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November 03, 2017

APRA proposed to amend the requirements of Prudential Standard LPS 230: Reinsurance (LPS 230), specifically as they relate to financial reinsurance. APRA seeks feedback from insurers about the proposed changes by December 22, 2017. APRA expects to finalize the revised standard next year, for implementation from April 01, 2018.

The current LPS 230 requires reinsurance contracts that are potentially financial reinsurance arrangements, or that include non-standard features or clauses that may impact on the extent of risk transfer, to be submitted to APRA for approval; it requires a wide range of contracts to receive APRA approval and is very narrow in defining which contracts are exempt. APRA proposes to amend LPS 230 to align the approach to financial reinsurance with the approach taken in the general insurance industry, under the Prudential Standard GPS 230 on Reinsurance Management.

The proposed draft standard takes a principles-based approach to determine when approval is required, rather than the current prescriptive criteria. APRA expects that this approach will allow for clearer focus on the economic substance of reinsurance arrangements; support better quality discussions between life insurers and APRA supervisors regarding the key issues in reinsurance arrangements; and be more responsive to developments in the reinsurance market. The new approach is also intended to reduce the burden on APRA and life insurers, by minimizing instances in which contracts that are not of prudential concern are required to be submitted to APRA for approval. It will create greater consistency between the general insurance and life insurance prudential frameworks.

 

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Comment Due Date: December 22, 2017

Effective Date: April 01, 2018

Keywords: Asia Pacific, Australia, Insurance, Reinsurance, Financial Reinsurance, LPS 230, Reinsurance Management, Proposed Amendments, APRA

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