Reinsurance recoverables made up 12%, or $14.3 billion, of general insurers’ total assets at June 30 last year, according to the Australian Prudential Regulation Authority (APRA).

It was the industry’s second-biggest asset class after interest-bearing investments of $50.6 billion.

Reinsurance recoverables arise from claims under reinsurance contracts, and may be due to attritional claims or from large catastrophe losses.

APRA has released the figures under an overview of industry reinsurance exposures, which analyses the key dimensions of reinsurer counterparty risk, including concentration and collateralisation of reinsurance recoverables.

The regulator started the reinsurance counterparty data collection in 2013.

“In particular, the data collection was to allow APRA to assess the impact of a reinsurer downgrade or failure on the prescribed capital amount, capital base and capital coverage on an individual insurer and the general insurance industry,” the regulator says.

“The amount general insurers are owed from reinsurers represents a significant proportion of the general insurance industry’s assets.

“Although reinsurance can reduce the insurance risk that general insurers face, it creates counterparty risk because insurers are reliant on payment from reinsurers.”

Reinsurer groups domiciled in Europe account for 58% – or $7.2 billion – of reinsurance recoverables, which could be a “source of contagion risk”, APRA says.

“Most reinsurance recoverables were related to European reinsurers, with just over half related to reinsurers based in Germany and Switzerland.

“An adverse economic event impacting Europe may have a negative impact on the financial strength of reinsurers operating in the region. Over the past 12 months, though, there has been a shift in concentration from Europe toward the Americas.”