The Australian Prudential Regulation Authority (APRA) is examining how general and life insurance companies fit into authorised deposit-taking institutions (ADIs).

Current prudential standards for ADIs prevent insurance from being consolidated in reporting.

After a review, the regulator has found inconsistencies in the way businesses such as insurance are included or excluded from the prudential standard.

“Some ADIs have also sought clarification on this matter from APRA,” the regulator says in a letter to the industry.

“APRA’s work in recent years on the potential for contagion within conglomerate groups and the need for robust capital frameworks has also assisted in this review.”

The regulator will treat general insurers as an exclusion when ADIs are calculating capital needs for meeting the prudential standard.

It is now willing to recognise companies’ life operations as “insurers”.

“APRA may consider an application where the activities of non-life subsidiaries are closely integrated with the provision of life insurance services of parent life insurance companies.

“However, non-operating holding companies of life insurance subsidiaries would need to continue to be included in the ADI Level 2 group.”

When the prudential standard is next revised, APRA intends to address the treatment of these entities. It says it “would have no objection to the application of these interpretations in the interim by ADIs”.