The Australian Prudential Regulation Authority (APRA) is seeking stakeholder feedback on a package designed to address concerns regarding life insurers' increased use of offshore reinsurers.
The proposed updates to Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge (LPS 117) aim to limit life insurers' exposure to offshore reinsurers not regulated by APRA. Offshore reinsurers that enter the Australian market and become an APRA-registered entity will not be subject to the aggregate limit.
The regulator also proposes changes that will provide greater clarity on regulatory requirements, facilitate the use of risk mitigation techniques, and minimise the regulatory burden associated with bespoke amendments for individual entities.
APRA Deputy Chair Helen Rowell said the changes will help the regulator effectively supervise the life insurance market and protect policyholders.
“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,” Rowell 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.”
The industry can submit feedback by June 25, 2021. The final standard is expected to be released by the end of 2021.
