Consultation on Proportional Reinsurance Treaty Features Jeopardising Risk Transfer Balance

The European Insurance and Occupational Pensions Authority (EIOPA) today launched a consultation on the treatment of proportional reinsurance treaties with features that may jeopardise the balance (“commensurateness”) between the solvency capital requirement (SCR) relief triggered by the treaty and the effective transfer of risk they provide. EIOPA’s final guidance would eventually form an Annex to its earlier Opinion on risk mitigation techniques, which sets out general principles for assessing reinsurance.

Since EIOPA’s 2021 Opinion on the use of risk mitigation techniques, national supervisors have encountered a range of reinsurance structures and features that require further guidance to ensure a consistent assessment of the effectiveness of risk transfer across Europe. This new draft Annex on proportional reinsurance follows the publication of two Annexes to EIOPA’s Opinion in July 2025, on mass lapse reinsurance and on termination clauses, respectively.

Proportional reinsurance contracts transfer a fixed percentage of any claim to the reinsurer, which is adequately captured by the standard formula. However, some treaties include features such as loss limits or sliding-scale commissions that may significantly reduce the risk transferred from the cedent to the reinsurer, while the impact on the SCR may be very limited. As a result, in some cases the extent of the SCR relief might not be commensurate to the risk transfer taking place.

The draft Annex now under consultation seeks to address this potential imbalance and ensure that the effect of these features is properly considered when assessing the effectiveness of the risk transfer. It proposes that undertakings signing material reinsurance treaties with such features should assess (e.g. through simulations and tests) whether the actual risk transfer is commensurate with the SCR relief. Where this is not the case, the risk-mitigating effect of the reinsurance treaty should not be recognised when calculating the undertaking’s SCR. The draft proposals also leave room for qualitative assessments to replace tests where appropriate and underline the importance of proportionality in applying the provisions.

Today’s consultation package also includes a section on the treatment of reinsurance commissions. The proposals reinforce the interpretation set out in Q&A 1898, according to which any reinsurance commission representing a volume measure for risk exposure for the cedent is equivalent to premiums and therefore should increase the standard formula premium risk. They also expand on this Q&A by further detailing the treatment of fixed and variable reinsurance commissions. ****

Responding to the consultation

EIOPA invites stakeholders to provide their feedback on the Consultation Paper by responding to the questions via the online survey no later than 17 July 2026. All responses will be published on EIOPA’s website unless otherwise requested.

Go to the Consultation Paper

Details

Publication date 15 April 2026
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