The Australian Prudential Regulation Authority (APRA) has released a draft of its proposed stage 2 reforms for general insurance. They are based on recommendations from the HIH Royal Commission that it intends to implement next January.

The latest moves are described by industry insiders as tough and uncompromising, but the industry has been expecting the measures for some time. Insurance Council of Australia (ICA) Executive Director Alan Mason says the industry has appreciated the consultation process and the fact that APRA has considered insurers’ views.

The new measures require insurers to provide detailed records of their reinsurance arrangements and have an external actuary investigate their ability to pay claims.

Under the new rules, actuaries will have to complete an annual “financial condition report” (FCR) for general insurers. The insurers will also have to provide APRA with details on their financial reinsurance arrangements, but the information will not be made public.

The draft paper also seeks to clarify and strengthen requirements in business planning, risk management, introduce strict requirements for the approval of limited risk transfer and requires approved actuaries to have a peer review undertaken of actuarial valuations of insurance liabilities.

It also calls for CEOs and CFOs to attest to the accuracy of financial information provided to APRA, the approved auditor and the approved actuary.

Mr Mason says the industry originally had concerns that the requirements of the FCR would impose a significant time and cost burden on smaller insurers, while providing little or no value to the company management or board.

“While not varying the scope of the report, the proposal appears to take a more flexible approach, requiring less detail from smaller companies,” he said.   

“ICA also believes that allowing the CEO and CFO to sign-off on financial information provided to APRA is a more practical approach than requiring the whole board to do so.”

Mr Mason says ICA will need to review the detail to understand the full implications of the paper. APRA is inviting comment until August 5.