Australian Regulator Seeks Closer Scrutiny Over Insurers

The Australian Prudential Regulation Authority (APRA), which regulates the country’s insurance industry, is proposing tighter reporting requirements in order to enable the regulator to more closely scrutinize the financial condition of individual companies.

The widely expected move comes in the wake of severe criticism levelled at APRA, following the failure of HIH in March 2001. At the time of its collapse, caused by the accumulation of a mountain of debt, HIH was Australia’s second largest insurance company. A Royal Commission, appointed to investigate the affair, recommended that greater scrutiny be imposed on the country’s insurance industry in order to prevent a recurrence.

APRA is proposing that actuaries prepare an annual financial condition report on each general insurer. Its aim is to upgrade the regulatory standards for insurers who provide auto, homeowners, travel and commercial coverage, as well as workers compensation. The reports would be available to the company’s board, senior management and APRA, but not to the general public.

News reports indicate that the insurance industry’s representative body, the Insurance Council of Australia (ICA), has cautiously welcomed the measure. Initial concerns had focused on the increased cost burden of the regulation, especially for smaller companies.

As reported by Asia Pulse, ICA spokesman Rod Frail indicated: “It would appear on an initial look that the scope of the information required will be the same but the level of detail that will be required for smaller companies will be less. That’s a positive.”

The measure was also welcomed by the Institute of Actuaries of Australia, but the Institute’s president, Andrew Gale, cautioned that the whole insurance industry needed to support the measure and be willing to provide the relevant information.

APRA is also proposing to tighten up the controls on risk transfer arrangements such as reinsurance contracts. The use of finite reinsurance to improve company balance sheets has been cited as one of the primary factors in the collapse of HIH. Australian authorities are investigating the role played in placing these contracts by Berkshire Hathaway’s National Indemnity and Germany’s Hannover Re.

Topics Carriers Legislation Market Australia