The Australian Prudential Regulation Authority (APRA) is moving to align its insurance capital and reporting frameworks with a new accounting standard to avert an extra burden when it takes effect, and is pushing firms to refocus on their preparations following COVID-19 disruptions.

APRA today released a discussion paper on its plans to align capital and reporting frameworks for life, general and private health insurance with AASB 17.

Current arrangements have close linkages with the existing accounting standards, Executive Board Member Geoff Summerhayes says.

“A failure to update the frameworks in a timely manner would create a divergence between the new accounting standard and APRA’s frameworks, resulting in insurers needing to maintain dual valuation, actuarial, accounting and reporting systems,” Mr Summerhayes said.

“This would lead to significant regulatory burden with potential for those costs to be passed on to policyholders.”

APRA is also updating the Life and General Insurance Capital (LAGIC) framework, since it has not been “substantively” reviewed since its 2013 introduction, but anticipates little significant change.

The regulator says the LAGIC framework is achieving its objectives and it’s not seeking to generally increase or reduce capital levels, and the proposals are not expected to materially impact premiums.

APRA says a number of insurers have “understandably decelerated or paused” their implementation of AASB 17 due to COVID-19 issues, but warns it’s time to refocus attention given the accounting standard start date of January 1 2023.

“A rushed implementation would heighten operational risks and is likely to increase implementation costs, especially if system modification or additional external resources are required,” it says.

To assess industry progress, APRA intends to conduct a further survey in the second quarter next year and engage with individual insurers that have not adequately progressed plans.

The consultation on the discussion paper will close on March 31, with updated capital and reporting standards set to be released late next year for further input.

The final APRA capital and reporting standards will become effective from July 1 2023.

More details are available here.