How super funds contemplated pooled insurance

Australia’s largest superannuation fund, AustralianSuper actively considered putting in place insurance arrangements before moving to the courts to put in place a Trustee Risk Reserve.

Contemplation of the insurance approach also looked at the possibility of superannuation funds establishing a “pooled captive insurance arrangement”.

AustralianSuper’s contemplation of insurance as an alternative to a risk reserve has been revealed in legal documents provided to a Parliamentary Committee by the Australian Prudential Regulation Authority (APRA).

The documents reveal that members of AustralianSuper’s Finance and Audit Committee considered the possibility of establishing a pooled captive insurance arrangement in April, last year, but ultimately decided against it.

APRA’s legal submission explained that the Finance and Audit Committee did not ultimately support the pooled capital insurance arrangement “in circumstances where the other contributors to the pool and the pool itself would not be within the Fund’s control”.

“Mr Schroder [AustralianSuper chief executive, Paul Schroder] accepts that a pooled capital insurance arrangement is a possibility but it would not achieve the objective of managing the insolvency risk that the Fund perceive it will fact from 1 January, 2022,” the APRA legal submission said.

“The possibility of a pooled capital insurance arrangement has been considered by the superannuation industry at a preliminary level, but there are various hurdles to be overcome before Mr Schroder would be prepared to recommend the Fund pursue it.

APRA provided the documents to the House of Representatives Standing Committee on Economics as part of its explanation of why it did not seek to oppose AustralianSuper or other superannuation funds amending their constitutions to put in place risk reserve.

The documents also revealed that AustralianSuper had received some information from its broker, Aon, in relation to protected cell captives, “but it has been unable properly to consider the regulatory implications, risks and costs relating to such an arrangement and is therefore unable to determine whether a protected cell arrangement would meet its needs,” the document said.

It went on to state: “The trustee has, however, recently amended the limits of its constitution on indemnification of officer. The effect of one of the amendments is to permit the Trustee to indemnify its officers for liability arising out of conduct involving lack of good faith or in breach of the Relevant Requirements”.