Insurers should expect the Australian Prudential Regulation Authority (APRA) to increase its focus on risk appetite, according to new APRA Executive Member Ian Laughlin.

He says the regulator will continue to develop its supervisory skills and expertise in the area of risk appetite.

Mr Laughlin, who replaced John Trowbridge on the three-person APRA executive board in July, was speaking at the Institute of Actuaries of Australia general insurance seminar at the Gold Coast last week.

He says APRA measures “the totality of systems, structures, processes and people within the insurer” in the context of risk management.

And he admits articulating an insurer’s risk appetite is “quite difficult to do well… and this is reflected in the practices we are seeing”.

APRA has reviewed the risk appetite statements of a number of general and life insurers, and spoken to CEOs and boards about board engagement in the risk appetite process.

Mr Laughlin says the findings so far include some risk insurers having no clear statement of risk appetite, “or no obvious understanding of what it actually is”.

The quality of statements “range from poor to quite good”, and there is a lack of scenario analyses and stress-testing.

In some cases APRA has found a disconnect between the risk appetite statement and its translation into operational management, while local operations of some foreign-owned insurers have been left out of the process.

“With some subsidiaries or branches of foreign-owned insurers, we see an adoption of group risk management practices without necessarily full and proper engagement of local management and/or the board,” he said.