The European Insurance and Occupational Pensions Authority (EIOPA) published two annexes to its 2021 Opinion on the use of risk-mitigation techniques by insurance undertakings, following a public consultation, to support convergent supervisory approaches across Europe. The annexes cover the prudential treatment of mass-lapse reinsurance and contractual termination clauses in reinsurance agreements that can weaken effective risk transfer. For mass-lapse reinsurance, the guidance sets out considerations for supervisors when assessing whether Solvency Capital Requirement (SCR) relief from a treaty is commensurate with the risk transfer achieved, focusing on elements such as the measurement period, exclusions and termination clauses. A rolling 12-month measurement period is expected to be the default, aligning with the SCR time horizon, with longer periods envisaged only in exceptional cases where longer mass-lapse events are especially likely for a specific undertaking due to the nature of its business. The annex also addresses implications for reinsurance recoverables and the risk margin, includes supervisory expectations for reporting, and outlines considerations from a reinsurer perspective. The termination-clauses annex highlights provisions that may undermine risk transfer, including terms that release a reinsurer from responsibility for its share of legitimately incurred losses during the period covered by the treaty, and asset-transfer structures where termination allows the reinsurer to unconditionally retain transferred premiums and assets while being freed from remaining obligations. EIOPA will monitor use of the exceptional allowance for longer measurement periods by undertakings and national competent authorities as part of an upcoming peer review on supervision of the use of reinsurance.

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