1.          Paragraph (1): Definition of a contract of reinsurance

C1        The aim behind paragraph (1) is to provide a description of the nature of a contract of reinsurance without attempting to give a scientific definition. The main purpose of the description is to provide a guideline for determining the scope of application of the PRICL in accordance with Article 1.1.1.

C2        A more detailed, statutory definition of “reinsurance” is provided in Article 13(7) of Solvency II (Directive 2009/138/EC). The provision reads:

(7) ‘reinsurance’ means either of the following:

(a) the activity consisting in accepting risks ceded by an insurance undertaking or third-country insurance undertaking, or by another reinsurance undertaking or third-country reinsurance undertaking; or

(b) in the case of the association of underwriters known as Lloyd’s, the activity consisting in accepting risks, ceded by any member of Lloyd’s, by an insurance or reinsurance undertaking other than the association of underwriters known as Lloyd’s.

It should be noted that point (b) of the definition has been deleted by Article 1(5)(a) of Solvency II Review (Directive (EU) 2025/2) which must be transposed by Member States by 29 January 2027 pursuant to its Article 4 (Transposition). In spite of this deletion, the definition, produced mainly for supervisory purposes, appears to be phrased in an excessively technical and complicated manner for the purposes of the PRICL. This is why such a definition has not been incorporated into paragraph (1).

C3        Under paragraph (1), contracts of reinsurance are primarily considered to be contracts of insurance. While this issue is ultimately left to legal theory and practice, rather than being addressed specifically in Article 1.2.1(1), the classification of reinsurance as an insurance contract follows from the two main elements of a contract of reinsurance: premium and coverage.

C4        “Coverage” under a contract of reinsurance must relate to the potential exposure of a reinsured to insurance claims under an insurance contract. The reinsured does not necessarily have to be a private insurance company; it may also be a social insurer, a carrier of an occupational pension scheme, etc. Moreover, reinsurers may be reinsureds themselves, whenever they buy insurance to cover the risk of being exposed to insurance claims under a contract of reinsurance. In this context, the term “contract of reinsurance” encompasses retrocession agreements.

C5        The description provided in paragraph (1) covers both facultative and treaty reinsurance. For an application of the description, it is irrelevant whether reinsurance is provided by a reinsurance company, a captive insurer, a protected cell company, etc.

2.          ART and reinsurance pools

C6        The description provided in paragraph (1) does not include instruments of an alternative risk transfer (ART) as a whole. Such ART instruments are usually complex vehicles involving a series of transactions. Depending on the type of ART vehicle, reinsurance will, however, form a part of the overall model. The parties may, thus, subject the reinsurance part of the model to the PRICL.

C7        Equally, reinsurance pool agreements are not covered by the term “contract of reinsurance” as they structure and govern the relations between the different shareholders or partners of the pool’s corporate entity. In contrast, an agreement between a reinsurance pool as a corporate entity and an insurer/reinsurer with regard to reinsurance of the latter’s risk by the pool entity constitutes a “contract of reinsurance” for the purposes of paragraph (1).

3.          Ancillary agreements

C8        A contract of reinsurance might be connected to an ancillary agreement the purpose of which is not to insure a risk. In such cases, the PRICL will apply to the contract of reinsurance only; it will not govern the ancillary agreement. Hence, it is up to the parties to choose the law governing their ancillary agreement. For example, a contract may be linked to a trust. In such cases, only the reinsurance relationship will be subject to the PRICL, whereas the trust will be governed by its own proper law.

4.          Paragraph (2): Clarification

C9        In paragraph (2), there is less of a definition and more of a clarification that the PRICL and its Comments may frequently simply use the term “contract” when dealing with a “contract of reinsurance”.