Australia has the Asia-Pacific region’s strongest insurance industry regulations, Standard & Poor’s (S&P) says in a new report.

It rates the country’s general and life sector institutional frameworks as “very strong” under an insurance industry and country risk assessment. Worldwide, Canada and the UK are the only other countries with regulatory frameworks as strong.

The rating underscores the Australian Prudential Regulation Authority’s (APRA) market-leading approach to beefing up supervision of the industry, according to S&P.

“Australia leads the effort,” S&P says in a report. “APRA was early among regulatory peers to implement enhanced risk-based capital standards… APRA is also considered a market leader in the development of a conglomerate supervision framework.”

S&P says Australia’s risk-based standards are similar to the European Solvency II regime and application has been made for temporary equivalence.

“It is widely recognised as a global leader in prudential supervision, and is a key stakeholder in the development of global regulatory initiatives,” the report says of APRA.

The regulator’s assessment of several insurance groups’ applications for accreditation of their economic capital models is “a reflection of the trend towards stronger supervision of capital-management planning”, S&P says.

“We view the ongoing process of raising the bar for regulatory expectations as a critical element of the continued building of a robust insurance market within the Asia-Pacific region.

“Some of the region’s regulators are contemplating the potential for domestically systemically important insurer designations within their respective markets, including Australia.”

S&P says stronger regulatory requirements for capital adequacy and enterprise risk management will likely be credit-positive.