Reinsurance credit

Reinsurance credit is a cedant's right to carry as an asset, and deduct from its capital requirement, the share of liabilities transferred to its reinsurers. It is never automatic: prudential regimes condition it on the reality of risk transfer, on the reinsurer's authorization or rating, and sometimes on posting collateral where the reinsurer is not established in the jurisdiction. The problem it solves is apparent strength: a cedant booking as transferred a risk whose carrier is insolvent would show a balance sheet corresponding to nothing, which is exactly what the chain of retrocession failures of the 1990s demonstrated. Reinsurance credit therefore turns panel quality into an accounting quantity, and that is what makes it economically rational for a cedant to pay more for a better rated signature. The recent direction of travel in these regimes is to replace full collateral requirements with mutual recognition agreements between supervisors.

A European cedant places a layer in 2026 with a reinsurer not authorized in its jurisdiction. With no further measure it can carry none of the 23 million euros of ceded reserves as an asset and must hold the matching capital. Posting an irrevocable 23 million letter of credit restores the credit in full, at an annual cost of 185,000 euros, far below the cost of the capital thereby released.

Reinsurance credit, Crédit au bilan, Reinsurance credit risk, Admissibilité de la réassurance