APRA accepts industry arguments on reinsurance

John Trowbridge

The general tenor of industry submissions have persuaded the Australian Prudential Regulation Authority to revise aspects of general insurance refinements packages, particularly those relating to reinsurance recoverables and investment capital factors.

APRA member John Trowbridge said that some submissions had raised a number of matters of principle as well as some practical issues that had given rise to the regulator’s decision to reassess some of the proposal.

APRA had proposed no recognition of reinsurance recoverables from non-APRA authorised reinsurers from the second balance data following claim occurrences, except where the recoverables are supported by security arrangements in Australia.

The proposal was to apply to all future new reinsurance arrangements and, after a transition period, to all recoverables from pre-existing reinsurance arrangements.

However, the regulator said it was now intending to apply a risk-based scale to the recognition of these reinsurance recoverables, based on reinsurer ratings.

It said this approach would apply to future reinsurance arrangements but existing arrangements would be grandfathered, subject to increased scrutiny by companies of the quality of the recoverables for which they already take credit on their balance sheets.

Trowbridge said APRA did not expect insurers to respond to the changes with increases in their levels of capital in circumstances where the industry was already well capitalised and with aggregate industry capital exceeding twice APRA’s current minimum requirements.