The Australian Prudential Regulation Authority (APRA) has written to general insurers seeking feedback on the treatment of Australian Reinsurance Pool Corporation (ARPC) reinsurance recoverables.

The ARPC provides insurer clients with about $13.4 billion in reinsurance capacity in the event of a declared terrorism event.

About $3 billion of this is through a retrocession reinsurance program, and the remaining $10 billion is backed by a government guarantee.

APRA wants to clarify current standards so reinsurance recoverables are not subject to a capital charge, in recognition of the guarantee.

“At present, if a declared terrorism event occurred, the capital treatment of the resulting reinsurance asset is not explicitly set out in APRA’s prudential standards,” it says.

“APRA’s view is that, given the strong security of the ARPC, it is appropriate to clearly recognise the ARPC as equivalent to an APRA-authorised reinsurer for capital adequacy purposes, taking into account the existence of the Commonwealth Government guarantee.”

More information is available here.