BaFin published an interpretative decision on delineation of financial reinsurance from traditional reinsurance in the non-life sector. Under Article 208 (2), second sentence, of the Delegated Regulation (EU) 2015/35, non-life insurance undertakings may not take into account financial reinsurance business or similar arrangements where the effective risk transfer is similar to a financial reinsurance transaction, provided that the volume measures for the premium and provision risk determine or calculate appropriate company-specific parameters. They must, therefore, distinguish financial reinsurance from traditional reinsurance. The interpretative decision is to be applied to all insurance companies domiciled in Germany and to branches of third-country insurance undertakings operating in the non-life insurance business.
In the area of non-life insurance, the expected loss of the reinsurer (Expected Reinsurer's Deficit or ERD) is used as a measure of risk transfer when differentiating financial reinsurance from inadequate risk transfer. A sufficient transfer of risk exists if the absolute amount of the expected loss of the reinsurer amounts to at least 1% of the expected premium. It makes sense to use ERD for the distinction between financial reinsurance and traditional reinsurance. In any case, in the field of non-life insurance, the Federal Agency assumes traditional reinsurance if the absolute amount of the expected loss of the reinsurer amounts to 2.5 percent or more of the expected premium. However, the provisions on the demarcation of financial reinsurance from inadequate risk transfer remain unaffected by the interpretative decision.
Related Links (in German)
Keywords: Europe, Germany, Insurance, Reinsurance, Financial Reinsurance, Traditional Reinsurance, Non-Life Insurance, Risk Transfer, Solvency II, BaFin
Previous ArticleAPRA Licenses 86400 Ltd as Authorized Deposit-Taking Institution
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.