The Australian Prudential Regulation Authority (APRA) today said that the collapse of HIH and its flow-on effects have been cathartic events for general insurers and the regulator alike.

Speaking at the Insurance Summit 2002, APRAs Chief Executive Officer, Mr Graeme Thompson, said that the regulator would be able to deal much more effectively with an incipient HIH if one arises in the future.

"The regulatory system, broadly defined, for general insurers has been strengthened in many significant respects over the past two years," he said. "We have new legislation, new prudential standards and we have enhanced APRAs all round supervisory capacities."

Mr Thompson said he was also encouraged by the industrys own increased awareness of the need for high standards of risk management and governance.

"As a result of all of these factors the industry is more robust, more attuned to risk and its proper pricing, and generally better managed than ever before."

Mr Thompson said that while the major improvements in prudential supervision in the past year were good news for industry and policyholders, even if the new arrangements were perfect today, they would not be tomorrow.

In its public submission to the HIH Royal Commission on Future Policy Directions, APRA outlined three broad areas for legislative improvement: group supervision, disclosure and unregulated and quasi insurance.

Mr Thompson said APRA had also seen the need to increase the number and the quality of staff devoted to the task of insurance supervision and to introduce more sophisticated and structured early warning and supervisory processes within APRA.

"APRA staff is so well qualified in 2002 that poaching by private sector employers offering top-of-the-market remuneration in a highly competitive finance sector is one of the regulators biggest challenges," he said.

The regulator began implementing an upgraded rating system called the Probability and Impact Rating System (PAIRS) earlier this year, which Mr Thompson says better gauges the scale of APRAs overall supervisory task.

"That is to protect the interests of our beneficiaries - policyholders, depositors and superannuation fund members - to identify priority areas within the regulated population and allocate resources according to degree of risk, and to monitor trends in market risk profiles," he said.

APRA is the prudential regulator of the financial services industry including banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. It currently regulates $1.5 trillion in assets for 20 million Australians.