Unlike the banking sector, which needs to lend money for profitability, life insurance companies only obtain liquidity. This allows them to make long-term investments and earn a higher return, which they can pass on to clients.
What does this translate into? Generally, in much more attractive returns than those generated by banks, which are far from the 1% in guaranteed savings offered by some insurance companies.
Some considerations on the solvency of insurance companies in Spain
Historically, it has been the banks that have been responsible for offering savings plans, so it is logical that many of our clients ask themselves the question of whether insurance companies are solvent. However, the answer is simple and clear:
The recommended solvency ratio is 150 %. However, most of the companies working with savings and investment products exceed 200 % solvency ratio, the industry average being almost 250 %. Therefore, the sector is in good financial health.
In addition, in the event of bankruptcy of an insurance company, it is the Insurance Compensation Consortiumwhich depends on the Ministry of Economy, which would take care of the payment obligations and compensate the losses that the clients might have. These functions were previously assumed by the CLEA (Comisión Liquidadora de Entidades Aseguradoras). Unlike the Deposit Guarantee Fund, there is no limitation on the amount.
Solvency II and strict control measures for insurers
Insurance companies are subject to the same control as banks following Solvency II, the regulatory and supervisory framework for insurance and reinsurance companies established in the European Economic Area (EEA).
Thanks to the regulatory framework that aims to protect the insured, Spanish (and European Union) insurers have strict control and supervision measures.
It establishes quantitative (Pillar I), qualitative (Pillar II) and reporting and market transparency (Pillar III) requirements. As established in this Pillar III, insurers must publish the Solvency and Financial Condition Report (SFCR) once a year.
In other matters, the Directorate General of Insurance and Pension Funds (DGSFP) supervises the products marketed by insurance companies, the investments they make and the contractual information, in order to provide maximum transparency to customers.
What is the solvency of Spanish insurance companies?
As we have seen, the Solvency II regulatory framework prioritizes transparency, which is why insurance companies have been required to publish their Financial and Solvency Report for five years now. Since then, the consultancy firm Afi has compiled an interesting report in which it analyzes the situation of 18 large entities, which account for a significant volume of business in Spain. The publication of this data by insurance companies is not only an exercise in transparency, but also a “thermometer” of the position of these companies with respect to the average or the recommended solvency ratio.
The latest report corresponds to data from 2020, i.e. the year in which the pandemic broke out. Despite the instability it has caused in all areas, it is determined that in this “it has not made a dent”, since the companies analyzed have sufficient capital. In fact, they double the capital strictly required by regulation.
The solvency ratio of the aggregate of institutions stands at 247%, although with a significant dispersion between a minimum of 154% and a maximum of 483%. The average for the sector is 246 %.
Which are the most solvent companies?
According to the comparison prepared by Api based on SFCR data from 18 of the main Spanish insurance companies, the top 3 list of solvency ratios is headed by MAPRE Vida (483%), Mutua Madrileña (464%) and, at a greater distance, Caser (276%).
Solvency ratios by individual entities (2020). Graph extracted from the Api report The main Spanish insurance companies: improvements in profitability and maintenance of solvency in the year of the pandemic.
Insurance company savings plans: profitability combined with solvency
At a time when banks are not able to offer guaranteed savings products with interesting returns, insurance companies have provided an alternative to offer attractive interest rates to their clients. As we have seen, they are even more solvent than banks. In fact, some of the insurance companies in our portfolio offer guaranteed savings with returns above 1 % net. Yes, in times of minimum interest rates, this is something that is happening with insurance company savings products.
At PIB Group Iberia we know very well the different proposals, since as a brokerage firm we work with about twenty entities. Thus, our Savings and Investment Department is dedicated to analyze the best savings products, in order to offer you the most advantageous and adapted to your profile (from more or less risky to completely conservative).
At PIB Group Iberia we advise you and help you choose the best savings product at no cost to your pocket. The reason is that the companies themselves remunerate us for bringing new clients, so you do not have to pay anything for our help. All this with the independence that characterizes insurance brokerages.
We have been helping hundreds of clients in this way for decades, contact us without obligation.
