The Australian Prudential Regulation Authority (APRA) today released a discussion paper proposing a strengthening of the framework for the prudential supervision of corporate groups involving authorised general insurers.

The consultation package outlines proposals to:

• define a framework for the classification, calculation and management of capital adequacy at both the regulated entity and group levels;
• amend standards covering large exposures, intra-group dealings and asset concentration threshold to better encapsulate group dealings;
• ensure a group-wide approach to risk management that is supported by an annual report from the group’s auditor on the adequacy of the risk management environment and processes; and
• require groups to develop group-wide actuarial oversight for consolidated capital adequacy as well as the valuation of insurance liabilities.

APRA Member Mr Steve Somogyi said that the proposals recognise the structures that exist in the insurance industry and provide a solid and workable framework to apply to conglomerate structures and group-wide controls.

“These reforms balance the need to protect policyholder interests at an individual entity level with the management and control issues associated with running commercial conglomerates,” he said.

The proposals mirror many of the current practices of the industry’s major players and have been developed in line with recommendations of the HIH Royal Commission on consolidated supervision.

Mr Somogyi said that the proposed framework will clarify APRA’s position on group operations, in particular risk mitigation practices, to ensure all industry participants have a full understanding of their prudential obligations.

Comments on the discussion paper released today are invited by 14 October 2005. The discussion paper is available on APRA’s 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 $2.0 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.