Applicants seeking an Australian insurance licence will have to wait at least six months, with the regulator deciding to suspend issuing new permits due to the economic turmoil created by the COVID-19 pandemic.

The Australian Prudential Regulation Authority (APRA) has written to applicants for new insurance, superannuation and banking licences to advise that it is temporarily suspending the granting of new permits for at least six months.

“Experience has shown that it is challenging for new entrants to succeed even under normal economic conditions, which is why APRA does not consider it prudent to license APRA-regulated entities at this time,” it said.

APRA said it will keep its approach under review and advise current applicants when the granting of licences is to restart. During this time, APRA will continue to assess current licence applications to minimise delays when the operating environment stabilises and the hold is lifted.

The COVID-19 virus has led to a “fundamental change in the economic and social environment in Australia and globally,” APRA says.

Firms that issue insurance “occupy a unique position of trust” and the financial safety of insurers is key to the financial stability and well-being of the community.

“As a result, these institutions are subject to higher standards than many sectors of the economy. This includes higher entry standards.”

An APRA spokesman declined to tell insuranceNEWS.com.au whether any insurance licence applications are currently pending, saying such information is confidential.

APRA has also issued new guidelines recommending insurers limit their discretionary capital distribution, including deferral or “prudent reductions” in dividends.

Chairman Wayne Byres wrote to all authorised deposit-taking institutions (ADIs) and general insurers, life companies and private health insurers to outline the regulator’s capital management guidance during the COVID-19 emergency.

“APRA expects ADIs and insurers to limit discretionary capital distributions in the months ahead, to ensure that they instead use buffers and maintain capacity to continue to lend and underwrite insurance,” he says.

“This includes prudent reductions in dividends, taking into account the uncertain outlook for the operating environment and the need to preserve capacity to prioritise these critical activities.”

However, QBE said today that despite the advice it will go ahead and pay its promised 27 cents a share dividend to shareholders tomorrow.

A statement to the ASX says QBE directors have “carefully considered APRA’s new guidelines regarding the payment of dividends by financial institutions in the current volatile COVID-19 economic environment”, but the “board is satisfied that it is appropriate” to pay the final dividend as scheduled.

Last month APRA allowed insurers to use capital buffers where needed to support the ongoing supply of credit to the Australian economy.

Mr Byres says that during the next couple of months insurers should take a “forward-looking view” on the need to conserve capital and “give due consideration to plausible downside scenarios”.

APRA has recommended that insurers defer decisions on the appropriate level of dividends until the outlook is clearer and any approved dividends should “be at a materially reduced level.” It has also urged boards to “appropriately limit” executive cash bonuses.