Treasury’s response to the review of the financial institutions supervisory levy has disregarded a key point raised by the Insurance Council of Australia (ICA).

In its submission to the review ICA recommended reinsurance recoveries for large loss events should be excluded from assets used to calculate the levy.

CEO Rob Whelan claimed 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”.

While Treasury’s response acknowledges the concern, it states reinsurance recoveries are “an integral part” of general insurers’ core operations and there is merit in continuing to include them in the levy model.

However, it agrees with ICA’s call for greater openness, recommending “increased transparency of how the costs of an activity are recovered through the levies process”.

It should be clear when levies are being used to recover costs “in a manner consistent with the Government’s cost recovery guidelines” and when they are not.

Treasury says lower levy rates could be applied to pooled super trusts, due to their reduced need for supervisory activity.

It concludes the pre-budget submission process should be used by the Government to obtain industry views about the total amount collected through the levies and related activities.

An ICA spokesman told insuranceNEWS.com.au it had been arguing for two years that reinsurance recoveries left some insurers with “an unwarranted, unexpected spike in the annual levy they must pay”.

“Treasury has considered these arguments and its decision not to alter the methodology to take account of this issue is contained in the Response Paper it released last week. ICA is disappointed with the decision.”