The prudential watchdog is consulting on potential changes to its reinsurance framework in a bid to address premium affordability challenges.

The Australian Prudential Regulation Authority is seeking ways to increase general insurers’ access to reinsurance, including alternative arrangements such as catastrophe bonds, according to member Suzanne Smith.

Insurers have mostly relied on traditional reinsurance solutions to manage risk and meet capital requirements, but changes in the past few years have prompted a review of APRA’s framework.

“In recent years, the global reinsurance market has been challenged by a range of factors including the increased impact of severe weather events and rising geopolitical instability,” Ms Smith says in a letter today to general insurers and reinsurers.

“These factors have at times contributed to a significant hardening of the reinsurance market in Australia and globally, reflected in higher retentions and increased reinsurance costs, putting further pressure on [general insurance] availability and affordability challenges.

“To continue to access appropriate, cost-effective reinsurance, industry has expressed appetite for alternative reinsurance arrangements.”

Her letter sets out potential adjustments to the general insurance reinsurance framework and seeks feedback.

APRA has “appetite” to review its capital requirements relating to all perils, reinstatement and reinstatement premium conditions, according to the letter.

“While the potential adjustments detailed ... represent an easing of the current requirements, APRA will continue to expect robust reinsurance management practices,” Ms Smith says.

The letter comes after APRA said in August last year that it would consult with the industry on ways to ensure prudential requirements remain fit for purpose.

“Industry feedback has indicated that aspects of APRA’s prudential framework present challenges to accessing the full suite of available reinsurance solutions,” Ms Smith’s letter says.

The closing date for submissions is February 17. Click here to see the letter.