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New accounting standard triggers APRA review

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The Australian Prudential Regulation Authority (APRA) is reviewing reporting and capital frameworks as part of preparations for new accounting standards.

APRA last week released a discussion paper on its plans to align the frameworks for life, general and private health insurance with AASB 17, due to take effect in January 2023.

For general insurers, proposed changes for reporting include the introduction of a new product group for cyber, while directors’ and officers’ insurance will be seperated from the professional indemnity grouping.

“Given the inherent differences between the intention and performances of these products, it is important to split the two groups in order to provide greater transparency,” APRA says.

The regulator is separately already looking at cyber reporting as part of a National Claims and Policies Database consultation process.

Current arrangements have close linkages with the existing accounting standards, Executive Board Member Geoff Summerhayes says.

“A failure to update the frameworks in a timely manner would create a divergence between the new accounting standard and APRA’s frameworks, resulting in insurers needing to maintain dual valuation, actuarial, accounting and reporting systems,” he said.

“This would lead to a significant regulatory burden with potential for those costs to be passed on to policyholders.”

APRA is reviewing the Life and General Insurance Capital (LAGIC) framework, introduced in 2013, as part of the process but anticipates little significant change.

Proposed LAGIC adjustments would reflect the potential for negative interest rates. It is also looking at amendments for whole-of-account quota share reinsurance arrangements, where a portion of the premium is ceded to reinsurers.

The discussion paper consultation will close on March 31, with updated capital and reporting standards set to be released late next year for further input.

More details are available here.