APRA wants offshore reinsurance limits for life market
April 8 2021 by InsuranceAsia News
The Australia Prudential Regulation Authority (APRA) has announced proposed regulatory updates which will see limits imposed on life insurers’ exposure to offshore reinsurance.
In an April 8 statement, APRA said the proposed updates to the ‘Prudential Standard Capital Adequacy: Asset Concentration Risk Charge (LPS 117)’ are “necessary” for risk mitigation — and for APRA to effectively supervise Australia’s life market.
APRA deputy chair Helen Rowell said that the recent growth in life insurers placing business with offshore reinsurers has been a prudential concern, given that APRA does not have regulatory authority over these reinsurers. “This has limited our ability to maintain appropriate oversight of the financial safety and resilience of the market,” she said.
“The proposed revisions to the prudential standards for life insurers are necessary to address the potential risks to policyholders from [the] growing use of offshore reinsurance. But APRA has also sought to balance this by still enabling the benefits of competition and innovation from the participation of offshore reinsurers in the Australian life insurance market,” Rowell added.
The consultation additionally proposes revisions that will provide greater clarity on APRA’s regulatory requirements, help bolster better risk mitigation techniques and minimise the regulatory burden related to bespoke amendments for individual entities, the APRA statement said.
Australia’s life insurers saw a steep 69% drop in total revenue for fiscal year 2020 and took a large hit on their investment returns. As noted by APRA, the market’s performance “continues to be challenged” in the current environment.
Overall, the industry recorded a net loss for the year of A$0.1 billion, an improvement from 2019’s loss of A$0.3 billion. However, insurers were negatively affected by significant investment losses and claims payments.
APRA is now accepting stakeholder feedback on the proposed revisions to LPS 117 by June 25, 2021. The final regulation is expected to be released by the end of 2021 and the new standard is expected to be implemented by July 2023.
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