The Australian Prudential Regulation Authority (APRA) has today released a response paper and 14 draft prudential standards in a third round of consultation on its review of capital standards for general and life insurers. The aims of the review include improving the risk-sensitivity of the capital standards and achieving better alignment of these standards across APRA-regulated industries.
APRA commenced its review in 2010, and its consultation has included release of discussion and response papers, technical papers and two quantitative impact studies (QIS) to evaluate the impact of the proposals on insurers.
The response paper released today summarises the main issues raised in submissions on APRA’s March 2011 response paper and arising from APRA’s assessment of the second QIS results. APRA has revised its proposals in some areas to address issues raised in submissions and has provided further clarification on other aspects of its proposals. The draft prudential standards released today also provide further details on APRA’s proposals.
The response paper outlines the proposed eligibility requirements for components of the capital base for insurers, and the proposed limits for the components of the capital base. These eligibility requirements and limits have been aligned with the relevant proposed Basel III requirements for authorised deposit-taking institutions (ADIs) where appropriate. APRA has long adopted a policy of aligning its requirements for the composition of capital base for ADIs and general insurers, and it is now extending this alignment to life insurers.
APRA Member Ian Laughlin said that one of the planned outcomes of the review was an increase in the risk-sensitivity of capital requirements. ‘The impact of the revised proposals will vary between insurers. Some insurers will have little change or a reduction in their capital requirements whilst others will have an increase. The increase in capital requirements will be modest for many insurers, but for a small number of insurers there will be a material increase.’
APRA is seeking comment from industry and other interested stakeholders on its proposals by 24 February 2012.
APRA will undertake further consultation on revised draft prudential standards, prudential practice guides and draft reporting forms during 2012. The complete set of final prudential standards, reporting forms and instructions are expected to be released by October 2012. APRA intends that the revised prudential standards take effect from 1 January 2013, with the first reporting under the revised framework to commence from the first reporting period in 2013.
APRA will consider requests from insurers for transitional arrangements on a case-by-case basis in the second half of 2012. The response paper and accompanying draft prudential standards are available on APRA’s website.