Question ID: 1979
Regulation Reference: (EU) No 2009/138 - Solvency II Directive (Insurance and Reinsurance)
Topic: Reinsurance
Article: 81
Status: Final
Date of submission: 03 Jul 2019
Question
Reinsurance recoverables should be adjusted to take account of a possible default of a counterparty. Is it possible that that adjustment for a given reinsurance arrangement is positive or, in other words, increases the value of the reinsurance recoverables?
This may be relevant where the reinsurance recoverables are negative or, more specifically, where the insurer expects that they will pay more in future reinsurance premiums than will be received in future recoverables form the reinsurer.
EIOPA answer
The answer to this question is provided by the European Commission.
In accordance with Article 81 of Directive 2009/138/EC, the amounts recoverable from reinsurance contracts and special purpose vehicles shall be adjusted “to take account of expected losses due to default of the counterparty”. Since the purpose of the adjustment is to account for losses and not for possible gains, the adjustment cannot be positive or, in other words, cannot increase the value of the reinsurance recoverables.
Disclaimer provided by the European Commission:
The answers clarify provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies, in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.