News Reinsurance08 Nov 2024

Australia:Regulator seeks way to increase non-life reinsurance solutions

| 08 Nov 2024

The Australian Prudential Regulation Authority (APRA) is studying ways to promote general insurers' access to reinsurance, including alternative reinsurance arrangements.

In a letter yesterday to general insurers and reinsurers, APRA member Suzanne Smith said that to date, general insurers have largely utilised traditional reinsurance solutions. To continue to access appropriate, cost-effective reinsurance, industry has expressed an appetite for alternative reinsurance arrangements.

She said, “In our August 2023 letter, APRA reminded insurers that APRA’s prudential standards permit the use of alternative reinsurance arrangements, such as catastrophe bonds and other types of Insurance Linked Securities (ILS), and invited insurers to engage with APRA should they wish to use alternative reinsurance arrangements. Industry feedback has indicated that aspects of APRA’s prudential framework present challenges to accessing the full suite of available reinsurance solutions.”

Consultation exercise

Ms Smith added that APRA is consulting on targeted adjustments to its GI reinsurance framework. APRA seeks: 

  • general feedback on adjustments to APRA’s GI reinsurance settings and processes that would assist insurers in accessing reinsurance; and 
  • specific feedback on adjustments in relation to APRA’s GI reinsurance eligibility criteria  

Any adjustment to the prudential framework will be assessed in line with the following objectives: 

  • promoting access to all forms of reinsurance solutions whilst ensuring insurers’ financial resilience is maintained in alignment with the object of the current insurance capital framework;  
  • reducing regulatory burden and improving transparency for industry; and  
  • ensuring consistency with international standards and practice. 

APRA is also proposing to make technical updates to the GI reinsurance framework. These updates will in aggregate reduce regulatory burden by streamlining existing processes, improving transparency, clarifying APRA’s expectations, and improving consistency across industry.

APRA says it is particularly interested in views on the following questions: 

1. How could APRA adjust its reinsurance settings, or its process for approving the capital benefit of reinsurance arrangements, to improve access to all forms of reinsurance for general insurers?  

2. What are the likely impacts (including costs and benefits) of APRA adjusting requirements regarding all perils, reinstatement and capital requirements for reinstatement premiums as outlined in Attachment B?  

3. Are there any further technical refinements to the GI reinsurance framework that APRA should consider? 

Written submissions should be sent to PolicyDevelopment@apra.gov.au by 17 February 2025.

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