Regulation on Risk Retention and Reinsurance Coverage Requirements

Based on Article 35, paragraph 1, subparagraph 1.1, of Law No. 03/L-209 on Central Bank of the Republic of Kosovo, as amended and supplemented by Law No. 05/L-150, as well as Article 4, paragraph 3, and Article 75, paragraph 5, of Law No. 05/L-045 on Insurance, the Board of the Central Bank, in its meeting held on 30 April 2024, approved the following:
REGULATION ON
RISK RETENTION AND REINSURANCE COVERAGE REQUIREMENTS
Article 1
Purpose and scope

1. The purpose of this regulation is to establish the requirements that insurers must maintain and
   follow concerning their obligations to insure, to a reinsurer, the insured risk which exceeds the maximum coverage limits as determined by this regulation.
2. This regulation shall apply to all insurers and branches of external insurers licensed by the CBK
   to operate in the Republic of Kosovo.
   Article 2
   Definitions
3. All the terms used in this regulation shall have the same meaning as the terms defined in Article 3
   of Law No. 05/L-45 on Insurance (hereinafter Law on Insurance), or according to the following definitions for the purpose of this regulation:
   1.1. Financial year – means the twelve month period beginning on 1 January and ending on 31
   December. For a newly licensed insurer, the initial financial year begins on the date of their licensing and ends on 31 December of the year they received their first licence. Thereafter, the financial year shall be from 1 January to 31 December of each calendar year;
   1.2. Insured event – means an event which, if it occurs, may give rise to the right to receive
   compensation from the insurance;
   1.3. Ceding – means the transfer of portion of the insured risk from an insurer to a reinsurer;
   1.4. Reinsurance – means the assignment of certain risks by an insurer to a reinsurer;
   1.5. Reinsurer – means the legal entity licensed to carry out reinsurance activities according to
   the provisions of the Law on Insurances;
   1.6. Risk retention – means the amount or part of the amount insured by the insurer, which is not
   reinsured (not assigned to the reinsurer);

1.7. Hidden agreements – means formal or informal agreements (oral or written) which are not
part of the reinsurance contract but which substantially modify a reinsurance agreement or
change the inherent transfer of insurance risk in the contract;
1.8. Sum insured – means the value for which the insurer and the insured have agreed or which
may be determined differently by the legislation in force and which determines the limit of the insurer's liability against the insured.
2. For the purposes of this regulation, the term insurer also includes the branch of the foreign insurer.
Article 3
Retention of risk for licensed insurers

1. Licensed insurers shall not retain a risk higher than 10% of their charter capital, for an insured
   event. For risks that exceed the maximum legal risk retention level of 10%, the insurer shall provide reinsurance coverage.
2. Insurers shall conclude reinsurance contracts only with reinsurers who are licensed to carry out
   reinsurance activities and who are subject to supervision in the country where the reinsurer has its headquarters.
3. Each insurer shall monitor the exposure to the accumulation of risks, as well as the exposure to the
   events of natural disasters, and in relation to this, maintain adequate reinsurance coverage.
4. The calculations for the limits under this Article shall be based on the annual financial statements
   audited and submitted to the CBK.
5. CBK may require other or additional reinsurance if it determines that this will protect
   policyholders' interests.
   Article 4
   Purchase of reinsurance coverage
6. All licensed insurers shall purchase the necessary reinsurance coverage for the difference between
   the risk that has been insured and the maximum level of risk retention.
7. Reinsurance coverage shall be active no later than 1 January for the following financial year and
   shall be summarized and submitted in the summary reinsurance plan, as well as updated during the calendar year if changes occur.
8. Underwriting the risk without full reinsurance coverage is not allowed. In case it is discovered that
   the underwritten risk was made without full reinsurance coverage, then the insurer shall be subject to punitive measures according to Article 7 of this regulation.
9. The insurer shall purchase new full insurance coverage for the underwritten risk within a period
   of ten days from the day of discovery of the lack of possession of full reinsurance coverage.
10. For reinsurance contracts, insurers shall purchase the necessary reinsurance coverage from
    reinsurers who shall have a rating no lower than BBB assigned by Standard & Poor's or its equivalents of Fitch and Moody's, or its equivalents from other rating agencies, acceptable to the CBK. The rating of the reinsurer by one of the relevant rating agencies according to this paragraph

shall be established no earlier than 18 months before the date of entry into force of the reinsurance contract.
6. The risk included in reinsurance shall match the risk taken in the adequate policy, i.e. the adequate
policies for active insurance and/or reinsurance respecting the continuity principle.
7. The reinsurance contract shall ensure the repayment of all contractual obligations arising from
insurance contracts even in cases of bankruptcy, insolvency or other financial difficulties of the insurer. The reinsurance contract shall not contain a clause whereby the reinsurer is guaranteed the right to terminate the contract as a result of the risk of insolvency or bankruptcy of the insurer.
8. Reinsurance contracts shall not contain an obvious transfer of financial risk instead of insurance
risk or be classified as finite reinsurance contracts.
9. Reinsurance contracts shall not contain clauses which enable the reinsurer to directly benefit from
the cash flow in any circumstance through specific conditions which limit the risk assumed in the reinsurance contract.
10. Reinsurance contracts shall not contain hidden agreements.
11. Any risk which is transferred in full (100%) to the reinsurer by the insurer and is not included in
the framework of regular agreements shall be supported by an individual written agreement which specifically describes the coverage, exclusions are and other elements accompanying the transferred risk.
12. The contract between the insurer and the reinsurer shall not contain provisions whereby a profit is
directly or indirectly guaranteed to the contracting parties.
Article 5
Submission of the reinsurance program

1. Insurers shall finalize their calculations for risk retention limits and prepare the reinsurance
   program based on their business plan for the next calendar year and submit it for review to the CBK, no later than 60 calendar days before the end of the financial year.
2. The reinsurance program shall, before being submitted to CBK, be approved by the Insurer's Board
   of Directors.
3. Insurers shall draft and implement their own reinsurance program, depending on the structure of
   their insurance portfolio, and determine and confirm that their reinsurance program and agreements provide sufficient coverage for specific and aggregate risks.
4. The reinsurance program shall contain at least the following items:
   4.1. calculation of the total aggregate of risks for each class of insurance retained;
   4.2. the maximum coverage table, created based on the calculations referred to in subparagraph
   4.1. of this paragraph;
   4.3. procedures, bases and criteria for determining the highest probability of losses that can result
   from the occurrence of a single event, from a certain risk assumed;
   4.4. the names of the reinsurers and their percentages of participation in the acceptance of risks;
   and

4.5. specific terms of contracts.
5. After reviewing the reinsurance program and before the start of the calendar year, the CBK may
reject it if it assesses that it does not meet the criteria set by the Law on Insurances and this regulation.
6. In the cases from paragraphs 2 and 5 of this Article, the CBK shall ask the insurer to make the
necessary adjustments so that the reinsurance program is in accordance with the legal and regulatory requirements.
7. Calculation of risk retention shall be updated every three months and submitted to CBK, based on
the latest records, within 30 days from the end of the quarter.
8. The board of directors and the chief executive officer of the insurer shall be directly responsible
for fulfilling the requirements of this regulation.
9. CBK may issue additional instructions for the implementation of this regulation.
Article 6
Reporting method and deadlines

1. Insurers shall report to the CBK the reinsurance program as well as all the data derived from the
   reinsurance contracts in accordance with the forms and instructions determined by the CBK.
2. Insurers shall report, in electronic form, to the CBK the requirements defined in paragraph 1 of
   this Article within a period of 30 days from the end of the quarter, as follows:
   2.1. balance until 31 March for the first quarter of the respective year;
   2.2. balance until 30 June for the second quarter of the respective year;
   2.3. balance until 30 September for the third quarter of the respective year;
   2.4. balance until 31 December for the fourth quarter of the respective year.
3. Notwithstanding paragraph 2 of this Article, insurers shall prepare and report to the CBK a report
   related to reinsurance data even after the audit of the financial statements.
4. CBK shall issue relevant instructions and define reporting forms for implementation of this
   regulation.
   Article 7
   Enforcement, remedial measures and civil penalties Violation of the provisions of this regulation shall be subject to administrative measures and penalties as defined in Law No. 03/L-209 on Central Bank of the Republic of Kosovo and Law No. 05/L-045 on Insurance.
   Article 8
   Repeal
   The Regulation on risk retention and insurance coverage requirements, dated 31 March 2016, shall be repealed upon the entry into force of this regulation.

Article 9
Entry into force
This regulation shall enter into force on 30 June 2024.
Bashkim Nurboja
Chairman of the Board of the Central Bank of the Republic of Kosovo