ITALY Law and Practice Contributed by: Giovanna Aucone and Debora Gobbo, FIVERS Studio Legale e Tributario
the reinsurance contract, therefore, the general rules on contracts and obligations apply.
structures, and regulatory arbitrage. Where complex reinsurance structures are involved or where super- visory authorities are required to co-ordinate and co-operate in the assessment of arrangements with cross-border relevance, the EIOPA “Opinion on the use of risk-mitigation techniques” (July 2021) recom- mends that insurance undertakings engage in an early dialogue with their supervisory authorities. As ART arrangements qualify as risk-mitigation tech- niques, insurance undertakings making use of such structures are required to disclose them to IVASS in the Solvency and Financial Condition Report (SFCR), providing a description of the purpose and main char- acteristics of the contract, the key risks covered, the applicable accounting treatment, and the economic, financial and balance-sheet effects on the ceding undertaking, including any relevance for compliance with prudential supervisory requirements. 7.2 Foreign ART Transactions The regulatory treatment of cross-border reinsur- ance and ART transactions follows a differentiated approach, depending on whether the risk is trans- ferred to a traditional (re)insurance undertaking or to a special purpose vehicle (SPV). Traditional reinsurance contracts are recognised for solvency purposes where the counterparty qualifies as an eligible reinsurer under the Solvency II frame- work. In particular, the reinsurer must be: (i) an insur- ance or reinsurance undertaking that complies with the Solvency Capital Requirement; (ii) an insurance or reinsurance undertaking established in a third country whose solvency regime is deemed equivalent or tem- porarily equivalent pursuant to Article 172 of Direc- tive 2009/138/EC and which complies with the appli- cable third-country solvency requirements; or (iii) an insurance or reinsurance undertaking established in a non-equivalent third country, provided that its credit quality is assigned to credit quality Step 3 or better in accordance with Commission Delegated Regula- tion (EU) 2015/35. Where these conditions are met, reinsurance contracts are generally recognised for solvency purposes without further structural equiva- lence assessments.
7. Alternative Risk Transfer (ART) 7.1 ART Transactions ART Transactions fall within the definition of “risk-mit- igation technique” pursuant to the Solvency II Direc- tive and the CAP. ART transactions are recognised as instruments combining both insurance and financial components, characterised by the following distinc- tive features: • they are structured on a tailor-made basis to meet the specific needs of the risk-taker; • they provide multidimensional coverage, typically on a multi-year and/or multi-risk basis; • they shift the focus from pure risk transfer to risk financing mechanisms; • they allow risk to be assumed by entities other than traditional (re)insurance undertakings; and • they incorporate financial instruments, such as derivatives. More generally, ART arrangements enable the transfer of insurance risk to non-insurance entities, including investors and capital markets. In essence, ART trans- actions are characterised by the presence of an alter- native counterparty and/or an alternative risk-transfer or risk-financing instrument. Where such instruments meet the conditions set out in the Commission Delegated Regulation (EU) 2015/35 – including the relevant qualitative requirements, the effective transfer of risk, and the legal effectiveness and enforceability of the contractual arrangements in all relevant jurisdictions – the reinsurance treaties or arrangements entered into with reinsurers or SPVs may be recognised for the purposes of calculating the capital requirements. From a supervisory standpoint, ART transactions may present structural complexity of the arrangements, the need to clearly demonstrate effective risk transfer (as opposed to mere risk financing), the valuation and modelling of embedded financial components, poten- tial legal and operational risks arising from multi-party
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