APRA has informed life insurers that it is reviewing the requirements of prudential standard LPS 230 Reinsurance (LPS 230) as they relate to financial reinsurance.
APRA has invited feedback from life insurers and other interested parties on its proposal to align the approach taken to financial reinsurance in life insurance industry to the approach taken in the general insurance industry under prudential standard GPS 230 Reinsurance Management.
Currently LPS 230 requires reinsurance contracts that are potentially financial reinsurance arrangements, or that include non-standard features or clauses which may impact on the extent of risk transfer within the contract, to be submitted to APRA for approval.
The reinsurance arrangements upon which APRA is focussing are those that may not generally transfer significant insurance risk from the life insurance company to another company or to a reinsurer for the life of the book of the business being reinsured. Contracts require APRA approval where the arrangement meets the definition of Limited Risk Transfer Arrangement contained in LPS 230.
APRA expects that life insurers will consider the economic substance of proposed reinsurance arrangements when assessing whether they meet the definition of Limited Risk Transfer Arrangements. APRA is also proposing to remove the current requirement in attachment A of LPS 230 for the Appointed Actuary to express an opinion on reinsurance arrangements in the reinsurance report. APRA is reviewing the role of the appointed actuary in assessing reinsurance in a broader review of this role.
The deadline for written submissions is 22 December 2017.
Meridian has dedicated teams in financial services and insurance. For more information about the potential impact of revising APRA prudential standard LPS 230, please contact Catherine Osborne, Consultant.
Disclaimer: This information is current as of December 2017. This article does not constitute legal advice and does not give rise to any solicitor/client relationship between Meridian Lawyers and the reader. Professional legal advice should be sought before acting or relying upon the content of this article.