Revised prudential standards and even greater public disclosure are the two major points of an Australian Prudential Regulation Authority (APRA) discussion paper released last week. The paper responds to a number of the recommendations made by the HIH Royal Commission in April, and comes on top of the new prudential framework for the supervision of general insurers that came into effect in July last year.

There’s a lot to assimilate in a paper with suggestions ranging from “logical and supportable” to “logical but not necessarily welcome”. Interested parties have until February 27 to make a submission. Steve Somogyi, one of the three-member group running APRA, says the regulator has identified a “diversity of interpretations” by insurers in meeting APRA’s prudential standards. “APRA considers it appropriate to refine, clarify and, in some cases, increase minimum prudential requirements.”

Agreeing that such supervision is going to cost insurers even more – and comparing their level of disclosure with those of the banks – the discussion paper suggests revisions to prudential standards which cover the way capital and such areas as reinsurance recoveries are handled. It also covers governance standards and the need for APRA to “more accurately assess the financial position and risk management practices of general insurers”. Mr Somogyi says the protection of policyholders’ interests is “core to APRA’s mandate”.

Reinsurance also comes under the APRA spotlight, with the regulator wanting to see more disclosure on reinsurance arrangements. “APRA is not seeking to approve reinsurance arrangements; rather we are focusing on gaining a better understanding of the arrangements that insurers have in place.”

Financial reinsurance, which APRA describes succinctly as a “non-risk transfer product”, should only be allowed with APRA’s prior approval, the discussion paper says. Among the many other proposals are plans to open up the lenders’ mortgage insurance market to more players; more detailed business plans; and a general widening of the prudential information that APRA can make available to the public.

But wait, there’s more. APRA also intends to develop a regime of consolidated supervision for general insurance corporate groups, “which aims to minimise the risk of adverse developments in one area of a conglomerate damaging the overall soundness of the general insurance group”. This will be the subject of a separate consultation paper next year.

And even more. The regulator will also release a separate consultation paper and draft prudential standard next year on “fit and proper” requirements in the general insurance, life insurance and authorised-taking sectors. It’s obvious the industry can expect more tinkering over the next few years as the regulator gets everything into order.