On 31st October 2023, a decree[1] introduced new reinsurance collateral requirements in France.
These requirements apply to reinsurers located in a jurisdiction other than the following (referred to as “third countries reinsurers” for ease of read):
- Any state party to the agreement on the European Economic Area (European Union + Norway, Iceland and Liechtenstein);
- Countries which are members of the Organisation for Economic Co-operation and Development (OECD);
- Countries which have been granted equivalence under article 172 of the Solvency II Directive [2] : Switzerland and Bermuda (except captives for the latter);
- Countries with which the European Union (EU) has concluded agreements pursuant to article 175 of the Solvency II Directive – this concerns the so-called Covered Agreement between the EU and the United States [3] .
Such requirements existed in the past but had been repelled in 2015 upon the transposition of Solvency II in France. They were since then only applicable to undertakings not subject to Solvency II.
What is the scope of the collateral obligations?
The collateral obligations only apply to insurers and reinsurers whose head office is located in France and are therefore subject to supervision by the ACPR (Autorité de contrôle prudentiel et de resolution) which cede risks to third country reinsurers.
These obligations therefore do not apply directly to third country reinsurers but rather to the reinsured entities.
It is also worth remembering that only pure reinsurers located outside of the European Economic Area are able to conduct reinsurance business in France, namely to accept risks from insurers and reinsurers located in France (article L. 310-1-1 of the French Insurance Code). This therefore excludes undertakings authorised to conduct both insurance and reinsurance business.
How is the collateral requirement imposed?
For French insurers and reinsurers, the technical provisions relating to risks ceded or retroceded to a third country reinsurer may only be covered by a reinsurance receivable up to the amount guaranteed by a collateral. In other words, prudential credit for reinsurance is contingent on obtaining collateral.
What type of collateral is required?
The only available option provided under the newly created article R. 310-10-4 of the French Insurance Code is the pledging of assets held in an account opened with a credit institution located in the European Economic Area. The list of eligible assets is limited by this same provision. The pledge must comply with article L. 211-20 of the French Financial and Monetary Code.
Other forms of collateral typically used, such as letters of credit, are therefore not eligible.
How does this apply to existing reinsurance agreements?
The collateral requirement applies to all reinsurance and retrocession agreements concluded or renewed on and after 1st January 2024.
[1] Décret n° 2023-1010 du 31 octobre 2023 relatif au nantissement d'actifs en garantie des créances détenues par des entreprises d'assurance sur des entreprises de réassurance de pays tiers
[2] Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II)
[3] Bilateral Agreement between the European Union and the United States of America on prudential measures regarding insurance and reinsurance
