Some insurers pay a disproportionate price for financial supervision because of they way they use reinsurance, an Insurance Council of Australia (ICA) submission to Treasury claims.

Although the association broadly supports the Federal Government’s proposed financial industry supervisory levy calculation, it says the treatment of reinsurance recoveries can be unfair.

General insurers’ total assets grew in the year to March 2011 – by 13% for insurers and 35% for reinsurers – after they received recoveries from disasters such as the Queensland floods and Canterbury earthquakes.

This temporary rise led to an increase in their supervisory level, “which was unwarranted [because it did] not reflect any additional supervisory activities for regulators”.

ICA says it takes time to finalise reinsurance catastrophe claims and, while over-collection in one year will be offset the next, funds are not repaid to specific insurers. The reduction is instead spread across the entire sector.

It also believes the definition of “asset” should exclude reinsurance recoveries from large loss events, and it wants greater transparency on the costs and performance of supervisory agencies.

“The money involved is not insignificant: in 2012/13 $266 million for the financial services industry as a whole and $22.3 million for general insurance,” ICA says.