The Australian Prudential Regulation Authority (APRA) has delayed the start of the “horizontal requirements” of the Insurance Concentration Risk Charge (ICRC) until January 1 2014.

The implementation date deferral will apply to both insurers and Level 2 insurance groups.

In a discussion paper late last year, APRA noted an insurer’s capital position could be affected by a succession of small losses, including buying extra reinsurance.

“APRA considers it appropriate for the capital framework to include a component that considers the net impact to an insurer of a series of losses of varying size and frequency during a one-year time horizon,” the regulator said in a letter to insurers.

“This is known as the ‘horizontal requirement’.”

The industry has called for more time to determine and implement an appropriate strategy to deal with the new requirement.

This could include additional reinsurance protection or increased capital as well as raising premiums.

Insurers are also concerned meeting this new requirement could be subject to the cost and availability of reinsurance cover, and there are also concerns as to how insurers can calculate the horizontal requirement.

APRA says insurers will now have to calculate and report on their prescribed capital amount based on asset concentration, insurance, ICRC and operational risks between July 1 next year and December 31 next year.

The regulator will require each insurer to calculate the quantum of the horizontal requirement from January 1 and include this in its internal capital adequacy assessment process.

“The process will need to set out how the horizontal requirement impacts its target and triggers capital levels.”

APRA says insurers will need to specifically address planned capital, reinsurance or other management actions to ensure they can fully meet the horizontal requirement by January 1 2014.