The European Insurance and Occupational Pensions Authority (EIOPA) published today its supervisory statement on the supervision of reinsurance concluded with third-country reinsurers.
EIOPA acknowledges that reinsurance is, and should remain, an international cross-border business that leverages the global diversification of risks and offers numerous advantages to insurance undertakings. However, it is important to assess the actual risk mitigation taking place.
With this in mind, the objective of this supervisory statement is to highlight the risks stemming from the use of reinsurance provided by reinsurers operating under regulatory regimes not recognized as equivalent to Solvency II. Some parts of the statement, where relevant and explicitly stated, apply also to reinsurance arrangements with reinsurers from equivalent third countries.
To promote a high-quality and convergent supervision of such arrangements without limiting the use of reinsurance, EIOPA is proposing a risk-based approach for identifying and managing the associated risks.
The statement sets out supervisory expectations in several areas, including the assessment of the business context when using reinsurance from third countries and the importance of early supervisory dialogue. Furthermore, it includes supervisory considerations on how to assess reinsurance agreements and undertakings’ risk management systems in relation to the use of third-country reinsurers. Lastly, the supervisory statement outlines tools that would be key in mitigating any additional risks that might arise.
The statement is addressed to National Competent Authorities, which should apply it considering the principle of proportionality and following a risk-based approach.
Notes
During the third quarter of 2023, EIOPA sought stakeholders’ feedback on the draft supervisory statement through a public consultation and subsequently revised the text taking into account the comments received.