International regulation is back centre stage. Despite the insurance industry’s demonstrated resilience, it’s not likely to be spared.

Participants in the Australian insurance industry weathered the worst of 2009 with a grim determination and even an optimistic forecast of profitability in 2010. The Australian Prudential Regulation Authority (APRA) appears to be vindicated as a just balancer of intrusion and oversight.

But as APRA finalises feedback on new reporting rules – which it claims will reduce the regulatory burden on insurers by aligning statutory and prudential reporting – insurers remain fearful a global backlash against financials could result in populist and ultimately pointless regulation.

It’s a telling statistic that 58% of insurers polled for the JP Morgan Deloitte General Insurance Industry Survey fear regulatory changes in 2010. APRA proposals will, in theory, save insurers from essentially doubling up by using statutory accounts as the basis for their obligatory APRA reports.

“The changes will allow improved performance analysis and a clearer view of profitability for APRA at a level of detail previously not available through the APRA returns,” Executive Member John Trowbridge says.

Any modifications to reporting requirements will be met with some opposition, regardless of intent, and the release of final standards in July will be an acid test of APRA’s ability to keep that aforementioned balancing act on show.

But it’s a shift in global regulation sentiment that has insurers most concerned.

Increasingly, pressure is being brought to bear on regulators by the global regulator body, the Insurance Association of Insurance Supervisors (IAIS), to align their reporting standards more closely.

As the global face of 190 insurance regulators, the IAIS develops principles, standards and guidance papers on best practice in prudential supervision.

Following its formation in 1994, the IAIS has become notably emboldened in stumping a euro-centric model of regulatory alignment, otherwise known as Solvency II.

Passed by the European parliament in late 2008, Solvency II is seen as the glue for a fractured market; the creation of a single insurance market in Europe through a common set of consumer protections and industry regulation.

Solvency II is a risk-based system that measures assets and liabilities, demanding insurers maintain a certain level of capital and transparency to be allowed to operate.

The adoption – or at least adherence – to Solvency II was backed by the head of the European Insurance and Reinsurance Federation, Michaela Koller, at the recent IAIS conference. She says it’s one of many balms to be applied to an industry singed by the global financial crisis.

While no one is talking about a global set of insurance rules, momentum for greater co-operation between regulators is certainly building.

JP Morgan and Deloitte note in their annual survey of the insurance industry that the past 18 months have demonstrated to insurance policymakers and regulators around the globe “that a strengthening of bonds across the regulatory and jurisdictional borders is needed to stem the tide of future contagion and systemic risk in the financial markets”.

This is not necessarily a bad thing. The free flow and exchange of ideas between regulators is vital in maintaining flexible, responsive and modern prudential regulation. Insular minds go stale through a dearth of new ideas and energy that global conversations quickly reverse.

The IAIS also acknowledges the insurance industry must, according to Deloitte, “find its own solution to systemic risk, separate from the answer arrived at for the banking sector” – a tacit and welcome reminder that one size doesn’t fit all.

The association says one of the key lessons from the financial crisis is the need for international rules on insurers to be streamlined. This could be boon or bust for insurers; multinationals could operate with greater confidence given a reduction in the number of regulatory checklists.

However, many countries have unique circumstances where an overarching set of rules would be disastrous.

Australian insurers fear APRA may heed the call for “simpler” regulation and in the process develop a set of rules unworkable for the Australian market.

Australia need not mimic Solvency II, nor does it have to. APRA already requires base capital levels and regular reporting by insurance companies, and their survival during the financial crisis shows insurers and the regulator have mostly sound reporting and monitoring systems in place.

Still, neither APRA nor the industry should rest on their laurels. Tweaking and introspection is healthy and necessary to keep the insurance industry robust and reflexive enough to survive any calamity.

Insurers are hoping APRA will find inspiration in overseas regulation – but not necessarily answers.