See all chapters of Guide to Solvency II.
The primary function of an insurer is the assumption and management of insurance risk. Very commonly, this will involve an insurer passing (or ceding) risk to other (re)insurers or protection providers in the relevant market. When ceding risk, (re)insurers65 have a range of motives or objectives in undertaking such a transaction, including:
- The acquisition of capacity to unlock the writing of new business.
- A solution for non-core, difficult or stubborn legacy risks.
- A facility in order to take advantage of future market conditions opportunistically.
- An M&A tool, with the reinsurance constituting either the transaction itself or a precedent step toward an insurance business transfer scheme or even the acquisition of the ceding entity itself.
In each case, the (re)insurer will also aim to achieve regulatory capital credit against the insurance obligations that it has covered with the reinsurance asset. Under Solvency II,66 (re)insurers are able to lower their capital requirements through the use of risk transfer techniques. This chapter focusses on the regulatory conditions that a (re)insurer must satisfy, and we analyse three key…
