The Australian Prudential Regulation Authority (APRA) has issued a response paper and 14 draft prudential standards as part of its review of capital standards for general and life insurers. 

Industry responses are due by February 24.

Ernst & Young Actuarial Leader Grant Peters says the proposals will see the requirements for Australian insurers more closely aligned with developments in the European insurance industry, in particular Solvency II.

He says the key implications are increased capital requirements – which will lead to additional pressure on shareholder returns – greater scope for supervisory adjustment and increased reporting requirements.

“We expect to see capital requirements increase across the Australian insurance industry, with some companies and product lines being impacted more than others,” he said.

APRA Executive Member Ian Laughlin says the review is intended to lead to an increase in the risk-sensitivity of capital requirements.

“The impact of the revised proposals will vary between insurers,” he said. “Some insurers will have little change or a reduction in their capital requirements while others will have an increase.

“The increase in capital requirements will be modest for many insurers, but for a small number of insurers there will be a material increase.”

APRA’s policy of aligning its requirements for the composition of capital base for authorised deposit-taking institutions and general insurers is being extended to life insurers, and Mr Peters says the impact of the new requirements is likely to be more significant for life insurers than general insurers.

The complete set of final prudential standards, reporting forms and instructions are expected to be released by October next year and would take effect from January 1 2013.