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21 November 2019 Supervision Supervision label Q&A

Question:

Which aspects are relevant for the recognition of the risk mitigating effect of reinsurance contracts when calculating the Solvency Capital Requirements according to the Standard Formula?

Answer:

Reinsurance contracts can be a key measure for insurance undertakings to manage their risks. Reinsurance is not tied to borders and risk sharing at a global level can have its merits. Well-structured reinsurance contracts may reduce risks and consequently solvency capital requirements. A reinsurance arrangement transfers risks, but also introduces counterparty default risk on the reinsurer. This risk relates to credit events with respect to the reinsurance undertaking, like default, downgrade etc.

The attached Q&A document contains aspects which DNB considers relevant for the recognition of reinsurance contracts in the calculation of the solvency capital requirements. For regular, non-complex, reinsurance contracts many of the aspects go without saying, but for less regular, more complex contracts the aspects require additional attention from insurance undertakings.

sector

  • Insurers