On 31 May 2011, the Australian Prudential Regulation Authority (APRA) released the outcomes of its review of capital standards for general and life insurers. APRA administers licensing and prudential regulation requirements for the insurance industry, as well as issuing binding prudential standards. APRA reviews and amends these requirements in light of developments in international and domestic markets; as well as any identified weaknesses in the existing prudential framework. The Life and General Insurance Capital Review was prompted by recent experiences with widespread natural disasters in Australia; and observations of the capital base of overseas banks and insurers during the global financial crisis. Although there were no insurer failures in the Australian insurance industry, these events gave rise to concerns that the current capital framework may lead to a higher than targeted risk of insurer failure. The Life and General Insurance Capital Review aims to ensure the risk-sensitivity of the capital standards for insurers are consistent with APRA’s target risk level; and to achieve better alignment of these standards across APRA-regulated industries. The implementation of APRA’s proposals involves a combination of new standards and amendments to existing standards. Industry participants will incur one-off and ongoing implementation costs. Some industry participants will need to make adjustments to their capital base, depending on their approach to complying with the standards. The revised standards will be effective from 1 January 2013. The RIS was prepared by APRA and assessed as adequate by the OBPR.
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