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Reform of Capital Adequacy and Solvency Standards – Single-stage Regulation Impact Statement – Private Health Insurance Administration Council

On 6 September 2013, the Private Health Insurance Administration Council (PHIAC) made changes to the Capital Adequacy and Solvency Standards for private health insurers. The Capital Adequacy and Solvency Standards ensure that as far as practicable, the financial position of a health benefits fund conducted by a private health insurer is such that the private health insurer will be able to meet its liabilities, and carry enough capital for the conduct of the fund in the accordance with the Private Health Insurance Act 2007 (Cth), and in the interests of the policy holders of the health benefits fund. The changes to the Capital Adequacy and Solvency Standards ensure that the Standards more accurately address the key risks faced by insurers, improve insurers’ engagement with those risks and improve the quality of information available to support PHIAC’s regulation of the industry. In general the changes to the Standards will lower capital requirements. The Regulation Impact Statement (RIS) notes that across the industry, capital requirements could reduce by around 60 per cent (around $1 billion). The revised Standards are designed to ensure that private health insurers continue to hold both enough assets (total quantum) and sufficient assets of the right type (sufficiently liquid) within their health benefits fund(s) in order to meet its liabilities in total and as they fall due. PHIAC also made minor amendments to the Private Health Insurance (Insurer Obligations) Rules 2009 to remove obsolete references to margins, and provide a role for actuaries in assessing the reasonableness of stress test outcomes required in the Capital Adequacy Standard. The proposal was assessed as likely to have a limited impact on the broader economy with no material competition impacts and was therefore given a C rating (on a scale of A to D) in relation to the level of analysis required. Under the Australian Government’s best practice regulation requirements (effective from 8 July 2013), agencies retain the option of preparing a full RIS in a single stage, that is, without preparing an options-stage RIS beforehand, if no decision has been previously announced. A single-stage RIS was prepared, and has been certified by the Deputy Chief Executive Officer of PHIAC in accordance with these requirements. The OBPR has assessed that the single-stage RIS contains an adequate level of analysis and meets the Government’s best practice regulation requirements. The OBPR’s full assessment is contained in the attached document.