Question ID: 1920
Regulation Reference: (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII), (EU) No 2015/2450 - templates for the submission of information to the supervisory authorities
Topic: Reinsurance
Article: 41(3)
Status: Final
Date of submission: 14 May 2019
Question
Legal environment:
According to the balance sheet instructions of Implementing Regulation 2015/2450 the item "Deposits from reinsurers" reflects "amounts (e.g. cash) received from Reinsurer or deducted by the reinsurer according to reinsurance contract".
Article 41, part 3 of Delegated Regulation 2015/35 says that "where a deposit has been made for the cash flows, the amounts recoverable shall be adjusted accordingly to avoid a double counting of the assets and liabilities relating to the deposit".
Description of situation:
The undertaking in liabilities shows the item "Deposits from reinsurers" amount of which changes each reporting period.
The undertaking has concluded reinsurance agreement (quota share 50%).
The undertaking has not effectively received any payments (deposits) from reinsurer. According to reinsurance contract the term "Deposits" include "reported part of outstanding losses (RBNS), unreported part of outstanding losses (IBNR) and unearned premium reserve (all three at the end of respective accounting period) and premium portfolio entry at the beginning of respective accounting period". As a result the undertaking's balance sheet item "Reinsurance recoverables" is increased by amount which equals the amount shown in the item "Deposits from reinsurers".
Questions:
1. Does the item "Deposits from reinsurers" prescribes to reflect also such amounts of money which are not effectively received by undertaking from reinsurer, i.e., amounts which are result of accounting calculations and reinsurance contract wording both in economical sense of balance sheet and in the situation described?
2. Can Article 41, part 3 of Delegated Regulation 2015/35 be applied to state that the item "Reinsurance recoverables" is double counted in the situation described?
Background of the question
As the undertaking has not effectively received any deposit payments, but reflects future obligations to Reinsurer according to reinsurance contract, our opinion is that in the situation described the undertaking should reflect such amounts (future obligations) in the item "Reinsurance recoverables" and the item "Deposits from reinsurers" should be zero.
EIOPA answer
The interpretation of Instructions laid down in Implementing Regulation 2015/2450 of the item "Deposits from reinsurers" is correct.
It is however not correct that the undertaking is double counting amounts in "Deposits from reinsurers" item and "Reinsurance recoverables". Moreover, the kind of reinsurance agreement insisting on the risks of the undertaking is a quota share, meaning that the undertaking will cede 50% of premiums in exchange of coverage of 50% of the losses incurred (covered by the reinsurance agreement). This kind of agreement means that all amounts due from the reinsurer to the undertaking will be a result of accounting calculations made according to the deadline of the reinsurance contract and should fall under the item "Reinsurance Recoverables".
In the described situation it is correct to state that, since the undertaking has not received any deposit payment from the reinsurer but foresees future obligations from the reinsurer according to the risks covered by the reisurance contract, those amounts should be placed in the Item "Reinsurance Recoverables" and item "Deposits from Reinsurers" should not be impacted by those sums. The deposit is only visible on the balance sheet in case the payment has been received.