Javier Vicente
Pavia e Ansaldo, Madrid
javier.vicente@pavia-ansaldo.es

Spanish Royal Decree-Law 3/2020 of 4 February 2020, known as the Insurance Distribution Act (IDA), has transposed Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on Insurance Distribution (IDD). The purpose of the new law is to: establish rules on access to insurance and reinsurance distribution activity, set the conditions under which it must be carried out, and the applicable system of regulation, supervision and sanctions. The decree is intended to guarantee the protection of the rights of policyholders, insured persons and beneficiaries under insurance contracts, as well as to promote freedom in contracting for insurance products.

Although the IDA’s coming into force has meant the repeal of the previous Law 26/2006 of 17 July 2006, on private insurance and reinsurance mediation, there is nevertheless a broad continuity with the previous control regime for acquisitions of a ‘significant holding’, particularly relevant for M&A transactions in the insurance brokerage sector.

This article outlines the main features of such a control regime on the transfer of shares in insurance brokerage companies.

Duty of information

First, the insurance broker company shall inform the General Directorate of Insurance and Pension Funds (GDIPF) in either of the following cases: (1) any relationship it intends to establish with natural or legal persons, which may imply the existence of ‘close links’ (vínculos estrechos); (2) any planned transfer of shares representing a ‘significant holding’ (participación significativa).

For example, the acquisition of an insurance broker company’s entire shareholding in the context of an M&A transaction would undoubtedly trigger a duty to inform the GDIPF. Similarly, the full or partial divestment by one of the shareholders of an insurance broker, resulting in some or all of the other existing shareholders increasing their equity above the relevant thresholds, would also trigger a duty to inform.

Close links and significant holding

IDA makes reference to Law 20/2015 of 14 July 2015 on organisation, supervision and solvency of the insurance and reinsurance undertakings to define the concepts of close links and significant holding.

Close links

Any relationship between two or more natural or legal persons linked through participation or by a control relationship. Also, the situation where two or more natural or legal persons, including an insurance broker, are linked on a lasting basis to the same natural or legal person by a control relationship.

Significant holding

The holding in an insurance brokerage entity, directly or indirectly, of at least ten per cent of the shareholding or voting rights or any other method for exercising a significant influence on the management of the entity.

These concepts are sufficiently broad to cover a variety of scenarios. Consider, for example, the acquisition by a Portuguese insurance broker of a German competitor, which in turn controls a subsidiary in Spain. In this case, the GDIPF should be informed of the Portuguese insurance broker’s acquisition of a significant holding in the Spanish subsidiary, as it would indirectly exceed ten per cent of the shareholding in the latter – through the acquisition of the German parent company.

Opposition to the acquisition

Event of opposition

The GDIPF has a three-month period from the submission of information to oppose the following events:

• an acquisition of a significant holding in an insurance broker;
• each increase in the previously acquired significant holding that equals or exceeds any of the following thresholds: 20, 30 or 50 per cent; or
• an acquisition that would result in the control of the insurance broker.

Grounds for opposition

Any such opposition must be based on the grounds that the buyer: (1) does not meet the requirements of good commercial and professional repute (honorabilidad comercial y profesional); or (2) is subject to any of the prohibitions set out in the IDA. These concepts are explained below.

Good commercial and professional repute

The quality applicable to those persons who have a personal record of respect for commercial and other laws regulating economic activity and business life, as well as good commercial, financial and insurance practices. (Generally, this means persons with no criminal record or administrative sanction in respect of financial activities and persons not disqualified from holding public office or subject to an ongoing insolvency proceeding.)

Prohibitions applicable to insurance brokers

• Persons who are forbidden by general or special provisions from carrying on business, either by themselves or through intermediaries.
• On the other hand, the activity of insurance distribution may not be exercised by entities that are subject to ties of dependence or special subjection to the insurance broker, as this would jeopardise policyholders’ freedom in the decision to purchase an insurance product or in the choice of an insurer.
• Furthermore, the activity of insurance brokerage is incompatible with the simultaneous conduct of the following activities –
  • Insurance or reinsurance.
  • Underwriting agency.
  • Insurance agent or bancassurance operator.
  • External collaborator of an insurance agent or bancassurance operator.
  • Other activities for the exercise of which an exclusive corporate purpose is required.
  • Insurance appraisal, insurance adjuster or average adjustment, unless these activities are carried out exclusively for the purpose of advising policyholders, insured parties or beneficiaries under an insurance contract.

Possible scenarios

The following outcomes are possible, depending on the decision taken (or not taken) by the GDIPF:

1. It may express its agreement with the acquisition or increase in the significant holding, and the parties may proceed accordingly. In this case, the GDIPF may set a different deadline for the transaction from the one notified by the parties.
2. It may oppose, and consequently the parties would not be able to execute the acquisition or the increase under the terms proposed.
3. It may refrain from pronouncing itself. In which case, the parties may proceed with the acquisition or increase of the significant holding after three months of administrative silence on the part of the GDIPF.

In light of the above, it is customary in M&A transactions whose target is a Spanish insurance broker to provide for a specific condition precedent subjecting the execution of the transaction to the agreement or administrative silence of the GDIPF once the duty of information has been fulfilled. In any event, the go-ahead should be given prior to the closing of the transaction in order to avoid incurring into the penalties referred to in the section below.

Other provisions

The IDA states that the following rules remain in effect: (1) Takeover bids and information on significant holding contained in the Royal Legislative Decree 4/2015, of 23 October 2015, passing the Consolidated Text of the Securities Market Act and its implementing regulations; and (2) Control of economic concentrations contained in the Competition Act 15/2007, of 3 July 2007.

Penalties

The acquisition or increase of a significant holding in an insurance broker in breach of the above provisions is regarded as a ‘very serious infringement’ (infracción muy grave). One or more of the following penalties may be imposed for such a violation:

1. Cancellation of the insurance broker’s registration in the administrative register of insurance and reinsurance distributors, which is necessary to carry out the activity of insurance brokerage.
2. A maximum ten-year suspension from practising as an insurance broker.
3. Publicising the conduct constituting the infringement (ie, the breach of the control regime), identifying the natural or legal person responsible and the nature of the infringement, as well as the penalty imposed.
4. A fine of up to three percent of the total annual turnover according to the latest available accounts approved by the management body or €1m (whichever is the greatest); twice the amount of profits made or losses avoided as a result of the infringement, if determined.

Please note that persons exercising managerial and directive roles or responsible for brokerage activity are also liable for infringements when these are attributable to their willful or negligent conduct, except when they can prove their opposition to or lack of participation in the decision that gave rise to the infringement. If they are held liable, specific penalties may be imposed.