The Australian Prudential Regulation Authority (APRA) has written to insurers to update its capital management guidance, easing restrictions around paying dividends.

APRA expects insurers to maintain caution in planning capital distributions and to take a measured approach to dividends, taking into account the ongoing uncertainty in the outlook, APRA Chairman Wayne Byres says in the letter.

“Insurers do not need to continue to defer capital distributions, provided they moderate payments to sustainable levels based on robust stress-testing, and continue to prioritise supporting their customers and the economy,” APRA’s updated advice says.

In April APRA recommended boards consider deferring decisions on dividends and offset any distributions to the extent possible through other capital actions.

Mr Byres says APRA expects that stress-testing will still be conducted regularly to guide decision-making.

“Insurers should not rely on a single scenario and recognise the potentially significant margin for error in such exercises,” the letter says.

It also expects regular reviews of capital buffers and targets, prudent decisions on dividends and ongoing stress-testing to forecast and plan capital levels.