The Australian Prudential Regulation Authority (APRA) has issued a set of answers to general insurers’ concerns on capital adequacy standards.

In a letter to insurers, the regulator says the guidance booklet, GPS 112, provides feedback on its interpretation of the requirements of Residual Tier 1, Upper Tier 2 and Lower Tier 2 capital instruments.

It gives guidance on what documentation a general insurer should provide when submitting a capital instrument proposal for assessment.

APRA is giving guidance on convertible preference shares being issued to a non-operating holding company and its impact on an insurer’s capital.

It is also dealing with share splits and bonus issues and their impact on insurers’ capital requirements. 

In a separate section of GPS 112, APRA is looking at issues raised by insurers relating to the Basel III eligibility criteria.

In its letter to insurers, APRA says it “intends to continue to broadly align its requirements in relation to quality of capital between insurers and authorised deposit-taking institutions and adopt equivalent capital definitions”.

It will consult further with the general insurance industry on revised standards in this area. 

APRA has said it will consider new capital issues as being eligible for transition arrangements as long as they meet the Basel III requirements released in December last year.

The guidelines are intended to reduce any uncertainty insurers may have until the regulator finalises its requirements to meet Basel III.