The financial institutions supervisory levy – under which the industry pays to be regulated – hits some general insurers disproportionately hard due to their use of reinsurance, the Insurance Council of Australia (ICA) says.

Temporary inflation in reinsurance assets after catastrophes leads to a tax increase for some insurers that “does not reflect any additional supervisory activities for regulators”, CEO Rob Whelan says in a submission to the Federal Treasury on levy calculations.

Reinsurance recoveries for large loss events should be excluded from assets used to calculate the levy, ICA says.

“This amendment will ensure certain institutions do not pay significantly more for their regulatory supervision compared with their peers due to their use of reinsurance,” the council’s submission says.

Mr Whelan argues that Treasury must also demonstrate greater transparency in calculating the levy and ensure it is spent efficiently.

“The money involved is not insignificant: in 2012/13 [it was] $266 million for the financial services industry as a whole and $22.3 million for general insurance.

“Given that it is funding its own regulation, the industry deserves to be able to understand the rationale for proposed supervisory activity.”

Mr Whelan is critical of the levy consultation period, which lasts fewer than four weeks. He says Government guidelines recommend at least six weeks.

He says if more time were available ICA would have sought to explore alternative levy allocation models based on net assets, gross weighted premium or regulatory capital.