Following the introduction of the new prudential framework for the supervision of general insurers in July 2002, the Australian Prudential Regulation Authority (APRA) today released a discussion paper on a proposed second round of reforms.

The paper responds to a number of the recommendations made by the HIH Royal Commission in April this year, which have been supported by the Government and which also reflect initiatives proposed in APRAs submission to the Commission in September 2002. The paper outlines proposals to:

·           revise the existing prudential standards and guidance notes in light of experience and market developments; and

·           increase disclosure about the activities of general insurers in order to promote market discipline.

The reforms introduced to the general insurance industry last year have strengthened requirements specifically in relation to financial soundness (liability valuation and capital adequacy) and risk management (particularly in relation to governance and reinsurance). They also established a three-layered system of regulation - the Insurance Act 1973 (substantially amended by the General Insurance Reform Act 2001), prudential standards and guidance notes. This system is supported by a regulatory reporting regime set out in reporting standards made under the Financial Sector (Collection of Data) Act 2001.

APRA Member, Mr Steve Somogyi, said that since the introduction of the reforms in 2002, APRA had identified a diversity of interpretations, and therefore practices, by general insurance companies in meeting APRAs prudential standards.  

The 2002 reforms went a long way to strengthening the insurance industry in Australia. However, APRA considers it appropriate to refine, clarify and, in some cases, increase minimum prudential requirements, he said. The proposals in relation to disclosure aim to improve the transparency and usefulness of information disclosed by general insurers and APRA. 

He added:  Greater disclosure and, flowing on from that, the ability to more accurately assess the financial position and risk management practices of general insurers will benefit policyholders, and the protection of their interests is core to APRAs mandate.

Also in response to the HIH Royal Commission, APRA is developing a regime of consolidated supervision for general insurance corporate groups, which aims to minimise the risk of adverse developments in one area of a conglomerate damaging the overall soundness of the general insurance group. This will be the subject of a separate consultation paper to be issued in 2004. 

In addition, APRA intends to release a separate consultation paper and draft prudential standard on fit and proper requirements in the general insurance, life insurance and the authorised deposit-taking sectors.  This will also be issued in 2004.

Comments on the paper are invited by 27 February 2004. A copy of the discussion paper is available on APRAs web site.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry.  It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry.  APRA is funded largely by the industries that it supervises.  It was established on 1 July 1998.  APRA currently supervises institutions holding approximately $1.7 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.

Media and industry inquiries only:	Sue Morey Head of Public Affairs Australian Prudential Regulation Authority Telephone: 02 9210 3384 Mobile: 0438 124 524
All other inquiries:	APRA Contact Centre 1300 131 060