The Australian Prudential Regulation Authority (APRA) will abolish the mandatory annual peer review of the appointed actuary’s insurance liability valuation report for general insurers.

EGM Policy and Advice Sarah Goodman has written to insurers in response to submissions to an April consultation letter outlining the proposed amendments to prudential standard GPS 320.

The regulator proposed removing the mandatory external peer review but retaining the ability to request a review “in circumstances where APRA considers it appropriate”.

APRA’s view was that abolishing the mandatory review would reduce regulatory compliance costs without compromising the prudential framework.

In the consultation letter, it noted “material findings by the reviewing actuary were not common”.

APRA received 17 submissions from general insurers and actuarial service providers, and the split was along predictable lines.

The proposal has “overall support” from insurers, which believe the value of the report has diminished and the cost of compliance “outweighed the benefits obtained from a risk management perspective”. Actuaries took the opposite view.

“After considering feedback received in the consultation and weighing the costs and benefits of removing the requirement, APRA continues to be of the view that removing the annual review requirement as proposed is appropriate,” Ms Goodman says in her letter of response.

“APRA considers the costs of the annual review requirement exceed the prudential benefits, and that the requirement can be removed without compromising the soundness of the prudential framework.”

The regulator will retain the ability to request a review.

Some submissions requested that APRA retain the mandatory requirement but stipulate a less frequent basis, such as a triennial review.

In rejecting that, Ms Goodman maintains “APRA has already determined that completely removing the mandatory peer review would not compromise the soundness of the prudential framework”.

“APRA’s proposed approach is more risk-based and achieves a larger reduction in compliance costs,” she writes. “It includes the important prudential safeguard of APRA’s ability to request a review report and encourages the general insurer to consider whether to commission a review report having regard to its own circumstances.”

The new prudential standard will apply from December 31. It can be found here.