The Australian Prudential Regulation Authority (APRA) has backed away from controversial plans to change reinsurance recoverables and investment capital factors.

Industry opposition has prompted the regulator to drop its December proposal from plans to impose capital charges on reinsurance contracts taken out with reinsurers not regulated by APRA.

APRA instead proposes a risk-based scale to the recognition of reinsurance recoverables based on reinsurer ratings.

Under the initial proposal, an insurer using a reinsurer not regulated by APRA would usually be required to reserve a 100% capital charge against a claim.

APRA’s concession allows insurers to continue to access well-rated foreign reinsurers unhindered.

It proposes to “grandfather” past reinsurance arrangements – that is, it will allow the old rule to continue to apply for now. No reinsurance recoverables relating to reinsurance contracts arranged prior to December 31 last year will be affected.

APRA has also scaled back proposed increases to capital factors for listed equity investments. Requirements have been lifted from 8% to 16%, rather than the 25% initially proposed.

Increases for direct property and other unlisted investments have been capped at 20%, rather than 30%, with further changes likely in 2009.

The revisions relating to reinsurance recoverables were deferred until December 31. Remaining proposals will proceed from July 1.

ICA CEO Kerrie Kelly says APRA is expected to release final standards in June.