Reinsurance assets from non-APRA-authoriReinsurance assets from non-APRA-authorised reinsurers

Reinsurance assets from non-APRA-authorised reinsurers

Different treatment is accorded to certain reinsurance assets[10] from a ‘non-APRA-authorised reinsurer’[11] as specified in GPS 111 and GPS 114.

For Australian business, the applicable investment risk charge is calculated in accordance with GPS 111 based on whether the amount is recoverable from ‘APRA-authorised reinsurers’[12] or non-APRA-authorised reinsurers. In addition, different investment risk charges apply to reinsurance recoverables from non-APRA-authorised reinsurers on and from the second annual balance date after the event giving rise to the reinsurance recoverable. These risk charges apply only to the extent that the reinsurance recoverables arise under reinsurance contracts incepting on or after 31 December 2008 and are not supported by collateral, guarantee or a letter of credit[13].

A different treatment is accorded to reinsurance assets for international business consolidated into the Level 2 insurance group. When calculating the investment risk capital charge on reinsurance assets for international business, paragraph 32 of GPS 111 requires that:

(a) the investment capital factors set out in GPS 114 that apply specifically to reinsurance assets receivable from non-APRA authorised reinsurers do not apply in respect of those entities; and

(b) the investment capital factors referable to reinsurance recoverables from APRA-authorised reinsurers must be used for all reinsurance assets of those entities.

The reinsurance recoverables on international business will, in effect, attract an investment risk capital charge according to the capital factors which apply to reinsurance recoverables from APRA-authorised reinsurers.

Where reinsurance recoverables are supported by collateral, guarantee or a letter of credit, only the risk charges applying to the counterparty providing the support will be applied.

For the purposes of determining the amount of reinsurance recoverables, if there is an offsetting arrangement between the Level 2 insurance group and the reinsurer that results in premium being withheld by the Level 2 insurance group in lieu of claim payments, the withholding of that premium is taken to be payment. However, if there is a requirement for offsets to be approved by the reinsurer the date of the offset request is taken to be the date of the request for payment.