This control is conducted in advance (license application, agreement for nomination of managers, etc.) and during the exercise of the activity (solvency margin, regular provision of quantified data, etc.).
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An indirect control may also be conducted on reinsurers via the authorities of foreign countries in which the reinsurers have an activity. This control may amount to the supervision by local authorities of the reinsurance contracts signed with the market’s ceding companies.
Some legislation requires the formation of deposits (premiums, claims). Other countries may even impose a deposit of a capital amount as collateral for the commitment of foreign reinsurers.
Finally, rating agencies also provide information on the financial soundness and the solvency of reinsurers.
Apart from the different kinds of control, constant legislative amendments made in the field of direct insurance compel reinsures to adapt. Consequently, the modifications brought about by Solvency II in Europe have not only altered insurers’ operating mode but they have also had significant impact on reinsurers.
Numerous non-European countries drew inspiration from Solvency II to compel companies under their authority to adapt to the level of excellence practiced in the most developed markets.
These legislative amendments oftentimes lead to an increase in reinsurance demand. To be in conformity with the new standards, many insurers had to cede more business in reinsurance, especially motor quota shares.