Allianz must put in $250 million in extra capital requirement after coming up short in a risk governance self-assessment test it undertook last year at the request of the Australian Prudential Regulation Authority (APRA).

APRA says in a statement today the prudential condition will remain in place until the insurer has finished remediation work to improve its risk oversight and addresses lapses found in the test.

According to APRA statistics, Allianz had a prescribed capital amount of about $1.4 billion last year.

“Last financial year, APRA-regulated general insurers paid out $27.5 billion to their policyholders,” APRA Executive Board Member Geoff Summerhayes said. “With Australians relying on these policies to financially protect them when things go wrong, it’s essential that insurers have in place appropriate internal processes to honour those commitments.

“By imposing this additional capital requirement, APRA is providing a financial incentive for Allianz to quickly and effectively implement its planned remediation work.”

Mr Summerhayes says APRA also wants “to send a message to the broader insurance and superannuation industries that APRA expects the same high standards of risk management, including for non-financial risks, as we do for the banks”.

An Allianz spokesman told insuranceNEWS.com.au the $250 million supervisory adjustment to its prescribed capital amount will take effect on September 1.

He says the insurer has a “comprehensive program of work arising out of the [self-assessment test] and we will continue to work with APRA in relation to this.”

The German-owned company is the first insurer and fifth financial institution in Australia to be hit with an additional capital obligation since the prudential regulator announced in May that it had found “material weaknesses” in governance and the management of non-financial risks such as culture and accountability.

The self-assessment tests were imposed on 36 financial institutions, including Allianz and eight other general insurers.

APRA ordered the tests to determine if the governance issues it found from its prudential inquiry into the Commonwealth Bank of Australia (CBA) also existed in other financial services providers.

Last month APRA imposed an additional $500 million capital requirement on three banks – ANZ, NAB and Westpac. In May last year, the regulator applied a $1 billion capital adjustment to CBA following its prudential inquiry.