The Australian Prudential Regulation Authority (APRA) says catastrophe risk management, pressure from low interest rates and commercial pricing are current areas of focus in its regulation of general insurance.

“Although [last financial year] was relatively benign in terms of catastrophe claims, it is important the lessons of earlier years, when claims were much higher, have been incorporated into catastrophe risk management practices,” it says in its annual report.

Low interest rates have depressed investment returns and may put pressure on premium and reserving levels.

“APRA supervisors will be continuing to review the effectiveness of insurers’ risk management frameworks to ensure insurers appropriately recognise and respond to changes in their risk profile as investment market conditions alter.”

The regulator is monitoring reserve releases amid pressure on underwriting results from competition in a number of lines, plus low interest rates.

“Pricing risk in the commercial lines segment has been the subject of an APRA review throughout [this year] as an oversupply of capacity has fed heightened price competition, with insurers at risk of mispricing risks to the detriment of future profitability and capital levels.”

APRA is also monitoring alternative reinsurance arrangements, although it says there was little demand for the products in the past year given favourable terms and conditions for traditional supply.

The report says revised capital adequacy regimes for insurers have successfully bedded down, while work is nearing completion on a prudential framework for conglomerate groups and harmonising and enhancing risk management requirements.

APRA says it will continue to engage with the Financial System Inquiry as it prepares its recommendations, and it “stands ready to assist the Government” when it formulates a response to the inquiry’s final report.

It warns the affordability of natural perils insurance remains a source of reputational risk for the general insurance industry, particularly for properties at risk from cyclones and flooding.