Document ID: chunk:federal_register_of_legislation:F2023L00671:body:0:p6
Version: federal_register_of_legislation:F2023L00671
Segment Type: other
Provision Reference: 
Character Range: 13978–16922

reinsurer, it may elect to treat the reinsurance recoverable as an exposure to the eligible collateral. This means that the asset is included in the limits in Attachment A with respect to the collateral, rather than the underlying reinsurer.
29.         For the purposes of paragraph 28, eligible collateral is recognised only:
       (a)          to the extent that it takes the form of:

           (i)            assets held in Australia which form part of a trust fund maintained by a trustee resident in Australia;

           (ii)         deposits held by the regulated institution in Australia made by the non-APRA-authorised reinsurer;

           (iii)       a combination of the two forms of collateral specified in sub-paragraphs (i) and (ii); or

           (iv)        any other form of collateral as may be approved by APRA in a particular case;

       (b)          if it provides effective security against liabilities arising under the reinsurance contract; and

       (c)          if it is not available for distribution to creditors of the reinsurer other than the institution 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 regulated institution possesses a guarantee or letter of credit in respect of the reinsurance recoverables due 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 or, in the case of a Category E insurer, its parent entity or other related entity provided the entity has a counterparty rating of grade 1, 2 or 3;

       (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 institution in Australia; and

       (d)          the obligation of the guarantor or issuer of the letter of credit to pay the institution is specifically linked to performance of the reinsurance contract or contracts under which the reinsurance recoverables arise.

32.         Except in the case of a Category E insurer, a guarantee or letter of credit provided to a regulated institution by its parent entity or other related entity is not eligible