Answers to the European Commission on the ... - Eiopa - Europa

derivatives is becoming an increasingly important risk mitigation <strong>to</strong>ol,
notably in life assurance.
12.2 Reinsurance and risk mitigation is such a complex, technical and entityspecific
<strong>to</strong>pic that it might best be treated for <strong>the</strong> most part through
implementing measures and supervisory guidance. Where addressed in
<strong>the</strong> Framework Directive, <strong>the</strong> wordings will have <strong>to</strong> be relatively
general. Consequently <strong>the</strong> <strong>Commission</strong> Services do not consider
appropriate <strong>to</strong> provide tentative legislative draft at this stage.
Explana<strong>to</strong>ry text
Risk mitigation measurement
12.3 The Reinsurance Directive 113 defines reinsurance as
…<strong>the</strong> activity consisting of accepting risks ceded by an insurance
undertaking, or by ano<strong>the</strong>r reinsurance undertaking.
Reinsurance <strong>the</strong>refore also includes retrocession. However, in this
answer, CEIOPS does not need <strong>to</strong> define reinsurance formally, since <strong>the</strong>
overriding consideration should be <strong>the</strong> extent of risk transfer under any
product being assessed.
12.4 The different risk characteristics (transferred and acquired) of various
covers will need <strong>to</strong> be considered. Acquired risks, such as credit risk or
operational risk, also need <strong>to</strong> be taken in<strong>to</strong> account in order <strong>to</strong>
determine <strong>the</strong> complete impact of reinsurance (and o<strong>the</strong>r risk
mitigation techniques) on <strong>the</strong> risk profile of <strong>the</strong> insurance undertaking.
12.5 Since <strong>the</strong> focus is on risk transfer, <strong>the</strong>re should be no inconsistency of
treatment between treaty and facultative cover, or between traditional
reinsurance and o<strong>the</strong>r risk mitigation techniques simply because of
<strong>the</strong>ir legal form or accounting treatment.
113
COM(2004)273 (2004) – Proposal for a Directive of <strong>the</strong> <strong>European</strong> Parliament and of <strong>the</strong> Council on
reinsurers.
136