Life insurers need approval from the Australian Prudential Regulation Authority (APRA) before agreeing “reinsurance contracts that are potentially financial reinsurance contracts”, according to the regulator.

APRA has issued the guidance in a letter to life insurers giving its interpretation of Prudential Standard LPS 230.

“LPS 230 sets out, among other things, requirements for insurers to apply to APRA for approval prior to entering into reinsurance contracts that are potentially financial reinsurance contracts,” the letter says.

“APRA expects insurers to review proposed reinsurance contracts bearing in mind the broad application of LPS 230 and determine whether an application for approval is necessary.”

LPS 230 is due to expire on April 1 next year. A review will establish whether revisions are needed.