Life insurance companies will be expected to adhere to interim capital adequacy and solvency standards ahead of key amendments to the Life Insurance Act being passed by the Parliament.
The Australian Prudential Regulation Authority (APRA) has written to all life insurance chief executives informing them that from 1 January, next year, they will have to adhere to separate solvency and capital adequacy standards for life insurance statutory funds.
The regulator said it was proposing the solvency standard would be an additional prudential standard and would require the capital base of each statutory fund to exceed 90 per cent of the fund's prescribed capital amount under the capital adequacy standards.
Explaining the rationale behind the 90 per cent standard, the APRA letter this was "so as to ensure that there is a modest but material difference between the levels of capital required to be held under the solvency and capital adequacy standards".
It said the proposed basis would "require minimal effort for a life company to calculate and minimal effort for APRA to monitor compliance".
The APRA letter said there would be no APRA reporting or disclosure requirements in respect of the solvency standard and it was proposed it would cease to have effect from the time the changes to the Act became effective.
