Insurance company solvency to give you peace of mind

We are aware that a person or a company is considered solvent when they have or are capable of obtaining the funds needed to respond to their economic responsibilities. But what exactly is solvency in an insurance context? The idea is essentially the same: it is the ability of an insurer to meet its current and future commitments.

In this sector, it is also a critical aspect for the proper development of insurance activity, as it offers the customer absolute certainty that their insurance will cover the expenses incurred as part of an accident and the benefits, as promised when the policy was taken out, offering the policyholder peace of mind.

Your insurance company will always assume its responsibility, bearing in mind the duration of the protection, i.e. whether the insurance is an annual policy (such as home or car insurance) or a longer term policy (such as life insurance), which can cover a long period or even the entire life of the insured party.

When we talk about insurance solvency, there are three essential elements that come to mind as part of the process and that are usually invisible to the customer, even though they are their strongest guarantee. Let’s find out more about them:

As seen previously, this relates to the benefits paid out for claims, i.e. what the insurance company pays out to compensate claims covered by the policy. In 2023 alone, insurers paid out 193 million benefits in Spain, amounting to 54.5 billion euros, according to the Social Insurance Report prepared by UNESPA. When the insurance company pays out these amounts, it demonstrates its solvency.

When it comes to the lines of business, last year in Spain, the number of people benefiting from the protection offered by health insurance came to 12.4 million, 21 million people had taken out life-risk insurance and the victims who received care as a result of a traffic accident came to 220,000.

These are, in essence, the financial reserves that insurance companies must have to meet their customer-facing obligations. Calculated based on the commitments undertaken, these funds are set aside to guarantee pay outs in the future.

Because just as there are circumstances that require an immediate resolution, there are others that may require pay outs later down the line, when the full extent of a claim remains unknown, such as the consequences of a traffic accident, although the clearest case is the case of life insurance, as it is impossible to forecast whether the benefit will be paid out in the medium, long or very long term.

And, if these provisions were not constituted, claim-related payments would depend on the insurance company’s circumstances at that specific time.

According to the General Directorate for Insurance and Pension Funds, at the end of 2023, the technical provisions of insurers in Spain stood at 254 billion euros, to meet customer-facing commitments. By lines of business, life accounts for the highest volume, a total of 207.27 billion euros.

In addition to all of the above, insurance companies must meet the mandatory solvency capital requirement. The method for its calculation is based on the European Solvency II requirements, which since 2016 have applied stricter conditions to insurance risks.

Likewise, last December and under the Spanish Presidency of the Council of the European Union, an agreement was reached on the review of the Solvency II Directive that has marked a milestone in the regulation of private insurance in the European Union.

One of the most important aspects was the adaptation of the capital requirements required from insurers, which have become more proportional to the risks assumed and less dependent on market volatility.

Overall, as detailed by UNESPA, at the end of 2023, Spanish insurers had a coverage ratio that exceeded the legal capital required by 2.4 times: 60.88 billion euros in own funds admissible to cover mandatory solvency capital requirements, compared to the 25.16 billion euros to cover solvency capital requirements established in the regulations.

In the case of MAPFRE, its Solvency II ratio remains particularly solid and stable, supported by high diversification and strict investment and asset and liability management policies. At the end of June 2024, it stood at 196.6%.

In view of the data, you can rest assured that your insurance company is always ready to respond to the coverage included in your policy. To this end, it has sufficient financial solvency and forecasts possible future scenarios.

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