Get a plain-English read of Expected reinsurance recoveries (5)
Turn the raw legal text into a practical explanation grounded in Financial Sector (Collection of Data) (reporting standard) determination No. 23 of 2009 - GRS 210.1_G (2009) - Premiums Liabilities - Insurance Risk Charge.
Expected reinsurance recoveries means any amounts due to an insurer from a reinsurer that arise from the recognition of Premiums Liabilities referred to in the capital standards[15] and GPS 310. This is distinguished from reinsurance recoverables and forms part of reinsurance assets.
Recognition of expected reinsurance recoveries on premiums liabilities will vary according to the type of reinsurance contract:
- Proportional reinsurance and all facultative
Expected reinsurance recoveries on premiums liabilities are to be recognised, by the Level 2 insurance group, from the date the underlying risk is accepted by the reinsurer and the outwards reinsurance expense is recognised.
- Excess of loss
Where excess of loss reinsurance is used, the recognition depends on the basis of the cover being either on a ‘risks attaching during the period of reinsurance’ basis or ‘losses occurring during the period of insurance’ basis.
‘Losses occurring during the period of reinsurance’: A reinsurance cover provided on this basis covers risks that have been accepted in the prior periods and also risks that are accepted and attach in the current period of the reinsurance contract. Where their risk profile is evenly distributed throughout the year, Level 2 insurance groups must recognise 50 per cent of the reinsurance expense and expected reinsurance recoveries in the current period. The reinsurance expense and expected reinsurance recoveries for the remaining 50 per cent of the period are to be recognised at the midpoint of the period for the reinsurance cover for the remaining portion of the current year. Where the risk profile is not evenly distributed throughout the year, the Level 2 insurance group will need to recognise the apportionment of reinsurance expense and expected reinsurance recoveries on the same business pattern as their risk profile. For seasonal business, with all policies incepting on the one date, all reinsurance expense and expected reinsurance recoveries will need to be recognised from the date of acceptance by the reinsurer(s) of the reinsurance contract.
‘Risks attaching during the period of reinsurance’: A reinsurance cover provided on this basis covers only the policies written during the reinsurance year and there are no prior year exposures to the reinsurance contact. For these contracts the reinsurance expense and the expected reinsurance recoveries are to be recognised from the date of acceptance by the reinsurer.
Level 2 insurance groups should recognise expected reinsurance recoveries, which are calculated in accordance with GPS 311, but which are due from reinsurance arrangements that do not fully meet the reinsurance documentation tests specified in GPS 112 Capital Adequacy: Measurement of Capital (GPS 112).
Non-reinsurance recoveries (6)
Non-reinsurance recoveries are amounts that may be recovered under arrangements other than reinsurance arrangements, such as salvage, subrogation and sharing agreements.
For each line of business report the non-reinsurance recoveries associated with the premiums liabilities, estimated in a manner consistent with the methodology used in the most recent Insurance Liability Valuation Report prepared by the Group Actuary as defined in GPS 310.
The estimates of non-reinsurance recoveries expected to be received must be based on the nature of the expected claims and the history of non-reinsurance recoveries compared to claims.
Net PL - Central estimate (7)
For each line of business, report the central estimate, net of expected reinsurance and non-reinsurance recoveries, associated with premiums liabilities that are calculated in accordance with GPS 311.
Net PL - Risk margin (8)
For each line of business report the risk margin, net of expected reinsurance and non-reinsurance recoveries, associated with premiums liabilities that are calculated in accordance with GPS 311.
Total PL net of expected reinsurance and non-reinsurance recoveries (9)
Premiums Liabilities net of expected Reinsurance Recoveries and Non-reinsurance Recoveries are calculated as:
Net PL - Central Estimate; plus
Net PL – Risk Margin.
Do not enter a value as this is automatically calculated by the form.
PL Capital factor % (10)
This column states the insurance risk capital factor applicable to each line of Australian business. The capital factors are specified in Prudential Standard GPS 115 Capital Adequacy: Insurance Risk Capital Charge (GPS 115).
A different treatment applies to international business in this column (and Australian business reported as a single region). As part of the supplementary information provided to APRA, Level 2 insurance groups are required to have mapped their international business (and Australian business reported as a single region) to the Australian classes of business in order to assign an insurance risk capital charge. For international business (and Australian business reported as a single region), this column requires Level 2 insurance groups to report a weighted average capital factor which applies to the total of all the classes for each region.
PL Insurance risk charge (11)
This column represents the insurance risk capital charge applicable to premiums liabilities. For Australian business reported by class, the capital charge is calculated on the basis of risk capital factors specified in GPS 115. For international business (and Australian business reported as a single region) the insurance risk capital charge is calculated based on the weighted average capital factor reported for each region under 'Premiums Liability Capital Factor %' in this form. The premiums liability insurance risk capital charge is automatically calculated by the form.
The total of this column for direct business and reinsurance business is included in the calculation of the minimum capital requirement for the Level 2 insurance group (after allowance for Group adjustments).
Excess technical provision (12)
Include in this item the value of net insurance liabilities that are recognised in GRF 302.0_G Statement of Financial Position by Region (Level 2 Insurance Group) that are in excess of the premiums liabilities valued in accordance with GPS 310 in part A of GRF 210.1_G Premiums Liabilities – Insurance Risk Charge (Level 2 Insurance Group). This is calculated on a net basis as per the following:
For Australian business, the excess in premiums liabilities is calculated using the following items reported under ‘Australian business’ in GRF 302.0_G Statement of Financial Position by Region (Level 2 Insurance Group):
Item 13. ‘Unearned Premium’;
Less sum of:
Item 3.5.1 ‘Deferred reinsurance expense in relation to current policies’; plus
Item 3.7 ‘Deferred acquisition costs’;
Add Item 15 ‘Unexpired risk liability’
Less the net premiums liabilities on Australian business (direct and reinsurance business) as reported in GRF 210.1_G Premiums Liabilities – Insurance Risk Charge (Level 2 Insurance Group).
The value of excess technical provisions is to be reported in the ‘Total’ table for Part A under:
‘Total direct Australian business’; and
‘Total Australian reinsurance business’.
Where Australian business is reported as a single region, excess technical provisions should be reported under table 2 and table 4. The sum of these two values should be reported in the ‘Total’ table for Part A.
For international business, the excess in premiums liabilities must be determined separately for each geographic region. This is calculated using the following items reported under each geographic region in GRF 302.0_G Statement of Financial Position by Region (Level 2 Insurance Group):
Item 13. ‘Unearned Premium’;
Less sum of:
Item 3.5.1 ‘Deferred reinsurance expense in relation to current policies’; plus
Item 3.7 ‘Deferred acquisition costs’;
Add Item 15 ‘Unexpired risk liability’
Less the net premiums liabilities (on direct and reinsurance business) for the geographic region as reported in GRF 210.1_G Premiums Liabilities – Insurance Risk Charge (Level 2 Insurance Group).
For each region, the value of excess technical provisions is to be reported in:
table 2 for direct business; and
table 4 for reinsurance business.
Total excess technical provision
This is automatically calculated by the form and represents the sum of excess technical provisions for Australian business and each geographic region.
Any adjustments to excess technical provisions on premiums liabilities that are required due to intra-group transactions are to be reported under ‘Group adjustments to excess technical provisions’ in Part C of this form.