Australian companies with captive general insurance subsidiaries will be exempt from prudential regulation under a new Australian Prudential Regulation Authority (APRA) proposal.

The regulator says the proposal ensures no unwarranted regulation of captives and consistent treatment between onshore and offshore captive insurers.

Decisions to retain insurance risk within a corporate group, either through a captive insurer or through self-insurance by member companies, is a commercial one and APRA doesn’t think the risk retention arrangements of a captive should be subject to prudential regulation.

APRA Executive Member Steve Somogyi says prudential regulation “is focused on protecting third party beneficiaries, including policyholders and others, and on promoting financial system stability, efficiency and competition”.

“These objectives are not directly relevant to an intra-group captive insurance arrangement where no third parties are involved.”