The prudential regulator has agreed to accept a court enforceable undertaking from Allianz Australia, with the insurer giving its commitment to finish rectifying the risk and compliance issues that have seen the business, at one point, forced to put up an extra $250 million in capital requirement.

A statement from the Australian Prudential Regulation Authority (APRA) says the insurer will complete a series of “transformation programs” to improve its handling of risk maturity, compliance, conduct and culture. These programs must be completed within a timeframe agreed with APRA.

As part of the undertaking, Allianz Australia will also provide the regulator with greater assurance that these programs are complete and operationally effective by taking a number of actions.

The actions include appointing a Responsible Person(s) who will be accountable for the successful completion of the programs, giving written confirmation from the board that the programs have been completed and engaging independent reviewers to provide reports on the status of the programs.

“The [court enforceable undertaking] will ensure the deficiencies that prevailed within Allianz for several years are finally remediated,” APRA Deputy Chairman John Lonsdale said in the statement yesterday.

“It also highlights the importance of robust oversight by parent entities of Australian-based insurers, with Allianz’s German parent, Allianz SE, acknowledging it fell significantly short of APRA’s expectations in this regard.

“While Allianz has already made some positive changes, their commitment to the agreed actions are a significant step forward in fixing the serious deficiencies in their risk management frameworks.

“We do not expect, nor would we tolerate, a repeat of Allianz’s past shortcomings.”

According to the court enforceable undertaking, APRA has been engaging with Allianz Australia since at least 2016 about the insurer’s weaknesses in risk culture, risk governance and risk management.

Some of APRA’s concerns were reflected in the Hayne royal commission’s case study into the insurer in 2018, which were subsequently the subject of breach notifications to the prudential regulator the following year.

APRA says Allianz Australia remains subject to an additional capital requirement, set at $150 million, after it was reduced from $250 million last December. APRA imposed the extra $250 million capital requirement in 2019 on the insurer after it came up short in a governance self-assessment test the business undertook at the request of the regulator.

“Allianz’s weaknesses in its risk culture, risk governance, and risk management are longstanding… and APRA has advised that effective and sustainable implementation of its transformation programs is integral to any decision to remove this add-on,” the regulator said.

A statement from Allianz Australia says its work with APRA has seen the insurer make significant investment in its risk management, compliance and corporate governance and conduct functions.

“Working with APRA, Allianz Australia recognised the need for reform and has embarked on a significant program of work to enhance its culture, conduct and governance,” the insurer said.

The statement also says parent company Allianz SE recognises that it did not meet APRA’s expectations for robust oversight by an offshore parent of a regulated Australian insurance company.

Allianz SE has since taken “vigorous measures” to improve governance at its Australian subsidiary, using its role as the ultimate parent of Allianz Australia to support Allianz Australia’s efforts to ensure that the program of reform is delivered, the statement said.

Click here for the court enforceable undertaking from Allianz.