Decree Law No. 84/2020
- Issuer: Presidency of the Council of Ministers
- Diploma Type: Decree Law
- Number: 84/2020
- Pages: 6 - 7
Summary in plain english
This decree-law amends the legal scheme for taking up and pursuing the activity of insurance and reinsurance.Reinsurance are ways of transferring risks from one insurer to another entity, the reinsurer. They are insurances taken out by insurers to dilute the risk they assume when taking out insurance with their customers. Pension funds are funds created to guarantee the payment of pensions. They can be financed by company contributions and by workers' contributions. The fund's assets consist of securities (shares, bonds, among others) or real estate (i.e. real estate). What is going to change?
In order to comply with European Union legislation, the rule on reviewing the adjustment of risk-free interest rate volatility for each country is changed.
This adjustment of risk-free interest rates by country equals the difference between: 1 - the risk-adjusted country spread and 2 - twice the risk-adjusted currency spread.
This risk-adjusted country spread is in turn calculated as the difference between: 1 - the interest rate that can be obtained by investing in assets included in the (insurers') portfolio representative of that currency and country and 2 - the risk-free interest rate in that currency.
However, the adjustment is only made when the following two conditions are met:
i - if the adjustment is positive, i.e. the difference between the spread for the risk-adjusted country and double the spread for the risk-adjusted currency is positive
ii - the risk adjusted country spread is > 85 basis points (0.85%)
In essence, what changes is this second condition for the adjustment to be made. Previously, the minimum for the adjustment to be applied was a risk adjusted country spread of >100 basis points (1%) and now it is 85 basis points (0.85%). Therefore, the threshold for the adjustment to be applied is lower.What advantages does it bring?
This change is beneficial to the economy by allowing greater access to the volatility adjustment surcharge relevant to the financial flows generated by insurance products.When does it enter into force?
This decree-law entered into force on 13 October 2020.
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