Get a plain-English read of Expected Reinsurance Recoveries
Turn the raw legal text into a practical explanation grounded in Financial Sector (Collection of Data) (reporting standard) determination No. 76 of 2008 - GRS 210.1 (2008) - Premium Liabilities - Insurance Risk Charge.
Expected reinsurance recoveries[5] means any amounts due to an insurer from a reinsurer that arise from the recognition of Premium Liabilities referred to in the capital standards and GPS 310 Audit and Actuarial Reporting and Valuation. 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 direct insurer, 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, insurers 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 of the insurer is not evenly distributed throughout the year, the insurer will need to recognise the apportionment of reinsurance expense and expected reinsurance recoveries on the same business pattern as their risk profile. For seasonal insurers, 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.
Insurers should recognise expected reinsurance recoveries, which are calculated in accordance with GPS 310 Audit and Actuarial Reporting and Valuation, 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.
Small insurers[6] may use accounting data as a proxy for APRA reporting purposes in valuing its premiums liabilities and expected reinsurance recoveries on premiums liabilities subject to a liability adequacy test and in applying that test a 75 percent level of sufficiency is used. Where accounting data is used as a proxy, the expected reinsurance recoveries on premiums liabilities amounts should be the amount determined as deferred reinsurance expense under AASB 1023.
Non-Reinsurance Recoveries
Non-reinsurance recoveries are amounts that may be recovered under arrangements other than reinsurance arrangements, such as salvage and subrogation.
For each line of business report the expected 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 Appointed Actuary.
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.
Premium Liabilities net of Expected Reinsurance Recoveries and Non-reinsurance Recoveries
Total premiums liabilities net of expected reinsurance recoveries and non-reinsurance recoveries is calculated as under:
Total Gross Premium Liabilities - Gross of expected reinsurance and non-reinsurance recoveries; less
Expected reinsurance recoveries; less
Expected non-reinsurance recoveries.
Do not enter a value as this is automatically calculated by the form.
PL Capital Factor %
This column states the insurance risk capital factor applicable to each line of business. The capital factors are specified in GPS 115.
PL Insurance Risk Charge
This column represents the insurance risk capital charge applicable to each line of business. The capital charge is calculated based on the capital factors specified in GPS 115.
The PL insurance risk charge is automatically calculated; do not enter values. The total of this column for direct business and reinsurance business is included in the calculation of the minimum capital requirement for the insurer.
Premium Liabilities – Net of Expected Reinsurance and Non-reinsurance Recoveries
Net PL - Central Estimate
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 310 Audit and Actuarial Reporting and Valuation.
Net PL - Risk Margin
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 310 Audit and Actuarial Reporting and Valuation.
Premium Liabilities Gross of Expected Reinsurance and Non-reinsurance Recoveries Classified as – Current Liabilities
Report the component of the premiums liabilities that can be classified by the insurer as a current liability for:
Direct business;
Reinsurance business; and
Total business.
Total Current Liabilities does not necessarily have to equate to the total of Premiums Liabilities disclosed as a current liability in GRF 300.0 Statement of Financial Position. This will be the case (i.e. not equal) where the insurer has provided for Premiums Liabilities in excess of the valuation required by GPS 310 Audit and Actuarial Reporting and Valuation (the value which is required to be reported in this form) in GRF 300 Statement of Financial Position.
Premium Liabilities Gross of Expected Reinsurance and Non-reinsurance Recoveries Classified as – Non-current Liabilities
Report the component of the premiums liabilities valuation that can be classified by the insurer as a non-current liability for:
Direct business;
Reinsurance business; and
Total business.
Total Non-Current Liabilities does not necessarily have to equate to the total of Premiums Liabilities disclosed as a non-current liability in GRF 300.0 Statement of Financial Position. This will be the case (i.e. not equal) where the insurer has provided for Premiums Liabilities in excess of that valuation required by GPS 310 Audit and Actuarial Reporting and Valuation (the value which is required to be reported in this form) in GRF 300 Statement of Financial Position.
The sum of premiums liabilities gross of expected reinsurance and non-reinsurance recoveries classified as current liabilities and the amount classified as non-current liabilities must equate to total premiums liabilities gross of expected reinsurance and non-reinsurance recoveries.