1. Where insurance or reinsurance undertakings transfer underwriting risks using reinsurance contracts purpose vehicles, in order for them to take into account the risk-mitigation technique in the Basic Solvency Capital Requirement, several qualitative criteria shall be met. In the case of reinsurance contracts with the counterparty shall be any of the following:

(a) an EU insurance or reinsurance undertaking which complies with the Solvency Capital Requirement;

(b) a third-country insurance or reinsurance undertaking, situated in a country whose solvency regime is deemed equivalent or temporarily equivalent to that laid down in Directive 2009/138/EC in accordance with Article 172 of that Directive and which complies with the solvency requirements of that third-country;

(c) a third country insurance or reinsurance undertaking, which is not situated in a country whose solvency regime is deemed equivalent or temporarily equivalent to that laid down in Directive 2009/138/EC in accordance with Article 172 of that Directive with a credit quality which has been assigned to credit quality step 3 or better in accordance with Title I, Chapter I, Section 2 of the Commission Delegated Regulation 2015/35.

Only the European Commission decides if the solvency regime of a third country that applies to reinsurance activities of undertakings with their head office in that third country is equivalent to that laid down in Title I of the Directive 2009/138/EC. So far (September 2018) the European Commission has decided in accordance with Article 172 of the Directive 2009/138/EC about the equivalence of the solvency regime in Switzerland, Bermuda and (temporary) Japan. A reinsurance contract with an insurance or reinsurance undertaking from another third country can only be taken into account, when the insurance or reinsurance undertaking has a credit quality step 3 or better.

The European Commission laid down implementing technical standards with regard to the allocation of credit assessments of external credit assessment institutions to an objective scale of credit quality steps in accordance with Directive 2009/138/EC in the Commission Implementing Regulation (EU) 2016/1800. This Regulation enables the allocation of credit assessments of external credit assessment institutions to the scale of credit quality steps.

On this basis an EU insurance or reinsurance undertaking has to consider the credit quality of the third country reinsurer, if it intends to take the reinsurance contract into account in the Basic Solvency Capital Requirement calculated with the standard formula.

2. The Solvency II legislation governs conducting primary (solely or in combination with reinsurance) business by a third country insurance undertaking in a Member State. The Directive 2009/138/EC forbids to treat third country reinsurers better than EU reinsurers. The regulation of conducting reinsurance business by a third country reinsurance undertaking or by a third country insurance undertaking, which only conducts reinsurance business in a Member State, is based on the legislation of each Member State. Whether a certain reinsurance activity complies with the laws of a Member State, has to be decided by the local supervisory authority.