Recognition of reinsurance under Solvency II

Most insurance companies currently use risk mitigation techniques as an instrument to stabilise their earnings and reduce capital requirements. Solvency II outlines clear principles governing the recognition of such techniques.

This fact sheet addresses (i) why risk mitigation is fully recognised for the first time under Solvency II, and (ii) the principles associated with the standard formula. The difference in treatment of re/insurance by the International Financial Reporting Standards and Solvency II is also discussed.