The Australian Prudential Regulation Authority (APRA) has sent an internal report to the Federal Treasury about the controversial use of direct offshore foreign insurers (DOFIs). The report is understood to detail the regulator’s preferred action regarding unregulated insurers in the Australian market.

Speaking at last week’s Australian Professional Indemnity Group Symposium in Melbourne, Stephen Glenfield, APRA’s GM Specialised Institutions Division for the southwest region, acknowledged problems with the use of DOFIs in Australia, but didn’t stipulate what APRA wants done about it.

“We have submitted a report to Treasury on what we think should be done about the situation,” Mr Glenfield told delegates. “But at the end of the day it will be Treasury that decides what will happen.”

The industry has voiced its concerns over the security of suspect DOFIs over the past few years, but the Federal Government has done nothing to control the market. Brokers believe DOFIs that come from a robust regulatory environment and have high ratings play an important role in the market. But local insurers say the foreign insurers hold no reserves in Australia and are playing at the winner’s end of an uneven playing field.

After the HIH Royal Commission noted the problems of DOFIs in the local market, the Government engaged former Treasury director Gary Potts to review the issue. Only a summary of the report has been released because of “commercially sensitive” information.