Background

Reform of the current prudential framework covering general insurance, which dates back to 1973, has been a key policy priority for APRA over the past two years. In September 1999, APRA issued a Discussion Paper foreshadowing the broad shape of a new policy framework. Over the year that followed, we issued a second Discussion Paper, together with draft General Insurance Prudential Standards. These set out in greater detail the structure of the improvements we wanted to make. We invited comments from industry and other interested parties on these proposals and, towards the end of 2000, we road tested the proposed technical standards on a representative sample of general insurers.

In November 2000, the Government announced that it would be proceeding with amendments to the Insurance Act 1973 necessary to give effect to the new regime.

The revised proposals take into account our extensive consultations with all stakeholders on the drafts issued during 2000 and the road test results. In parallel with these proposals, Treasury will be releasing details of the proposed legislative changes shortly.

New proposals for reform

The package issued today includes a Discussion Paper that summarises the philosophy underpinning the new framework, together with four Prudential Standards.

The overall aims are:

· more consistent, rigorous and reliable valuation of insurance liabilities, supported by expert actuarial advice;

· capital adequacy requirements that are more sensitive to each general insurers risk profile;

· reinsurance arrangements that are suitable to the scale, complexity and business mix of each company; and, most importantly,

· increased focus on corporate governance, ensuring that company Boards are well equipped to
fulfil their responsibilities to policyholders and other parties.

APRAs CEO Graeme Thompson said, APRA has been working on this major reform of the prudential supervision of general insurance for two years. It has been our key policy priority and we are now close to finalizing our proposals. The new draft Standards are similar to the ones issued for industry comment in 2000, but details have been adjusted to ensure the results are both prudentially sound and commercially realistic.

These latest proposals, when implemented, will give Australia a more effective supervisory regime, and will encourage an upgrading of the industrys risk management and governance practices. The end result will be a stronger industry with much better protection for policyholders.

Industry seminar

To assist in understanding, and to promote implementation of the new regime, APRA will host a seminar on 1 May 2001 at the Sydney Convention and Exhibition Centre, Darling Harbour. This will be the third in a series of seminars undertaken by APRA as part of its consultation processes on the proposed reforms. The Prudential Standards and the proposed amendments to the Insurance Act 1973 will form the basis of the days discussions, with speakers including The Hon. Joe Hockey, MP, key APRA representatives, and senior members of the general insurance industry.

Feedback

Comments on the draft Prudential Standards are invited by 30 June 2001. We intend to issue final standards as soon as possible after the conclusion of this comment period.

Comments on the Policy Discussion Paper and Prudential Standards can be made in writing to:

Mr Brian Gray
Executive General Manager
Policy, Research and Consulting
Australian Prudential Regulation Authority
GPO Box 9836
Sydney NSW 2001

For further information:

Mr Brian Gray
Executive General Manager
(02) 9210 3160

Mr Wayne Byres
General Manager
(02) 9210 3146

For further information on upcoming seminar, contact:

David Price
(02) 9210 3457

Enquiries: giregime@apra.gov.au