An updated supervisory review process will ensure insurers have ample funds to meet their liabilities, the Australian Prudential Regulation Authority (APRA )says.

The proposed process, known as Pillar 2, is one of the three so-called "pillars" underpinning the new Basel II capital adequacy regime, set to come into force at the beginning of next year.

Pillar 2 sets out benchmarks for authorised deposit-taking institutions (ADIs) to improve their risk management and maintain a high level of capital or their prudential capital requirement.

APRA Chairman John Laker says Pillar 2 is very similar to existing capital requirements, but the introduction of Basel II has allowed the regulator to update its regulatory platform.

Under Pillar 2, ADIs should develop, document and maintain a thorough in-house system to ensure it meets capital requirements. A discussion paper is available on the APRA website.