The Australian Prudential Regulation Authority has set out guidance to life insurers on what it expects regarding the approval of reinsurance contracts.
In a letter addressed to all life insurance companies, APRA’s executive general manager for the policy and advice division, Pat Brennan, said the regulator expects insurers to review proposed reinsurance contracts bearing in mind the broad application of Prudential Standard LPS 230 Reinsurance (LPS 230) and determine whether an application for approval is necessary.
LPS 203 sets out expectations for insurers to apply to APRA for approval prior to entering into reinsurance contracts that are potentially financial reinsurance contracts.
Mr Brennan said where it is determined that an application is not required, the reasons for this should be documented adequately.
“If a reinsurance arrangement has not previously been approved by APRA, the life insurer should provide information in the report regarding any existing reinsurance treaties that include terms that would require the insurer to seek APRA’s prior approval under LPS 230,” he said.
“APRA expects this to be based on an assessment by the appointed actuary, and that this information will be included in the annual reinsurance report as soon as practicable, and in any case by no later than 31 December 2018.
APRA said it does not expect insurers to seek retrospective approval for any current reinsurance arrangements. However, it also said supervisors may review individual circumstances to determine whether further review of some treaties is necessary.
LPS 230 is due to expire on 1 April 2018, after which APRA will review appropriate revisions to either LPS 230 or the guidance material.