Plenty of small insurers were predicting last May that APRA would come after them with a big stick after the collapse of HIH and controversy over prudential margins; and that seems to be happening. APRA has already introduced stricter regulations that require insurance companies to have at least $5 million in capital by July, or a valid excuse for non-compliance.

This has left small insurers with the dilemma of raising the required capital with just four months to go. APRA Chief Executive Graeme Thompson has previously denied that the regulator would single out the small insurers. But he was talking tough last week. “We are certainly taking a firm approach and I wouldn’t resile from the description of a tough approach to the implementation of this new regime. ”

Some smaller businesses have already merged or sold out to larger companies. Keith Goss sold his Sydney-based insurance firm Key Insurance Group to Australian Unity late last year.

“I sold my business rather than go through the mounting problems we were facing with the regulators,” he said. “I think they [APRA] had already decided what number of insurers they are prepared to manage and I think they are doing it to bring [about] a reduction in numbers.”

Mr Goss said APRA should have targeted the top end of the market in its reaction to the HIH collapse. “I know where I’d put my priorities if I was forced to. I would start with the top end and work my way down. Not the other way around.”