Reinsurers highlight key role of intragroup transactions in ensuring financial stability of subsidiaries


The Reinsurance Advisory Board (RAB) has published its comments on the Central Bank of Ireland’s (CBI) consultation paper on its guidance for (re)insurance undertakings on intragroup transactions and exposures.

In the RAB’s view, the CBI should explicitly recognise the potentially most important benefit of membership of a (re)insurance group: the diversification of risk. Intragroup transactions (IGTs) are an essential tool for facilitating the diversification of group-wide risks, which enhance the financial strength of a (re)insurance group and its subsidiaries.

The CBI must, therefore, be mindful that placing increased expectations on IGTs can undermine group diversification and financial strength. These, in turn, can have a negative impact on the subsidiaries the CBI wishes to protect.

Furthermore, much of the CBI guidance reiterates Solvency II rules, which establish a rich and comprehensive framework for the regulation of insurance groups and already cover both external and internal transactions. It is not immediately clear, therefore, why additional CBI requirements are required for internal transactions.

The CBI expects (re)insurers to have sufficient local substance and governance procedures in place to continue to operate during severe stress to the group or even failure. The CBI’s belief that a subsidiary should be able to withstand a failure of its group is highly concerning, as it undermines the framework for group supervision under Solvency II and so must be addressed.

The CBI’s recognition of its contribution to group supervision through its membership of the colleges of supervisors is welcome. However, the CBI should explicitly recognise that the extent of its oversight and monitoring of IGTs at undertaking level should be informed by, and may be reduced because of, its engagement in the colleges of supervisors.

Insurance Europe provides the secretariat of the RAB.