The Australian Prudential Regulation Authority (APRA) proposes to exempt from prudential regulation captive general insurers whose business is limited to the provision of non-statutory insurance within a wholly-owned corporate group and does not affect third-party policyholders.

The proposal ensures no unwarranted regulation of captives and consistent treatment between on-shore and off-shore captive insurers.

The services provided by captives often resemble self‑insurance within a corporate group, which is not subject to regulation. The decision to retain the insurance risk within a corporate group, either through a captive insurer or through self‑insurance by member companies in that group, is a commercial one and APRA does not consider that the risk retention arrangements caused by the existence of a true captive should be subject to prudential regulation.

APRA member, Mr Steve Somogyi, said the proposal is a clear signal to the market that APRA is prepared to ease and provide exemptions from prudential regulation where warranted and reasonable.

“Prudential regulation is focused on protecting third party beneficiaries, including policyholders and others, and on promoting financial system stability, efficiency and competition,” Mr Somogyi said. “These objectives are not directly relevant to an intra-group captive insurance arrangement where no third parties are involved.”

A copy of APRA’s discussion paper can be found on the website: http://www.apra.gov.au/General/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=8318. Comments are due by 15 April 2005.

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 $2.0 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.