The prudential regulator has achieved the first major outcome of a capital standard review process by releasing a discussion paper in support of its aim to improve capital standard consistency and risk-sensitivity across regulated industries.

The Australian Prudential Regulation Authority (APRA) proposal includes updated capital standards for both the general and life insurance industries.

APRA Executive Member John Trowbridge says the regulator has “not set out to achieve any material change in overall industry capital levels”.

The regulator regards general insurance adjustments as modest and says they are intended to ensure that “all material types of risk, including asset and liability mismatch, asset concentration and operational risks, are adequately catered for within the capital standards”.

Life insurers face a more comprehensive adjustment, with APRA proposing to simplify the current dual reporting requirements for solvency and capital adequacy.

It also intends to align the capital structure for life insurers more closely with the capital structure for authorised deposit-taking institutions and Australian general insurers.

Mr Trowbridge says the developments will be of benefit to general and life insurers.

“For general insurers, the benefits of this review also include more risk-sensitive capital standards, to the benefit of insurers with assets well matched to their liabilities and with well constructed reinsurance protection”.

He says life insurers will benefit from simplified adjustments that will aid stakeholder understanding and compliance.

The regulator intends to issue three supplementary technical papers next month, with draft capital standards expected by the end of the year. Final capital standards are expected by the middle of next year and will take effect in 2012.