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APRA proposes changes to align capital and reporting frameworks for insurance with AASB 17

The Australian Prudential Regulation Authority (APRA) has proposed updates to the capital and reporting frameworks for insurance in response to the introduction of Australian Accounting Standards Board 17 Insurance Contracts (AASB 17).

APRA’s life and general insurance capital (LAGIC) framework and reporting framework are based on the current accounting standards. These accounting standards will be replaced when AASB 17 comes into effect on 1 January 2023. Failing to update the frameworks in response to the introduction of AASB 17 would require insurers to maintain two different valuation, actuarial, accounting and reporting systems, and might result in unintended and unnecessary changes to capital levels. APRA is also updating other aspects of LAGIC, which has not been substantively reviewed since it was implemented in 2013.

After seeking industry feedback on proposals published in November last year, APRA has today released a number of draft prudential and reporting standards aimed at integrating AASB 17 into the insurance capital and reporting frameworks. 

APRA’s approach to integrating AASB 17 into APRA’s capital and reporting frameworks is based on the following principles: 

  • maintain the resilience of APRA’s capital and reporting frameworks; 
  • not seek to generally increase or reduce capital levels; 
  • minimise the regulatory impact for industries; and
  • align the frameworks to AASB 17 where appropriate.

For the capital framework, the majority of the existing requirements for the regulatory capital calculation for general insurers and life insurers will be maintained. For the reporting framework, APRA has confirmed that insurers will be able to use the AASB 17 accounting policies and principles to report financial statement information to APRA. Additional data requirements are proposed to ensure that APRA continues to have appropriate data for capital assessments and profitability monitoring. 

The proposals are also relevant for private health insurers, given APRA’s intention to align the private health insurance capital framework to LAGIC. Given the close linkages, private health insurers should also refer to APRA’s review of the private health insurance capital framework consultation

Consultation on the draft standards is open until 31 March 2022. APRA intends to release the final standards in the second half of 2022.

Copies of an information paper, a more detailed response paper to last November’s consultation, and draft capital and reporting standards are available APRA’s website at: New accounting standard – AASB 17 Insurance contracts.

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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, mutuals, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding around $9 trillion in assets for Australian depositors, policyholders and superannuation fund members.