Australia: APRA QIS – Pass or Fail?
Response paper to review of capital standards for insurers released

The Australian Prudential Regulation Authority (APRA) has released a response paper to its various proposals on capital standards for general and life insurers. According to APRA, the aims of the review include improving the risk sensitivity of the standards and achieving better alignment across APRA-regulated industries.

The response paper addresses submissions (from 144 general and life insurers that participated and provided data) in respect of 42 non-investment-linked statutory funds, 35 investment-linked statutory funds and 79 non-investment-linked benefit funds as part of a quantitative impact study (QIS) of the proposals set out in an APRA discussion paper and three technical papers issued between May and September 2010.

Submissions commented that APRA's proposals would improve the risk sensitivity of the standards but at the expense of making them much more complex in certain areas.

In respect of general insurance, the QIS indicated that APRA's proposals to update its capital standards would, without refinement, have significantly increased required capital for the general insurance industry. The range of life insurer QIS results was more varied than was the case for general insurers with life insurance industry capital requirements higher than APRA's intended outcome.

The response paper outlines APRA's intention to refine its proposals in response to the QIS results and its further intent to assess the impact of those refinements based on the results of a second QIS, which is expected to be issued later this month with submissions due at the end of July.

The key milestones in the timetable for the review are now:

Review the response paper in full here.

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