Reinsurance cover from a regulatory and contractual perspective
Translation of Manfred Wandt, Zur Wirksamkeit des Rückversicherungsschutzes aus aufsichts- und vertragsrechtlicher Sicht, in: Orlikowski-Wolf/Loschelder/Langheid (Herausgeber), Versicherungsrecht (und Anderes) zwischen Dogmatik und Praxis - Festschrift zum 75. Geburtstag von Wilfried Rüffer, 2026, 419-435. The author would like to thank Nomos Verlag for granting permission to translate this work.
I. Introduction
A functioning reinsurance market is of paramount importance, not least for the proper functioning of the primary insurance market. The transfer of risk from the primary insurer to the reinsurer[1] reduces the solvency requirements for the primary insurer under the EU’s Solvency II insurance supervisory framework. This enables the primary insurance market to underwrite risks on a larger scale. Reinsurance is also an effective means of cushioning fluctuations in the primary insurer’s balance sheet. Furthermore, reinsurance regularly leads to international diversification of risks. Overall, reinsurance thus contributes significantly to the stabilisation of the primary insurance system and the financial system as a whole.
This article focuses on the question of which regulatory requirements must be met for reinsurance cover to be taken into account as a risk-mitigation technique when calculating the solvency capital requirements for (re)insurance undertakings. It analyses the significance, in this regard, of the contractual validity of reinsurance cover as a parameter of counterparty risk (II.). It then demonstrates, regarding international reinsurance business, that the legislation and case law of many legal systems do not provide this important economic sector with sufficient legal certainty commensurate with the changed modern framework conditions (III.). Subsequently, the ‘Principles of Reinsurance Contract Law’ (PRICL)[2] are presented. As a contract law that may be chosen by the parties to a reinsurance contract, they are well-suited to compensating for the shortcomings of statutory law and to increasing legal certainty regarding the contractual validity of reinsurance cover, including in the interests of the objectives and functions of supervisory law (IV.).
II. Reinsurance cover as a risk mitigation technique when calculating the basic solvency capital requirement
The conditions for taking reinsurance cover into account as a risk mitigation technique when calculating the solvency capital requirements for insurance and reinsurance undertakings within the EU are set out in Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance[3] (hereinafter: Solvency II Directive) and in the Delegated Regulation (EU) 2015/35 (EU) 2015/35[4] supplementing the Solvency II Directive, as well as in national supervisory law.
Historically, the conditions for regarding the recognition of reinsurance cover as a risk mitigation technique were not harmonised within the EU for a long time. Consequently, Member States were able to make the recognition of reinsurance cover as a risk mitigation technique, even within the EU, conditional upon the reinsurance cover being secured by the provision of deposits (so-called ‘collateral’) in the country of the reinsured undertaking.[5] The Reinsurance Directive of 16 November 2005 removed such restrictions within the Union through Article 32 (2);[6] this is reflected in Article 173 of the Solvency II Directive. In relation to third-country reinsurers, the home Member State of a risk-transferring (re-) insurance undertaking – prior to the entry into force of the Solvency II Directive – could continue to make the authorisation of the use of claims against reinsurers to cover technical provisions subject to conditions laid down at national level (Article 32 (3) of the Reinsurance Directive).
1. EU law
Under the Solvency II regime, the requirements for recognising reinsurance cover as a risk mitigation technique differ depending on whether the undertaking contractually providing the reinsurance cover is established in an EU/EEA Member State or in a third-country. Article 172 (3) of the Solvency II Directive stipulates that reinsurance contracts with reinsurance undertakings having their registered office outside the EU or the EEA (third-country reinsurers) shall only be treated as reinsurance contracts with an EU/EEA reinsurer if the European Commission has determined that the solvency regimes are equivalent.[7] In the absence of such a determination, reinsurance contracts with a third-country reinsurer are recognised only under specific conditions set out in the Delegated Regulation (EU) 2015/35.
Article 32 of the Solvency II Directive, prominently featured in Chapter 3 on ‘Supervisory Authorities and General Provisions’, prohibits the home Member State of an insurance undertaking from ‘refusing to authorise reinsurance contracts or retrocession contracts’ concluded with a reinsurance undertaking or an insurance undertaking authorised in accordance with Article 14 of the Solvency II Directive, on grounds directly relating to the financial soundness of that reinsurance or insurance undertaking. Article 81 of the Solvency II Directive, in Chapter 4, Section 2 on ‘Provisions relating to technical provisions’, contains provisions on the amounts recoverable from reinsurance contracts (and from special purpose vehicles).[8] With regard to the calculation of the Solvency Capital Requirement, Article 101 (5) of the Solvency II Directive stipulates that (re-) insurance undertakings must take into account the impact of risk mitigation techniques when calculating the Solvency Capital Requirement, provided that the credit risk and other risks arising from the use of such techniques are appropriately reflected in the Solvency Capital Requirement.
Details of the conditions for the recognition of reinsurance cover as a risk mitigation technique are set out in Section 10 of the Delegated Regulation (EU) 2015/35 on ‘Risk Mitigation Techniques’. Under Article 211 of the Delegated Regulation (EU) 2015/35, the use of reinsurance as a risk-mitigation technique when calculating the basic solvency capital requirement within the meaning of Article 101 of the Solvency II Directive requires that the qualitative criteria set out in Articles 209 and 210 of the Delegated Regulation (EU) 2015/35, as well as the criteria laid down in Article 211 (2) and (3) of the Delegated Regulation (EU) 2015/35, are met.
Article 211 (2) of the Delegated Regulation (EU) 2015/35 states:
‘In the case of reinsurance contracts the counterparty shall be any of the following:
an insurance or reinsurance undertaking which complies with the Solvency Capital Requirement;
a third-country insurance or reinsurance undertaking, situated in a country whose solvency regime is deemed equivalent or temporarily equivalent to that laid down in Directive 2009/138/EC in accordance with Article 172 of that Directive and which complies with the solvency requirements of that third-country;
a third country insurance or reinsurance undertaking, which is not situated in a country whose solvency regime is deemed equivalent or temporarily equivalent to that laid down in Directive 2009/138/EC in accordance with Article 172 of that Directive with a credit quality which has been assigned to credit quality step 3 or better in accordance with Section 1, Chapter I of this Title’.
The qualitative requirements of Article 209 of the Delegated Regulation (EU) 2015/35 include, amongst other things,
- that the contractual arrangements and the risk transfer are legally valid and enforceable in all relevant jurisdictions (paragraph 1(a)), and
- that the risk-transferring undertaking has taken all necessary measures to ensure the effectiveness of the agreement and to address the risks associated with it (paragraph 1(b)).
With regard to the determination required under Article 209 (1)(a) of the Delegated Regulation (EU) 2015/35 that the contractual arrangements and the transfer of risk are legally valid and enforceable in all relevant jurisdictions, Article 210 (4) of the Delegated Regulation (EU) 2015/35 stipulates that this determination is based on
- whether the contractual arrangement is subject to a condition which could impair the effective transfer of risk and the fulfilment of which lies outside the direct control of the insurance or reinsurance undertaking (lit. a), and
- whether there are any related transactions that could impair the effective transfer of risk (lit. b).
Furthermore, Article 210 (1) of the Delegated Regulation (EU) 2015/35 requires that the contractual agreement on the risk mitigation technique ensures that the extent of the cover achieved through it and the risk transfer are clearly defined and uncontested.
In the event that the (standard) requirements of Article 211 (1) of the Delegated Regulation (EU) 2015/35 – excerpts of which are reproduced above – are not met, Articles 213–215 of the Delegated Regulation (EU) 2015/35 allow for the risk-mitigation technique to be taken into account when calculating the basic solvency capital requirement through the provision of financial collateral or guarantees, for which, in turn, numerous specific conditions must be met. The picture is rounded off by Article 172 (3) of the Solvency II Directive, according to which reinsurance contracts with reinsurance undertakings having their head office outside the EU or the EEA (third-country reinsurers) are treated in the same way as reinsurance contracts with an EU/EEA reinsurer only if the European Commission has determined that the solvency regimes are equivalent.
In addition, Article 175 of the Solvency II Directive, concerning agreements between the EU and third-countries on the supervision of reinsurance undertakings, must be addressed. Under Article 175 (1) of the Solvency II Directive, the Commission may submit proposals to the Council regarding such agreements. As regards the substance, Article 175 (2) of the Solvency II Directive stipulates: ‘The agreements referred to in paragraph 1 shall in particular seek to ensure, under conditions of equivalence of prudential regulation, effective market access for reinsurance undertakings in the territory of each contracting party and provide for mutual recognition of supervisory rules and practices on reinsurance. They shall also seek to ensure the following:
that the supervisory authorities of the Member States are able to obtain the information necessary for the supervision of reinsurance undertakings which have their head offices situated in the Community and conduct business in the territory of third countries concerned;
that the supervisory authorities of third countries are able to obtain the information necessary for the supervision of reinsurance undertakings which have their head offices situated within their territories and conduct business in the Community.’.
Such a bilateral agreement on supervisory measures for insurance and reinsurance was concluded in 2017 between the EU and the USA.[9] The facilitations provided for in this agreement for the cross-border conduct of reinsurance business require, amongst other things, that the ‘reinsurer assuming the risk’ confirms to the – from its perspective, foreign – supervisory authority in the country of operation (‘host supervisory authority’) that it has consented to the jurisdiction of the courts of the state in which the ceding insurer, i.e. the reinsurance policyholder, has its head office or is domiciled.[10] Furthermore, additional written concessions from the risk-accepting reinsurer are required, in particular regarding the service of process and the enforcement of judgments.[11]
Finally, reference should also be made to the ‘Opinion on the use of risk mitigation techniques by insurance and reinsurance’ published by EIOPA, together with its annexes, which is a non-binding opinion based on Article 29 (1) (a) of the EIOPA Regulation.[12]
2. German Insurance Supervision Act (Versicherungsaufsichtsgesetz, VAG)
The Solvency II Directive has been transposed into German law primarily through the Insurance Supervision Act (Versicherungsaufsichtsgesetz, VAG). The provisions relating to undertakings established outside the EU/EEA are set out in sections 67 et seq. of the Insurance Supervision Act (VAG). Regarding solvency requirements, Section 86 of the Insurance Supervision Act (VAG) – implementing Article 81 of the Solvency II Directive – contains a provision on the amounts recoverable from reinsurance contracts.[13]. Section 105 of the Insurance Supervision Act (VAG) contains provisions for determining the ‘counterparty default risk module’, which encompasses risk mitigation contracts such as reinsurance agreements.
In connection with the recognition of reinsurance cover as a risk mitigation technique, particular reference should be made to Section 298 (3) of the German Insurance Supervision Act (VAG). The provision reads: ‘The supervisory authority may reject a reinsurance or retrocession contract concluded by an insurance undertaking with a reinsurance undertaking or a primary insurance undertaking authorised in accordance with Article 14 of Directive 2009/138/EC only on grounds not directly related to the financial soundness of the other undertaking.’ The provision is systematically situated in Part 6 ‘Supervision: Tasks and General Powers, Organisation’, as it limits the powers of the supervisory authority. It serves to implement Article 32 of the Solvency II Directive. The purpose of the provision is that, under the Solvency II system, financial supervision of an undertaking is the sole responsibility of the supervisory authorities of the home Member State; consequently, supervision of a reinsurer providing reinsurance cover falls to the supervisory authorities of the Member State in which the reinsurer has its registered office. This division of responsibilities is also safeguarded by Article 32 of the Solvency II Directive in cases where the supervisory authorities of the reinsured undertaking are required, as part of their supervision of that undertaking, to consider the financial soundness of the reinsurance cover.[14]
It is neither possible nor necessary within the scope of this article to examine Section 298 (3) of the Insurance Supervision Act (VAG) in detail. It suffices to say that, according to the prevailing view, the transposition of Article 32 of the Solvency II Directive has not been successful.[15] However, what is significant for the subject matter of this article is the converse implication of the provision, namely that the supervisory authority is authorised to ‘reject’ a reinsurance contract or retrocession contract, unless the ground for rejection lies directly in the financial soundness of the risk-accepting reinsurer.[16] Section 298 (3) of the Insurance Supervision Act (VAG) is silent on the legitimate grounds for rejection. These grounds arise from the provisions of the Delegated Regulation (EU) 2015/35 and the Insurance Supervision Act (VAG), which – as demonstrated – impose specific requirements on the prudential treatment of reinsurance cover.[17] The ‘rejection’ of the reinsurance contract – Article 32 of the Solvency II Directive refers to the ‘refusal’ of the reinsurance contract – is therefore not directed directly against the reinsurance contract itself, but against its prudential ‘recognition’[18] (cf. the wording of Article 101 (5) of the Solvency II Directive; Articles 209 and 211 of the Delegated Regulation (EU) 2015/35), in particular in the context of solvency requirements as a risk mitigation technique.
3. Overall picture of the prudential recognition of reinsurance cover as a risk mitigation technique
From a legal policy perspective, the European prudential regulation of the recognition of reinsurance cover as a risk mitigation technique within the framework of solvency requirements primarily pursues two objectives: On the one hand, the aim is to eliminate the previous system of mandatory collateral deposits under national law to secure the fulfilment of the obligations of the risk-assuming reinsurer, as well as requirements regarding the reinsurer’s presence in the country of the risk-transferring undertaking; and, on the other hand, to ensure, by other means, that reinsurance cover is as effective as possible within the risk-based Solvency II framework and is appropriately assessed as a specific risk factor.[19]
It must be recognised in this regard that, ultimately, supervisory law is not in a position to guarantee the validity and enforceability of reinsurance cover under private law. The scope of supervisory law does not extend that far; nor is that the purpose of supervisory law.
The limitations of supervisory law are evident, for example, in the fact that Article 209 (1) (a) of the Delegated Regulation (EU) 2015/35 stipulates, as a qualitative prerequisite for the recognition of reinsurance cover as a risk mitigation technique, that ‘the contractual arrangements … and the risk transfer must be legally valid and enforceable in all relevant legal systems’. This lofty standard is, however – understandably – qualified by Article 210 (4) of the Delegated Regulation (EU) 2015/35 to reflect what is feasible under supervisory law, by focusing on contractual terms of the reinsurance contract that could jeopardise its validity and lie outside the sphere of influence of the risk-transferring undertaking (lit. a) and to ‘related transactions […] which could impair the effective transfer of risk’ (lit. b).
It must be acknowledged that supervisory law – within the limits just described – does indeed contribute to promoting the contractual validity of reinsurance cover, including its enforceability. One example is the prudential obligation on the risk-transferring undertaking to take all necessary measures to ensure the effectiveness of the agreement and to address the risks associated with it (Article 209 (1)(b) of the Delegated Regulation (EU) 2015/35.[20] In precisely this sense, Article 210(1) of the Delegated Regulation (EU) 2015/35 also requires, for example, that the contractual agreement ensures that ‘the scope of the cover achieved through it and the risk transfer are clearly defined and uncontested’. This also includes the comprehensive requirements agreed by the European Commission in agreements with third-countries pursuant to Article 175 of the Solvency II Directive, such as ensuring that the third-country reinsurer assuming the risk is subject to the jurisdiction of the courts within the EU.[21]
III. On the contractual validity of reinsurance cover
As already mentioned, the civil law framework for assessing the validity of a reinsurance contract is provided not by supervisory law but by civil law. Let us therefore turn our attention to this. Up front, it should be noted that substantive contract law always concerns national reinsurance contract law, given that – despite the international nature of the reinsurance business – there is yet no state-enacted, international or supranational law governing reinsurance contracts.
1. Private international law
Regarding the contractual validity of reinsurance cover in cross-border reinsurance arrangements, private international law (PIL) is initially responsible for determining the law applicable to a reinsurance contract with a foreign element. For EU/EEA countries the Rome I Regulation is the governing law in this context ().[22] Accordingly, the parties to a reinsurance contract are free to choose the law applicable to their contractual relationship. In reinsurance practice, this option to choose the applicable national contract law is regularly exercised. In the absence of a (valid) choice of law, the law applicable to the reinsurance contract must be determined objectively (so-called ‘objective connecting factor’). However, there is considerable legal uncertainty regarding the content of the objective connecting factor under the Rome I Regulation – as is the case in many national conflict-of-laws regimes. It is disputed whether the contract law of the state in which the risk-accepting reinsurer is domiciled or the contract law of the state in which the risk-transferring undertaking is domiciled applies.[23]
2. National reinsurance contract law: Lack of statutory provisions and of case law
Even if, for a reinsurance contract with a cross-border element, the applicable national reinsurance contract law – the so-called ‘substantive law’ – is determined by means of private international law, there is nevertheless usually considerable legal uncertainty regarding the reinsurance-specific content of the applicable substantive law. This applies particularly in countries with a continental European legal tradition, as specific statutory provisions are generally lacking there.[24] The legal situation in Germany is exemplary: Section 209 of the Insurance Contract Act (Versicherungsvertragsgesetz, VVG) stipulates that this Act does not apply to reinsurance. It is generally accepted that an analogous application of the VVG, which is geared towards consumer protection, is out of the question. The legal assessment of a reinsurance contract is therefore subject, under German law, to general civil and commercial law, and in particular – via Section 346 of the German Commercial Code (Handelsgesetzbuch, HGB) – to the commercial practices of the reinsurance business. However, the existence and content of an (international) reinsurance commercial practice can only be determined with a high degree of legal uncertainty. [25]
Furthermore, in countries with a continental European legal tradition, such as Germany, there is no significant case law on reinsurance contracts that would fill the gap in statutory law and be open to further legal development. This is because, in the event of a dispute, the parties resort to arbitration tribunals, whose awards are usually subject to confidentiality agreements, meaning that they, too, cannot be relied upon as a source of legal guidance. Given this state of legislation and case law, the legal assessment of a reinsurance contract is characterised by enormous legal uncertainty.
In common law jurisdictions, the picture is somewhat different, as they generally have a well-developed body of reinsurance contract law or are modelled on the developed Anglo-American reinsurance law. However, even in this respect, there are significant legal differences between the individual legal systems, even in core areas of reinsurance contract law, for example with regard to the interpretation of a ‘follow-the-settlement’ agreement.[26] Legal uncertainty also frequently arises in individual national common law countries, as case law on reinsurance contract law is not extensive enough to provide recognised, unambiguous legal principles.
3. The primacy of private autonomy in the light of changing economic and legal conditions
Notwithstanding the specific legal shortcomings just highlighted, the reinsurance sector has, in general, proved to be a viable and thriving industry worldwide. This is since, in the past, the parties involved have made professional use of the private autonomy available to them in the absence of statutory law. Thus, the reinsurance business has traditionally been characterised to a particular degree by mutual trust and by the contracting parties’ shared interest in ongoing contractual relationships.[27]
However, the framework conditions have changed in recent decades, and this has led to greater scrutiny of the functioning of reinsurance and, specifically, of the effectiveness of reinsurance cover. From a legal perspective, this applies not only to the expansion and intensification of supervision, including of reinsurance undertakings under the Solvency II regime, but also, for example, to the tightening of company law in many legal systems. It also applies in view of other changes in the regulatory environment, such as increased international competition, particularly from providers outside the traditional reinsurance centres and their legal systems.
The changed economic, corporate and supervisory framework conditions have brought reinsurance contract law more firmly into focus and given rise to calls for greater transparency and legal certainty in contractual relationships, particularly where, as is often the case, reinsurance is underwritten on a cross-border basis.
IV. The Principles of Reinsurance Contract Law (PRICL), particularly regarding the contractual validity of reinsurance cover
1. The PRICL: a joint project involving academia and the legal profession
The growing need for greater legal certainty in the field of reinsurance prompted an international project group of academics and practitioners in 2016 to draw up Principles of Reinsurance Contract Law (PRICL). [28] The PRICL Group collaborates with the International Institute for the Unification of Private Law (UNIDROIT), which is supported by 65 member states. The final version of the PRICL was published in November 2025.[29]
The PRICL are not statutory contract law, but ‘soft law’ which the contracting parties may optionally agree to use as the basis for the legal assessment of their contractual relationship.[30] The Principles are drafted in the style of statutory provisions (‘Articles’); accompanying ‘Comments’ explain the rules, and ‘Illustrations’ demonstrate their application using typical examples.
The PRICL provide the parties to reinsurance contracts with a system of rules developed on a broad international basis and applicable worldwide, which they can make binding on their contractual relationship through a choice of law. The PRICL simplify the application of the law, enhance legal certainty and offer a party-neutral legal framework. The application of the law is simplified because, based on the agreed applicability of the PRICL, the contracting parties can focus on any specific features of their contractual relationship. Legal certainty is enhanced because the PRICL fill the legislative gaps in national laws with fully formulated and annotated rules. Added to this is the neutrality of this legal framework, which no longer derives from a national legal system determined unilaterally in favour of one party, whether through a conflict-of-laws connection to the registered office of only one of the contracting parties or through a conflict-of-laws choice of law, depending on the greater economic bargaining power of one contracting party.
Even if a dispute arising from a reinsurance contract is not subject to the PRICL due to a lack of agreement to apply them, the PRICL – as reinsurance practice cast in model rules – can provide guidance to courts and arbitral tribunals to arrive at globally recognised, practice-oriented solutions within the framework of national law.
2. The contribution of the PRICL to the effectiveness of reinsurance cover
The PRICL comprise provisions addressing the typical core legal issues that arise in connection with a reinsurance contract.[31] In this respect, it is evident that the very process of identifying established principles of reinsurance contract law as practised and formulating them in the manner of legal provisions represents a gain in legal certainty. For, as already mentioned, many legal systems lack specific provisions on reinsurance contract law as well as relevant case law, and since it is extremely difficult to ascertain the content of unwritten international commercial customs with any degree of legal certainty.
Added to this is the fact that key terms in international reinsurance practice are sometimes used with varying, confusing, or even contradictory meanings.[32] This is not surprising given the international nature of the legal relationships; however, the extent of this phenomenon in the reinsurance sector is particularly striking – on the one hand, likely a consequence of the lack of codification of reinsurance contract law and the absence of case law ensuring uniformity and coherence; on the other hand, likely also a consequence of the long-standing understanding of a reinsurance contract as a ‘gentlemen’s agreement’.
The PRICL also enhance legal certainty through the systematic legal structure that is necessarily associated with the formulation of the provisions. This applies to all chapters of PRICL, but particularly to the description of the essential obligations of the contracting parties and to the appropriate remedies in the event of breaches of duty.
The (formal) enhancements to legal certainty described above also promote the intended effectiveness of reinsurance cover. For the contracting parties, who are still required to enter into contractual arrangements suited to their needs in the exercise of their freedom of contract, will in future be able to do so on the clear conceptual and terminological basis provided by the PRICL.
The effectiveness of the reinsurance cover is also strengthened in substance by PRICL. Thus, in the event of a breach of duty, the right to retroactive avoidance of the contract applies only in very exceptional circumstances. In principle, the legal remedies provided for in the PRICL are aimed at maintaining the reinsurance contract, even where the reinsured party has breached the pre-contractual duty of disclosure,[33] and even where a party to the contract asserts a claim for payment with fraudulent intent (fraudulent claim).[34] This is in line with the typical interests of the contracting parties, but certainly also with the objectives of supervisory law outlined at the beginning of this article.
V. Outlook
It has become apparent that neither insurance supervisory law nor insurance contract law can guarantee the validity of contractually agreed reinsurance cover. Only the contracting parties themselves can do so, through the clarity and unambiguity of their contractual agreements and through conduct in accordance with the contract during its performance.
Ideally, supervisory law and contract law – within the limits of their respective systems – do at least provide a suitable basis for the contracting parties to enter into legally secure agreements and to enforce the resulting claims in a legally secure manner.
In this respect, it is to be welcomed that the Solvency II supervisory framework, as part of its provisions on the recognition of reinsurance cover as a risk-mitigation technique in the calculation of solvency capital requirements, also imposes requirements on the contractual arrangements governing reinsurance cover.
Contract law governing reinsurance contracts, on the other hand, offers no basis for contractual and legal certainty in many legal systems – particularly those of the continental European legal tradition – as there is generally a lack of specific statutory law and case law.
The Principles of Reinsurance Contract Law (PRICL), an international collaborative effort involving academia and the legal profession, are well-suited to compensating for the shortcomings of statutory law. They provide greater conceptual and definitional clarity, predictability of (dispute) decisions and legal certainty for reinsurance transactions. This benefits the contracting parties, who may, by choosing the applicable law, subject their contract to the PRICL, and it benefits state courts or arbitral tribunals which, in the event of a dispute, are called upon to adjudicate. It also serves the objectives of supervisory law, as a sound contractual legal framework increases the likelihood that reinsurance cover will be effective.
[1] The arguments set out in this article apply equally to the transfer of risk between reinsurers – that is, retrocession – without this being explicitly stated in the text below. Where necessary for the sake of clarity, the terms ‘risk-transferring undertaking’ (i.e. a primary insurer or a reinsurer in the case of retrocession) and ‘risk-accepting reinsurer’ are used below.
[2] H. Heiss/M. Wandt (eds.), Principles of Reinsurance Contract Law (PRICL), UNIDROIT, Rome 2025, pp. 1–386; www.pricl.org.
[3] Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) of 25 November 2009, OJ L 335, 17 December 2009, p. 1.
[4] Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), OJ L 12, 17 January 2015, p. 1.
[5] Recital 5 of Directive 2005/68/EC of 16 November 2005 on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC, and Directives 98/78/EC and 2002/83/EC, OJ L 323/1 of 9 December 2005.
[6] See recital 40 of Directive 2005/68/EC; Vogelgesang/Horak, in Langheid/Wandt (eds.), MünchKomm VVG, 3rd ed., Munich 2024, vol. 3, chap. 25, para. 100 et seq.
[7] See, inter alia – without claiming to be exhaustive – Commission Delegated Decision (EU) 2015/1602 of 5 June 2015 on the equivalence of the solvency and supervisory regimes applicable in Switzerland to insurance and reinsurance undertakings, OJ L 248, 24 September 2015, p. 958; Commission Delegated Decision (EU) 2016/309 of 26 November 2015 on the equivalence of the supervisory regime applicable in Bermuda to insurance and reinsurance undertakings, OJ L 58, 4 March 2016, p. 50; Commission Delegated Decision (EU) 2016/310 of 26 November 2015 on the equivalence of the Japanese solvency regime for insurance and reinsurance undertakings, OJ L 58, 4 March 2016, p. 55.
[8] See also Articles 41 and 42 of the Delegated Regulation.
[9] Bilateral Agreement between the European Union and the United States of America on supervisory arrangements for insurance and reinsurance, OJ L 258/20 of 6 October 2017. See also the BaFin information sheet ‘Conduct of reinsurance business by US reinsurers with a primary or reinsurance undertaking in Germany’ dated 18 September 2019.
[10] Article 3 (4) (d) first sentence of the Agreement. The second sentence of this provision stipulates that this Agreement does not restrict or alter the ability of the parties to a reinsurance contract to agree on an alternative dispute resolution mechanism. This provision is particularly significant given the prevalence of arbitration in the reinsurance business.
[11] Article 3(4)(e)–(g) of the Agreement (“where the ceding reinsurer opposes the enforcement of a final judgement that is enforceable under the law of the territory in which it was obtained, or where it opposes a duly enforceable arbitral award obtained by the ceding insurer or its liquidation estate”).
[12] EIOPA-BoS-21/036, Opinion on the use of risk mitigation techniques, dated 9 July 2021; EIOPA-BoS-25-267, Opinion on the use of risk mitigation techniques: mass-lapse reinsurance – Annex 1, dated 15 July 2025; EIOPA-BoS-25-288, Opinion on the use of risk mitigation techniques: termination clauses in reinsurance agreements – Annex 2, dated 15 July 2025.
[13] The directly applicable detailed provisions in this regard are set out in Article 41 (1), (3) and (5) of the Delegated Regulation (EU) 2015/35.
[14]Dreher/Dreher, Insurance Supervision Act, Munich, 14th ed. 2024, VAG § 298, para. 125.
[15] The wording is incorrect, as the authorisation of insurance undertakings is governed not by Article 14 of the Solvency II Directive but by the Insurance Supervision Act (VAG); see, correctly, Dreher/Dreher, Insurance Supervision Act, 14th ed., Munich 2024, VAG § 298 para. 127. Concerns regarding legislative drafting are also raised by Bähr in Kaulbach/Bähr/Pohlmann (eds.), Insurance Supervision Act, 6th ed., Munich 2019, VAG § 298 paras. 23 and 26.
[16] The element ‘other undertaking’ refers to the reinsurer providing the reinsurance cover, as is evident from the purpose of the provision and is clearly stated in the wording of the underlying Article 32 of the Solvency II Directive; see Dreher/Dreher, Insurance Supervision Act , 14th ed., Munich 2024, VAG § 298, para. 126.
[17]In view of the background and purpose of Section 298 (3) of the German Insurance Supervision Act (VAG), the view that the possible grounds for rejection can be derived from Section 298(2) of the VAG (with the exception of point 3 thereof), see Bähr in Kaulbach/Bähr/Pohlmann (eds.), Insurance Supervision Act, 6th ed., Munich 2019, VAG § 298, para. 26; Brand in Brand/Baroch Castellvi (eds.), Insurance Supervision Act – Handbook Commentary, 2nd ed., Munich 2024, VAG § 298, para. 56a, should be rejected;.
[18] As correctly noted by Bähr in Kaulbach/Bähr/Pohlmann (eds.), Insurance Supervision Act, 6th ed., Munich 2019, VAG § 298, para. 28.
[19] See also Art. 42 of the Delegated Regulation (EU) 2015/35 (adjustment for counterparty default risk ); Section 105 VAG.
[20] See also Article 48 (1) (h) of the Solvency II Directive; Section 26 (5) and (6) of the VAG on the scope of the risk management system.
[21] See Article 3 (9) of the Agreement between the EU and the USA, footnote 9 above.
[22] Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), OJ L 177, 4 July 2008, p. 6, corr. OJ L 309, 24 November 2009, p. 87, except for Denmark.
[23] See Looschelders in Langheid/Wandt (eds.), MünchKomm. VVG, 3rd ed., Munich 2024, Vol. 3, Ch. 15, para. 216 et seq.
[24] For further details, see H. Heiss/M. Wandt, ‘Introduction to the Principles of Reinsurance Contract Law’, in H. Heiss/M. Wandt (eds.), Principles of Reinsurance Contract Law (PRICL), UNIDROIT 2025, p. 1 (7 et seq.).
[25]See K. Gerathewohl, ‘Reinsurance Principles and Practice’, Vol. I, 1980, pp. 488; Bork, ‘Tension in Reinsurance: The Reinsurer’s Obligation to Follow Through in the Light of the Primary Insurer’s Discretion in Settlement’, 2020, p. 74. – See, in this regard, with reference to Thomas Mann, *Buddenbrooks*, 1901, Chapter 8, and also Wandt, ‘The Principles of Reinsurance Contract Law (PRICL) – An Overview’, in: Krieger/Lieder/Reichert/Schmidt (eds.), ‘Festschrift für Walter Bayer’, 2026.
[26] See H. Heiss/M. Wandt, ‘Introduction to the Principles of Reinsurance Contract Law’, in H. Heiss/M. Wandt (eds.), Principles of Reinsurance Contract Law (PRICL), UNIDROIT 2025, p. 1 (7); for a comprehensive discussion of the duty to follow, see Bork, Tension of Reinsurance: The Reinsurer’s Duty to Follow in the Light of the Primary Insurer’s Discretion in Settlement, Tübingen 2020.
[27] On reinsurance contracts as gentlemen’s agreements, see H. Heiss, ‘From Contractual Certainty to Legal Certainty in Reinsurance Transactions’, in: Peter Wahlgren (ed.), Scandinavian Studies in Law, Vol. 64 (Insurance Law) (2018) 91, 92 et seq. (with references).
[28] Under the lead of Helmut Heiss (University of Zurich), Manfred Wandt (Frankfurt am Main) and (until 2019) Martin Schauer (University of Vienna), with financial support from the Swiss National Science Foundation (SNSF), the German Research Foundation (DFG) and, until 2019, the Austrian Science Fund (FWF).
[29] H. Heiss/M. Wandt (eds.), Principles of Reinsurance Contract Law (PRICL), UNIDROIT, Rome 2025, pp. 1–386.
[30] There are several ways in which the PRICL can be utilised for the legal assessment of a reinsurance contract, although a distinction must be made between its applicability before an arbitral tribunal and before state courts. For further details, see H. Heiss/M. Wandt, ‘Introduction to the Principles of Reinsurance Contract Law’, in H. Heiss/M. Wandt (eds.), Principles of Reinsurance Contract Law (PRICL), UNIDROIT 2025, p. 1 et seq.; Wandt/Heiss/Bork in Langheid/Wandt (eds.), MünchKomm. VVG, 3rd ed., Munich 2024, Vol. 3, Ch. 33.
[31] The PRICL Project Group deliberately refrained from providing a comprehensive codification of reinsurance contract law. This was deemed unnecessary, as reinsurance practice – unlike contractual practice in the case of mass contracts, particularly consumer contracts – does not rely on a closed system of rules.
[32] R. Merkin/M. Mendelowitz, ‘Reinsurance: finding the balance between reinsurers’ and reinsureds’ interests’, in J. Burling/K Lazarus (eds.), Research Handbook on International Insurance Law and Regulation, Cheltenham 2011, p. 146 (165 ff.) (“often confusing and contradictory language”); P. T. O’Neill/F. Arnold-Dwyer, The Law of Reinsurance (in England and Bermuda), 6th ed., London 2024, para. 1-018 (“Unfortunately, those who work in reinsurance do not bind themselves by precise definitions”); see also K. Gerathewohl, Reinsurance Principles and Practice, Vol. I, Karlsruhe 1980, p. 488.
[33] Art. 3.2 PRICL.
[34] Art. 3.3 PRICL.