EIOPA · 3239
Technical Provisions (TPs)
- Regulation
- (EU) No 2015/35 - supplementing Dir 2009/138/EC - taking up & pursuit of the business of Insurance and Reinsurance (SII), (EU) No 2009/138 - Solvency II Directive (Insurance and Reinsurance)
- Article
- Article 33 (2015/35), Article 77 (2009/138)
- Topic
- Technical Provisions (TPs)
- Submitted
- 2025-02-04
- Answered
- 2026-01-07
Question
Reinsurance company XYZ assumes treaties where each of them has a different settlement currency such as EUR, CHF, PLN etc. All these treaties are entirely retroceded by a single retro contract which settles all retro recoverables in EUR. At the same time this contract comprises an FX clause that converts to EUR all settlement currencies of the underlying treaties other than EUR by using the FX rate at the settlement date. As a result of this clause, XYZ can effectively mitigate their FX risk when the recovered losses are settled in a currency different to EUR. Having said that, should XYZ discount their projection of retrocession recoverable cash flows in EUR or all respective settlement currencies of the underlying treaties? In addition, should XYZ report such expected retrocession recoverable cash flows in EUR currency (retrocession contract settlement currency) or in respective currencies of the underlying reinsurance treaties?
Background
The particularity of this question compared to the previously answered #2763 is around the FX clause embedded in the retrocession contract.
Answer
Undertaking X holds insurance obligations denominated in currency A. Hence the relevant risk-free rate term structure to calculate the best estimate of those obligations is that of currency A. The reinsurance recoverables represent the amounts recoverable from the reinsurance contract. According to Article 41 of Commission Delegated Regulation 2015/35, the cash flows used to calculate those amounts shall only include payments in relation to the compensation of insurance events and insurance claims arising from the insurance obligations of undertaking X. Hence all cash flows to be used for the calculation of the reinsurance recoverables are ultimately related to the insurance obligations of undertaking X which are denominated in currency A. Therefore, currency A is also the currency of the relevant risk-free rate term structure to be used for the calculation of the reinsurance recoverables.
This Q&A is published by European Insurance and Occupational Pensions Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.
Similar Q&As
More Q&As on this topic
📋 Track EU financial regulation continuously
Forseti monitors EU financial regulation and delivers personalised alerts anchored to verified official sources.
14-day free trial. No credit card required.