The Australian Prudential Regulation Authority (APRA) has decided to substantially maintain the regulatory oversight it applies to capital frameworks of insurance companies, irrespective of Basel III implications.
The regulator has written to insurance groups informing them they will still be required to seek APRA's written approval before making any planned reductions in capital.
The regulator said that after considering submissions in relation to impending Basel III reforms, it remained of the view that requiring prior approval for planned capital reductions arising from ordinary share dividends was "a valuable supervisory tool".
However it has cut the insurers some slack with respect to reductions resulting from preference equity and subordinated debt, saying it "now considers the cost associated with this requirement is likely to outweigh the supervisory benefits".
"Accordingly, APRA intends to remove the requirement for APRA approval of payments in relation to Additional Tier 1 and Tier 2 instruments, for both future and currently outstanding issues," the regulator said.
