Document ID: chunk:federal_register_of_legislation:F2023L00738:body:0:p6
Version: federal_register_of_legislation:F2023L00738
Segment Type: other
Provision Reference: 
Character Range: 13690–16544

other than the private health insurer or its fund in the event of insolvency of the reinsurer.
30.         Where the fair value of the collateral does not cover the full value of the reinsurance recoverables, only the part of the value of the reinsurance recoverables that is covered by collateral may be assigned the counterparty grade of the collateral. The remaining portion of the reinsurance recoverable must be treated as an exposure to the underlying reinsurer.

Guarantees
31.         Subject to paragraph 33, where a private health insurer possesses a guarantee or letter of credit in respect of the reinsurance recoverables due to a fund from a non-APRA-authorised reinsurer, it may elect to treat the reinsurance recoverables as an exposure to the guarantor or the issuer of the letter of credit (as applicable). This means that the asset is included in the limits in Attachment A with respect to the guarantor or issuer of the letter of credit, rather than the underlying reinsurer. This paragraph applies only if:
(a)          the guarantor or issuer of the letter of credit is an ADI;
(b)          the guarantee or letter of credit is explicit, unconditional and irrevocable;
(c)          the guarantor or issuer of the letter of credit is obliged to pay the private health insurer in Australia; and
(d)          the obligation of the guarantor or issuer of the letter of credit to pay the private health insurer is specifically linked to performance of the reinsurance contract or contracts under which the reinsurance recoverables arise.
32.         A guarantee or letter of credit provided to a private health insurer by its parent entity or other related entity is not eligible for the treatment provided for in paragraph 31.
33.         The collateral, guarantee or letter of credit referred to in paragraphs 28 and 31 must be effective for the expected period for payment of claims under the reinsurance contract under which the reinsurance recoverables arise. If this is impractical, the collateral, guarantee or letter of credit must be effective for a period of at least 24 months but be renegotiable each year to allow at least 12 months to identify alternative arrangements if the collateral, guarantee or letter of credit cannot be renegotiated.
34.         A private health insurer may elect to not apply the treatment for reinsurance recoverables from non-APRA-authorised reinsurers in paragraphs 28 and 31 to any of its funds and instead apply the counterparty grade of the non-APRA-authorised reinsurer in order to determine the Asset Concentration Risk Charge. APRA may require a private health insurer to apply to a fund, a specified treatment to reinsurance recoverables from non-APRA-authorised reinsurers supported by collateral, guarantee or letter of credit, rather than the treatment that would otherwise apply under