The Australian Prudential Regulation Authority (APRA) has released three new rules as part of its general insurance stage two reforms based on the HIH Royal Commission recommendations.

The new standards will see insurers forced to disclose reinsurance contracts; CEOs and CFOs will have to provide an annual financial information declaration; approved actuaries must prepare a financial condition report; and by October 1 general insurance providers must supply APRA with a business plan that explains their access to capital.

It’s heady stuff for a regulator, and doubtless a nightmare for insurers, although the Insurance Council of Australia (ICA) has given the package its whole-hearted support. APRA says the package introduces a new approach to prudential guidance that will reduce the compliance burden on APRA-regulated general insurance companies while providing a strong and flexible prudential framework.

The framework consists of principles-based prudential standards and separate prudential practice guides, which provide non-binding guidance on meeting these new standards and on prudent practices in these areas.

APRA Member Steve Somogyi says the standards and prudential practice guides are the result of extensive industry consultation. “This package balances APRA’s responsibility to provide a sound prudential framework for policyholders with the needs of the insurance industry to have a flexible, principles-based approach to regulation that does not restrict sensible business practices.”

ICA Executive Director Alan Mason says the reforms will provide a clearer and simplified regulatory system for companies, while maintaining strong prudential requirements.

He says the replacement of APRA guidance notes with “prudential practice guides” is particularly important. “This will provide a more flexible regulatory environment which will reduce the compliance burden on companies and encourage competitive business practices,” he said. “This can only benefit consumers and business alike.”

He also brought up the vexed issue of discretionary mutual funds and direct offshore foreign insurers, saying “it remains a concern” that they are not currently subject to Australian prudential regulations, “leaving some policyholders unprotected”.