The Australian Prudential Regulation Authority (APRA) is worried about insurers’ reinsurance statements after last year’s natural disasters.

An APRA review of insurers’ statements found a number of reinstatement covers missing as well as a lack of detail in reinsurance programs.

“In some cases, there were inconsistencies between the narrative descriptions and diagrams, APRA Executive Member Ian Laughlin told a Finity conference in Sydney last week.  

“We also found cases where there was a lack of information, explanation or worked examples showing how the reinsurance would respond, particularly to multiple events in the one year,” he said. 

“It was also not always clear how the various reinsurance covers complemented each other to provide comprehensive protection.”

Mr Laughlin said there needed to be improvement in reinsurance reporting in the future.

“APRA is currently in the process of speaking to entities where it found any of these issues, to ensure they are adequately addressed,” he said. 

The regulator will be conducting a more intense review of reinsurance contracts next year.

This review will be looking for gaps in reinsurance cover and if there are problems, then these should be properly managed.

“We will be looking to see if reinsurance programs adequately respond to differing levels of claims and to multiple events,” Mr Laughlin said. “We want the reinsurance arrangement statements to be a clear and accurate implementation of the reinsurance management strategy.”

The regulator also wants to see gross exposures, probable maximum loss calculations and hazards covered that are justified.

“APRA will provide feedback to individual insurers and the industry on the outcomes of our reviews,” he said.

“While our focus has been on natural catastrophe events, our reviews will include non‐property and niche business as well.

“An unsatisfactory outcome for an insurer will result in close supervisory attention, including the possibility of a Pillar 2 adjustment to capital requirements.”

Mr Laughlin says it is up to management and the board – not the regulator – to advise on reinsurance contracts.

“We suggest that good use is made of actuaries and auditors – both internal and external – to provide critical independent review of reinsurance programs and their use,” he said.

He says APRA will produce a practice guide on what information should be included in reinsurance statements.