Document ID: chunk:federal_register_of_legislation:F2023L00624:front:0:p7
Version: federal_register_of_legislation:F2023L00624
Segment Type: other
Provision Reference: 
Character Range: 18376–22347

is the amount subject to a guarantee or letter of credit in respect of the underlying asset such that the underlying asset is subject to the limits in Attachment A as an exposure to the guarantor, rather than an exposure to the underlying counterparty. This applies where a fund possesses a guarantee or letter of credit and is treating the underlying asset as an exposure to the guarantor or the issuer of the letter of credit.

                                                                                                          Where the guarantee or letter of credit is held in respect of a reinsurance arrangement that is not with a registered life company, the adjustment amount is subject to the LPS 117 paragraph 43 and 44 limitation on recognition of risk mitigants.

Adjustment for other arrangement                                                                          This is the amount of any other arrangement (i.e. other than eligible collateral items, guarantees or letter of credit) which is held against the underlying asset that substitutes for the underlying asset when applying the limits in Attachment A. This item is intended to capture any other types of risk mitigant that APRA may recognise in place of an asset.

Amount by which reinsurance counterparty exposure has been reduced through explicit netting arrangements  LPS 117 specifies that assets and liabilities arising from arrangements with a reinsurer may be netted to the extent they are subject to a legally enforceable right of offset in circumstances including the default, liquidation, bankruptcy or winding-up of the life company, the reinsurer or both.

                                                                                                          Contractual terms in a reinsurance treaty that alter the underlying reinsurance premium and claim recovery cash flows or involve other payments may reduce an insurer's exposure to a reinsurance counterparty.

                                                                                                          Examples include:

                                                                                                               * premium deferral: where the insurer is allowed to defer reinsurance premiums, either in the normal course of business or as a means of avoiding an ACRC;
                                                                                                               * funds withheld: where a portion of reinsurance premiums is withheld, typically equal to the reinsurer's expected share of expected incurred claims.
                                                                                                               * deposit back: where the reinsurer invests the assets backing the reinsured policy liabilities with the cedant.
                                                                                                               * modified coinsurance: where reinsurance recoveries are based on changes to policy liabilities or incurred claims reserves instead of paid claims.

                                                                                                          Where an insurer uses these types of netting arrangements to reduce its exposure to a reinsurance counterparty, it must report the amount by which the exposure has been reduced as a result of netting.

Asset identifier                                                                                          This is an individual whole number assigned to each line item such that each line item has a unique identifier.

                                                                                                          Asset identifiers must be assigned to both underlying assets and individual eligible collateral items, guarantee and letter of credit exposures that are recognised in place of the underlying assets.

Asset identifier to which risk