Financial Sector (Collection of Data) (reporting standard) determination No. 8 of 2011 - GRS 301.0_G (2011) - Reinsurance Assets and Risk Charge (Level 2 Insurance Group)
Limited Risk Transfer ArrangementsLimited Risk Transfer Arrangements
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Limited Risk Transfer Arrangements
For Australian business a Limited Risk Transfer Arrangement that is approved by APRA as a reinsurance arrangement must be treated accordingly by the Level 2 insurance group for prudential purposes. A Limited Risk Transfer Arrangement that is approved by APRA as a financing arrangement must be accounted for by the Level 2 insurance group so that the arrangement will not misrepresent, or is not designed to disguise, a material risk to the Level 2 insurance group’s current or continuing profitability, solvency or capital adequacy from any party.
The terms and conditions of the financing arrangement will determine the appropriate accounting treatment for prudential purposes.
Where APRA determines that a Limited Risk Transfer Arrangement is to be treated as a financing arrangement, the Level 2 insurance group must not treat the arrangement as reinsurance for the purpose of determining the minimum capital requirement under GPS 111 or as reinsurance for any other purpose.
For international business, while APRA will not be approving the arrangements, APRA expects the Level 2 insurance group to account for a Limited Risk Transfer Arrangement in a manner consistent with Prudential Standard GPS 221 Risk Management: Level 2 Insurance Group (GPS 221).