Insurers’ risk margins are in line with general expectations, according to the Australian Prudential Regulation Authority (APRA).

The regulator says valuations of insurance liabilities and the reserves held to cover them have a direct impact on a company’s financial soundness.

The risk margin shows the amount an actual liability may differ from the valuation.

APRA has surveyed risk margins to give insurers and their actuaries a benchmark, and last week issued its first risk margin report since 2008.

It says variations in risk margins between classes of business “appear reasonable”, with companies mostly adopting a lower risk margin for short-tail claims.

Insurers taking a view on their outstanding claims liabilities give the highest risk margin to classes where there is significant delay between an event causing a claim and when the claim is paid.

Compulsory third party is an exception, and APRA says this is a well-defined and relatively homogenous class.

Larger insurers tend to adopt lower risk margins than smaller companies.