Responses to CBI consultation on intra-group transactions
The Society of Actuaries in Ireland (SAI) and the Reinsurance Advisory Board of Insurance Europe (RAB) have recently published separate responses to the Central Bank of Ireland (CBI) Consultation on Guidance for (Re)insurance Undertakings on Intragroup Transactions and Exposures (CP150).
Some common themes can be discerned from their responses, which mainly focus on intra-group reinsurance arrangements:
- Solvency II risk management requirements currently apply the same standards to intra-group and external arrangements, so this guidance should not place additional requirements on intragroup transactions (IGTs)
- IGTs may be implemented by (re)insurers more quickly and easily, for example in crisis situations
- Applying proportionality will be key, particularly in the context of captive (re)insurers.
The RAB points out that the CBI should take a proportionate approach when asking undertakings to consider group risks. Expecting all undertakings to be capitalised to withstand the failure of a group would preclude the benefits of group diversification allowed for in Solvency II. Asking a subsidiary to undertake a realistic assessment of the impact on it of group failure would necessitate a group-wide recovery and resolution plan. This may be best dealt with at the level of group supervision or as part of the upcoming EU Insurance Recovery and Resolution Directive.
The SAI also highlights one of they key purposes of intragroup reinsurance as being the reduction of the cost of capital by holding capital centrally. This ultimately leads to reduced prices for consumers. Both points are likely to become even more relevant in an environment of rising interest rates and widespread inflation.
Links to the full responses below.