Document ID: chunk:federal_register_of_legislation:F2023L00695:body:0:p7
Version: federal_register_of_legislation:F2023L00695
Segment Type: other
Provision Reference: 
Character Range: 17105–20319

the reinsurance recoverables and expected reinsurance recoveries or will be required to hold capital against these risks.[5]

Assessment and comment by the Appointed Actuary
3.             The Appointed Actuary[6] must make a specific assessment of and comment on the recoverability of reinsurance recoverables and expected reinsurance recoveries from non-APRA authorised reinsurers. The Appointed Actuary must consider all relevant matters, including:
(a)          quality of information and data available on potential reinsurance recoverables;
(b)          credit risk;
(c)          willingness to pay;
(d)          documentation and placement of contracts; and
(e)          any legal or other issues that may create an impediment to the private health insurer realising the reinsurance asset.
4.             Aggregate reinsurance recoverables and expected reinsurance recoveries must be separated into subsets which identify those that derive from documented and non-documented reinsurance arrangements, those that derive from reinsurance arrangements that are fully placed and not fully placed, and those likely to be recoverable and those not likely to be recoverable from reinsurers. In providing this advice, the Appointed Actuary must consider the materiality of reinsurance assets. 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 HPS 114, the reinsurance recoverables due from non-APRA-authorised reinsurers for each accident year must be identified in the Financial Condition Report.

Treatment of reinsurance expenses
5.             APRA maintains a consistent approach in allowing for the cost of all types of reinsurance arrangements. The principle is that APRA requires a private health 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.
6.             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.
7.             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 that has not been written can be used to increase the surplus (or decrease the deficit) in premiums liabilities