Document ID: chunk:federal_register_of_legislation:F2023L00699:body:0:p8
Version: federal_register_of_legislation:F2023L00699
Segment Type: other
Provision Reference: 
Character Range: 19701–22811

recoverable and those not likely to be recoverable from reinsurers. In providing this advice, the Appointed Actuary must consider the materiality of reinsurance recoverables and expected reinsurance recoveries. If they are material, the Appointed Actuary must assess the potential range of amounts not recoverable from reinsurers, based on the uncertainty of individual and aggregate gross losses. For the purposes of GPS 114, the reinsurance recoverables due from non-APRA-authorised reinsurers for each accident year must be identified in the AVR.

Treatment of reinsurance expenses
40.         APRA maintains a consistent approach in allowing for the cost of all types of reinsurance arrangements. The principle is that APRA requires an insurer to ensure in all prudential reporting that reinsurance coverage matches the risk exposures in the underlying portfolio, irrespective of the type of reinsurance contract.
41.         For the calculation of premiums liabilities, the premiums liabilities must include the future cost of any reinsurance arrangements required to fully cover the exposure period for premiums liabilities.  This may include an additional cost for existing reinsurance contracts where the expense is yet to be recognised under Australian Accounting Standards as well as an additional reinsurance purchase cost for any part of the premiums liabilities not covered by current reinsurance arrangements[7].  To the extent that a cost for current reinsurance arrangements covering premiums liabilities has already been recognised under Australian Accounting Standards, insurers are not required to also include that same cost in the premiums liabilities.
42.         For any part of the current reinsurance arrangements that cover future business that has not been written, that portion of the associated cost of reinsurance cannot be used to reduce premiums liabilities calculated under this Prudential Standard. The cost of reinsurance for future business can be used to increase the surplus (or decrease the deficit) in premiums liabilities calculated in accordance with GPS 112 if the reinsurance arrangements meet the requirements of Prudential Standard GPS 230 Reinsurance Management (GPS 230) and if the cost has already been recognised under the Australian Accounting Standard. This revised surplus (or deficit) is included as part of adjusted net assets in Australia for Category C insurers and the capital base for all other insurers.

Allowance for future reinsurance expense
43.         The estimation of expected reinsurance recoveries in respect of premiums liabilities for which reinsurance has not yet been purchased can assume that the necessary reinsurance related to those liabilities will be purchased and documented. Allowance must be made for the purchase cost of this future reinsurance expense in the premiums liabilities valuation. This assumption must only be made when:
(a)          existing reinsurance arrangements are documented;
(b)          the estimated expected reinsurance recoveries relate to the same classes of business that are currently covered by the