European Commission. As regards
Latin America, the relationship is definitely
very fluid. Suffice it to say that Mexico has
been expressing interest in implementing Solvency
II in its market for some time now. And
generally speaking, the other Latin American
countries are backing a line that will bring
them close to us. We are their point of contact
with Europe.
Why do we not have more Spanish insurance
multinationals?
There are many reasons for this, starting with
the fact that the size of the Spanish insurance
industry has always been relatively small except
in the last ten years, when it accomplished
a major leap forwards. The history of the
insurance industry has generally been very
complex, and it has rarely been possible to
count on companies having sufficient capacity
to embark on international ventures. Nor has
there been much support from the administrative
side. Of course, recent years have seen
some relevant changes. There have been some significant changes to the law. There has also
been an increase in the number of strong
companies and operators, which would imply
a trend towards seeking business abroad.
However, it is important to highlight the
strength shown by the insurance sector in the
recent crisis, and its capacity to respond to
the situation especially on the part of the
credit companies, which were faced with enormous
difficulties that proceeded to grow worse
every day. We are good listeners, we are receptive
towards all innovative projects, and I
think that there are very few cases where a
procedure for authorizing a new line of business
has not come to fruition.
The cooperation shown by UNESPA, the sector association, is exceptionally good in Solvency II implementation
Is the ‘per capita’ premium ratio in Spain
going to register a continuous increase?
Yes; the point here is that there will be no
enormous leaps. Many factors have a bearing
on this: culture, education, necessities and
savings capacity, for example. Development
will be based on day-to-day work and gradual
progress. It will be a matter of motivating companies
to continue to grow, while encouraging
the general public to put their trust in insurance
as part of the solution to their problems.
How is the insurance sector bearing up to the
crisis?
Generally speaking, it is bearing up well. As
logically, all the European supervisory authorities
have been following the situation closely.
We were repeatedly asked for information;
solvency tests were carried out in various
Spanish groups, and the results are available.
In some cases, the data for 2009 were actually
better than those for 2008. It was possible to
confirm that the sector has the right capacity
to react to the difficulties that confronted it.
There were merely some isolated problems
in connection with credit insurance, which is
obviously cyclical in nature; the ratio of claims
to premiums took a nose-dive here. This led
to a plan for some measure of public support
from the Insurance Compensation Consortium
(Consorcio de Compensación de Seguros).
Is credit insurance from public companies
such as CESCE (Compañía Española de Seguros
de Crédito a la Exportación, Spanish
Export Credit Insurance Company) supporting
the ICO (Instituto de Crédito Oficial, Official
Credit Institute) in any way?
No, that is still an open question. What we have
seen is the possibility of making it easier for
credit providers and clients wanting credit insurance
to move closer together. The ICO is a
facilitator of credit, not of credit insurance, but
a rapprochement could stimulate business in
such a way as to resolve doubts on the demand
side as well as the supply side. In this respect,
it is true that various initiatives have been tabled
which could be channeled through the ICO.
The standard scale for personal injuries used
by the Spanish insurance sector is the only
one in the European Union which is stipulated
at legislative level. What progress is being
made with updating it?
This has been a very positive factor for the sector
in Spain. There are various elements involved in
updating the scale: the quantitative aspects, the
development of medical aspects that enable
recovery and reduce the after-effects, and also
legal questions such as: who are the beneficiaries,
how can they get the compensation payments,
and to whom is the compensation due?
Questions of this sort are more legal in nature.
Compensation payments to victims of serious
injuries are not very generous. There are
major differences between payments made
in Spain and in other European countries.
This may be one of the questions that needs to
be resolved. The members of the working group
will be sensitive to this issue, and proposals will
be made that take account of the efforts to raise
the Spanish public's awareness of all aspects
of road safety.
Is the updating of the compensation limits
for mandatory motor vehicle liability insurance
not going to trigger the cancellation of
many voluntary liability covers?
There is no need for these covers to disappear.
To be sure, the new limits are very high, but we
should also remember that the objective here
is to provide insurance that really does cover the
consequences of a driver's actions in traffic.
This is the aim that is being pursued in Europe,
and it is also being incorporated into Spanish
law: it is an attempt to ensure that anyone who has insurance will be covered by it for the consequences.
But is it normal for there to be a European
Directive that sets maximum death or accident
limits for motor insurance, and then for
the Spanish Standard Scale for Physical Injuries
to make substantial reductions to the
figures stated in the Directive?
We are aware that the reform involves two stages,
and we are quite insistent about the need to
update the Standard Scale. We have two options:
to increase the limits per victim, with the system
that we used to have a few years back, or to
change over to majority European usage, i.e. to
set specific limits per claim. Basically, we are
opting to adapt to the European system, so an
update of the scale is needed in order to do this.
What stage have we reached with the new Mediation
Directive that will be implemented in the
future?
The European Commission has forwarded an
ambitious draft to us. The work will focus on issues
of remuneration, which are the bone of contention
in every country.
Will commission be the basis?
There are many different formulas. We are proposing
some approaches involving thresholds based
on the premium, or at the request of the insured.
Will discounts be banned?
Yes. In fact, they are already banned in many
countries, including Spain. On this matter, we shall
have to arrive at a relatively balanced solution.
Afterwards, it may also be necessary to arrive at
a more accurate estimate of the figures that could
work on the market. These are the most important
issues. In any case, we are talking about a Mediation
Directive for which the proposal will be submitted
in the first half of next year. Discussion of it may
take some time, and that will be followed by the
start of a transitional period.
Is there any work in progress aimed at differentiating
or completely separating banking and insurance
activities? After some difficult experiences,
Canada decided to prohibit the distribution of
insurance by the banks.
We are aware that there is concern on the part of the
intermediaries, and even a confrontational situation
to some extent. As we have said on many occasions,
the point is that we already have a regulatory framework.
Obviously, we oppose anything that resembles
the imposition of an insurance contract, no matter by
whom. We have heard evidence from various mediation
associations and we have noted that they make generalized
complaints, but they have never submitted any
specific cases of persons on whom an insurance
contract has been forced. We should aim to find
reasonable solutions and conditions, and to establish
a balanced situation between the parties. But what
we usually point out to them is that the solution clearly
goes beyond the bounds of the insurance sector. If we want to ban a bank from selling insurance in its
branches, we have to take on the banking sector and
obtain a ruling at legislative level. I do not know whether
the Canadian model would be a solution, or whether
it would make the problems even worse. Here in our
banking industry, we have some excellent insurance
professionals. Many of them used to work in the
insurance world and they have joined the banking
sector to do the same work. I think that generalizations
are sometimes unjustified; however, the matter is
open for discussion.
When it comes to the distribution of insurance,
some systems will prevail over others. Do you
think that bancassurance has an advantage because
of the potential resources available to it?
Our view is that it is a good thing for the Spanish
public to have different channels, and for those
channels to become stronger. We cannot see that
it would be better to have one single channel,
because more distribution channels mean more
expertise, so more information will flow onto the
market. There will be greater scope for choice.