EIOPA opens consultation on the treatment of proportional reinsurance treaties with features that jeopardise the effectiveness of risk transfer

EIOPA has launched a consultation on proportional reinsurance treaties that may provide significant Solvency II capital relief without transferring equivalent economic risk.

The consultation targets treaty features such as:
• loss limits
• sliding-scale commissions
• claims-linked commissions
• mechanisms that economically shift risk back to the cedent insurer

EIOPA’s concern is straightforward:
some arrangements may formally qualify as risk mitigation while not delivering risk transfer proportionate to the SCR reduction obtained.

To address this, EIOPA proposes that insurers should:
• perform quantitative testing and simulations
• demonstrate that capital relief is commensurate with actual risk transfer
• justify the economic substance of the treaty

Where the transfer of risk is not considered sufficient, EIOPA proposes that the arrangement should not be recognised for SCR reduction purposes.

The consultation also reinforces EIOPA’s view that certain reinsurance commissions functioning like exposure-based payments should increase premium risk calculations under the standard formula.

The broader supervisory direction is clear:
European regulators are increasingly focusing on substance over form and scrutinising capital optimisation structures more aggressively.

For insurers and reinsurers, this likely means:
• greater scrutiny of structured reinsurance
• higher modelling and documentation expectations
• deeper review of transactions designed primarily for capital relief

Consultation open until 17 July 2026.