The prudential watchdog has increased Pacific International Insurance’s capital requirement by $10 million because of “deficiencies” in its binder holder arrangements.

The Australian Prudential Regulation Authority says such arrangements authorise an insurance intermediary to issue policies on the insurer’s behalf.

APRA announced the capital measure last Friday – its first action against an insurer since member Suzanne Smith told the industry last month to expect increased scrutiny on the outsourcing of work to appointed intermediaries including underwriting agencies and brokers.

A review identified fundamental deficiencies in oversight and control of the insurer’s binder holder business and risk management framework. Issues included weaknesses in accountability and adequacy of resourcing.

Ms Smith says that while authority for underwriting can be outsourced, the responsibility remains solely with the licensed insurer. 

“Outsourcing can help with solutions for hard-to-place risks or reduce operational costs for insurers, but it is crucial to understand that the overall risk stays with the insurer, as insurance risk and accountability are the reason why insurers hold licences in the first place,” she said.

She says the regulator will “continue to take suitable action if insurers do not meet expectations”.

The regulator says Pacific International has accepted the findings and is committed to a remediation action plan. “However, further effort is required to ensure the changes are executed and embedded successfully, and to verify their effectiveness in addressing APRA’s concerns.”

insurnanceNEWS.com.au has asked Pacific International for comment.

The insurer had a prescribed capital amount of $29 million at the end of June 30 last year, according to available APRA statistics. It recorded gross earned premium of $229 million, gross incurred claims of $85 million and an underwriting profit of $24 million for the period.

It is part of South Africa’s Badger International, an insurance group with global interests.