The Australian Prudential Regulation Authority (APRA) has stepped up its focus on general insurers in response to the economic fallout from COVID-19 and last summer’s natural disasters, the regulator says in its 2019/20 annual report.

APRA says it has paid particular attention to the “potential for significant downside risks across impacted lines of business”.

It flags business interruption (BI) as a “prominent area” of focus, citing significant uncertainty regarding the extent of the industry’s exposure as a result of legal challenges to policy wordings. A test case hearing on BI exclusions is currently being heard in the NSW Court of Appeal, which has adjourned to consider its decision.

The regulator says it intensified its engagement with peer domestic and international regulators and actively participated in a cross-agency working group on BI insurance.

Despite the dire economic environment, APRA says general insurers continue to maintain strong balance sheets and report robust capital positions.

“APRA’s risk-based supervision of the general insurance industry needed to step up in intensity at the beginning of 2020 given the significant impacts of natural catastrophe events, the COVID-19 pandemic and increased market volatility,” the regulator says.

“The prudential strength of general insurers remains an important focus for APRA.”

APRA says its focus shifted in the second-half of the financial year to analysing the usability of insurers’ recovery plans in the COVID-19 environment, to support the monitoring of risk indicators, assessment of resilience and the credibility of recovery options.

Its draft standard for heightened requirements on executive remuneration remains at the consultation phase because of COVID-19. APRA is currently reassessing its timetable for introduction of the standard and has flagged it will recommence consultation towards the end of this year.

COVID-19 regulatory relief measures saw 31 general insurers make requests towards the end of the last financial year. APRA approved 23, declined one and is looking at the other seven applications.

In the last financial year APRA collected about $188.1 million in levies from the financial services industry, including $31.5 million from general insurers.

Click here for the APRA report.