APRA moves to tighten reinsurance rules

The Australian Prudential Regulation Authority has moved to dissuade Australian life insurers against placing too much reliance on offshore reinsurers. 

Reacting to the recent increased used of offshore reinsurers, APRA has moved to put a limit on the use of offshore reinsurance, releasing a consultation package noting that it has particular concerns with respect to reinsurance within the group insurance market. 

It said that it was proposing updates to Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge (LPS 117) which would impose an aggregate limit on the exposure of life insurers to offshore reinsurers, which are not regulated by APRA 

However, it said offshore reinsurers that entered the domestic market and became an APRA-registered entity would not be subject to the aggregate limit.  

Commenting on the move, APRA deputy chair, Helen Rowell, said the changes were necessary for APRA to effectively supervise the life insurance market and ensure policyholders were adequately protected. 

“The recent growth in life insurers placing business with offshore reinsurers has been a prudential concern, as 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 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.”