Definition: Finite reinsurance

Category: EU legislation

"Finite reinsurance" means reinsurance under which the explicit maximum loss potential, expressed as the maximum economic risk transferred, arising both from a significant underwriting risk and timing risk transfer, exceeds the premium over the lifetime of the contract by a limited but significant amount, together with at least one of the following two features:

(i) explicit and material consideration of the time value of money,
(ii) contractual provisions to moderate the balance of economic experience between the parties over time to achieve the target risk transfer.
European Union, Directive (EC) No 2005/68 of the European Parliament and of the Council of 16 November 2005 on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC as well as Directives 98/78/EC and 2002/83/EC (Official Journal of the European Union No L 323, 9/12/2005)