The Australian Prudential Regulation Authority (APRA) has asked life insurers for input on a review of capital adequacy standards for overseas players.

The group life market increasingly uses offshore reinsurers, which may put APRA’s ability to supervise the industry at risk. APRA says that while it can watch offshore reinsurers to some extent by supervising the local industry, its oversight and access is not enough.

Offshore reinsurers may not have a long-term perspective on the Australian market, which is essential for stability, the regulator says. It wants to revise restrictions on exposure to offshore reinsurers so risks are constrained.

APRA is also reviewing the industry’s treatment and use of risk mitigation techniques and trying to align the industry with relevant general insurance requirements. And it is seeking feedback on its concerns and policy responses.

It warns some options may have a marginal impact on competition, but that will be outweighed by improved safety and stability.

One option is that exposure limits to offshore insurers would be measured in aggregate, which would allow a moderate level of offshore reinsurance.

Life insurers currently can have unlimited exposure to offshore reinsurers if recognised risk mitigation techniques are in place. The regulator wants to limit the extent to which insurers can use those techniques.

A second round of consultation will take place in the second half of the year.