Insurance Act 1973 - Determination of Prudential Standards - GPS 110 - Capital Adequacy for General Insurers; GPS 120 - Assets in Australia for General Insurers; GPS 210 - Liability Valuation for General Insurers; GPS 220 - Risk Management for General Insurers; GSP 230 - Reinsurance Arrangements for General Insurers; GPS 410 - Transfer and Amalgamation of Insurance Business for General Insurers and Transitional Prudential Standard GPS 900- Early Approvals of Auditors and Actuaries (07/02/2002)
BackgroundBackground
Start here
Get a plain-English read of Background
Turn the raw legal text into a practical explanation grounded in Insurance Act 1973 - Determination of Prudential Standards - GPS 110 - Capital Adequacy for General Insurers; GPS 120 - Assets in Australia for General Insurers; GPS 210 - Liability Valuation for General Insurers; GPS 220 - Risk Management for General Insurers; GSP 230 - Reinsurance Arrangements for General Insurers; GPS 410 - Transfer and Amalgamation of Insurance Business for General Insurers and Transitional Prudential Standard GPS 900- Early Approvals of Auditors and Actuaries (07/02/2002).
Background
-
Insurers are exposed to the possibility of very large losses arising from their portfolios as a result of various natural catastrophes or other causes of large losses eg earthquakes, fires, storms etc. These catastrophic events will occur only rarely and yet their financial impact on an insurer can be very significant, possibly even resulting in the failure of an insurer.
-
Theoretically an insurer can calculate the maximum limit of its catastrophic losses in a particular geographical region as the total of the individual sums insured under all of its policies. Clearly, however, such an approach would require prohibitively large amounts of capital.
-
In practice, insurers use the concept of MER to estimate their exposure to catastrophic events. The use of MER allows insurers to:
(a) calculate the level of reinsurance cover which the insurer requires;
(b) apportion reinsurance costs fairly among different segments of business; and
(c) control exposures to geographical zones or business types, where the risks of catastrophic loss are higher than acceptable, having regard to the insurer’s risk profile.