Question ID: 2307
Regulation Reference: Guidelines on application of outwards reinsurance
Topic: Reinsurance
Article: Guideline 15
Status: Final
Date of submission: 17 Jun 2021
Question
In line with Guideline 15 of "Guidelines on application of outwards reinsurance arrangements to the nonlife underwriting risk submodule" the total recovery from risk mitigation methods should not exceed the total amount possible under the terms of the reinsurance program. Is it correct to understand that, by way of example, a CAT treaty with one reinstatement which is exhausted in the calculation of the NATCAT submodule cannot be assumed to be available for the Man Made CAT?
EIOPA answer
The assumption is correct. However, it should be noted that the capacity of the reinsurance treaty should not be allocated to the different submodules arbitrarily. If there capacity of the treatment is not enough to cover a full submodule (NAT CAT or man made) and there are no reinstatements, the allocation to one of this two submodules is up to the undertaking. However, in case there is one or more reinstatements, both submodules (NAT CAT and man made) should benefit from reinsurance cover, of course never exceeding the total capacity of the reinsurance treaty.
Regarding the allocation of a reinsurance treaty with one or more reinstatements within NAT CAT submodule, if an event combining two perils is possible and would be covered as a single event, then the allocation should be split between both perils for each event. If a combined event is not possible, therefore each reinstatement should be assigned independently trying to avoid to concentrate all the risk-mitigating effect of the contract in one single peril.