Starting 1 January 2025, Dutch insurers will be required to secure prior approval from the Dutch Central Bank (DNB) before amending or entering into asset-intensive reinsurance agreements that permit a reinsurer to hold assets in a non-EU country.
This new mandate, stemming from the Dutch Financial Markets (Amendment) Act 2024, applies to any reinsurance contract involving asset transfers outside the EU, except where the agreement explicitly prohibits such transfers.
Law firm Stibbe has provided insights into the implications of this regulatory change, offering guidance on the compliance processes required for insurers operating under the amended rules.
Under the Amendment Act, DNB’s consent hinges on whether the prudent person principle, outlined in Article 132 of the Solvency II Directive, can be upheld within the reinsurance structure. DNB will examine if an insurer’s claims on a reinsurer align with this principle, both under normal conditions and in scenarios where the reinsurer faces insolvency.
According to Stibbe, this review aims to ensure that Dutch insurers maintain compliance with the prudent person principle in their mandatory asset reporting, thereby addressing concerns about recovery risk, regulatory alignment, and the potential challenges posed by third-country legal frameworks.
Stibbe said that asset-intensive reinsurance agreements are common in Europe since the Solvency II Directive, especially among Dutch insurers with long-term liabilities, such as funeral and life insurance providers.
These agreements often include asset transfers, where reinsurers derive income not only from reinsurance premiums but also from investment returns on the transferred assets.
To initiate the DNB consent process, insurers must submit requests through DNB’s online platform, MijnDNB, under the new Article 122a of the Dutch Decree on Prudential Rules.
Stibbe noted that applications require substantial documentation, including details of the reinsurance agreement, any surety agreements, asset valuations, geographical data on collateral, creditworthiness analyses, and an internal risk assessment verifying compliance with the prudent person principle.
DNB is expected to process requests within a six-week review period, which may be extended to 13 weeks.
A draft Q&A from DNB, currently under consultation, provides additional context for insurers preparing to meet these requirements. Stibbe points out that the Q&A specifies which types of reinsurance are expected to fall under “asset-intensive” classification, noting that reinsurance without a capital accrual component may be exempt.
Additionally, DNB plans to adopt a “proportional approach,” allowing shorter documentation requirements for non-material asset-intensive reinsurance agreements. This approach, if implemented, could ease the administrative burden associated with the new regulation.
Stibbe advised insurers to prepare for the increased documentation and review timelines involved in these reinsurance agreements. Insurers and non-EU reinsurers will also need to review DNB’s final Q&A, once adopted, to clarify compliance expectations and streamline their operational processes under the new consent requirements.
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