Should reinsurance premiums payable by an insurer to its reinsurer be valued within the gross technical provisions or within the amounts recoverable from reinsurance contracts?

I believe that market practice is to include RI premiums within the amounts recoverable from reinsurance contracts, and this view was consistent with previous draft Solvency II regulations.  However, much about TPs changed during the development of the draft regulations, and a cold read of the final regulations could easily support a different view.

Eg:

Delegated Act Article 28: Whilst there is no specific mention of reinsurance premiums (which might imply that they should not be included in TPs), paragraph (c) does mention payment of expenses as referred to in point (1) of Article 78 of the Directive, and no reason why these expenses would not include reinsurance premiums.

Delegated Act Article 31: Meaning of "expenses in respect of reinsurance contracts" as per paragraph 3 may be ambiguous, but the most obvious expenses in relation to reinsurance protection would be premiums of one form or another (eg original contract premiums, reinstatement premiums).

A legal view based on a cold reading of the final regulations would likely agree that there is no reason to suggest that reinsurance premiums would not be considered as "expenses in respect of reinsurance contracts".

Solvency II Directive Article 77: Whilst "...amounts recoverable from reinsurance contracts and special purpose vehicles…" shall be calculated separately, no mention is made of reinsurance premiums.  No reason to think of reinsurance premiums as "amounts recoverable from reinsurance premiums".

Solvency II Directive Article 78: No reason to think that reinsurance premiums should not be included as part of "all expenses that will be incurred in servicing insurance and reinsurance obligations".  A number of other expenses will also be incurred, but no reason to give reinsurance premiums a differential treatment.

Solvency II Directive Article 81: No mention of reinsurance premiums being included as part of the "amounts recoverable from reinsurance contracts".

In addition, when interpreting the requirements via a court of law, the plain meaning rule would apply.

“The plain meaning rule dictates that statutes are to be interpreted using the ordinary meaning of the language of the statute. In other words, a statute is to be read word for word and is to be interpreted according to the ordinary meaning of the language, unless a statute explicitly defines some of its terms otherwise or unless the result would be cruel or absurd. Ordinary words are given their ordinary meaning, technical terms are given their technical meaning, and local, cultural terms are recognized as applicable. The plain meaning rule is the mechanism that prevents courts from taking sides in legislative or political issues.

According to the plain meaning rule, absent a contrary definition within the statute, words must be given their plain, ordinary and literal meaning. If the words are clear, they must be applied, even though the intention of the legislator may have been different or the result is harsh or undesirable. The literal rule is what the law says instead of what the law was intended to say.”