On 7 November the French government passed the long awaited decree finalising the implementation of the Reinsurance Directive into French legislation. An ordinance published on 13 June 2008 had set out the legislative framework of the new reinsurance regulations. However, most of the ordinance provisions still needed to be implemented by a decree to become fully applicable. This decree was finally published on 9 November along with an order (arrêté), and is applicable as of that date. The decree is generally in line with a draft decree published during the public consultation.
One of the most important changes introduced by the decree is the abolition of the statutory collateralisation requirements for reinsurance ceded. Under the decree, liabilities ceded to a reinsurer established within the EEA can be represented by a receivable by such reinsurer, without conditions. Before the implementation of the decree, liabilities ceded by French cedants could not be represented by a receivable on the reinsurers; only the collateral was admitted as an asset for the purposes of covering technical reserves.
However, reinsurance ceded to non-EEA reinsurers will still need to be collateralised in order to obtain regulatory capital relief as the decree specifies that “the technical reserves [ceded to a non-EEA reinsurer] can be represented by a receivable on this company, in the limit of the amount guaranteed” (ie, collateralised). In that case, the collateral must comply with certain conditions and take specific forms, such as a pledge of securities or of a bank guarantee (such as a letter of credit) set out in the French insurance code.
Despite the abolition of collateralisation requirements, parties to a reinsurance arrangement will still be allowed to agree on contractual collateral arrangements. Contractual collateralisation is flexible as it does not need to comply with the rules set out in the insurance code. A range of collateralisation options will be possible, including partial collateralisation, trust arrangements, collateralised letters of credit, or progressive collateralisation depending on, among other things, the credit rating of the reinsurer. It is likely that collateralisation will become a key point in the negotiation of cover renewals and particular attention will need to be paid to these legal arrangements.