The Australian Prudential Regulation Authority (APRA) has finalised the capital framework for private health insurers.
The new framework enhances policyholder protection by seeking to ensure that private health insurers maintain an appropriate level of financial resilience to absorb unanticipated losses.
The new capital standards better reflect the risks faced by insurers, improve comparability across insurers and align with international best practice. The standards also align with the introduction of new accounting standards for insurance AASB 17 Insurance Contracts (AASB 17).
The framework takes effect from 1 July 2023.
The new capital standards will require improved capital management practices in the industry, and heightened board oversight. APRA Deputy Chair Helen Rowell said they bring the expectations of private health insurers in line with other insurance industries.
"This is an opportunity for directors to improve the way their institutions manage capital, including the setting of new capital targets, increased scenario analysis and stronger monitoring and reporting where required.
"While the new standards will result in an increase in minimum capital requirements, the industry is well capitalised and expected to be able to absorb the increase.
"APRA is also making available transitional arrangements to support insurers with implementation of the new requirements. These, combined with reviews of capital management practices, means APRA sees no need for insurers to pass on costs arising from the capital changes to policyholders by pushing up premiums."
Mrs Rowell also noted that pricing remains a key risk that must be managed by private health insurers and considered as part of an insurer’s risk management strategy and internal capital adequacy assessment process.
The implementation of the new capital framework follows an extensive process of consultation with industry and other stakeholders that launched in 2018. Detailed proposals and draft standards were released in December 2021 along with a quantitative impact study released in December 2021.
An information paper and response paper are available on the APRA website at: Review of the private health insurance capital framework.