APRA’s CEO is determined there will be no more HIH’s on his shift. Graeme Thompson says the planning of the overhaul of the prudential framework for insurers has been the most important issue for APRA since 1998. Speaking at the ICA conference in Canberra last week, he said the new reforms due to come into effect next July were fast-tracked after the collapse of HIH. “HIH’s demise would have been much less likely under our new regime,” he said. 

The new minimum capital requirements have risen from $2 million to $5 million. He expects about 50 companies to fall short, but never fear; those who can’t immediately meet the requirements will have until 2004 to do so. “More than half are very small and are affected by the increase in minimum capital,” Mr Thompson said.

Some of the affected companies are generally expected to disappear. For the rest, the situation is less clear.  These companies will have to prepare a robust plan that shows they can reach the capital requirements by 2004.  For the sake of the industry’s reputation, APRA will handle those companies who cannot reach the target carefully with minimal impact on policyholders. 

The new regime calls on insurers to appoint an approved actuary for liability valuation.  This person may be an employee or external consultant of the company but must meet the requirements and gain approval from APRA.

The events of the past six months have given three-year-old APRA no choice but to mature quickly, Mr Thompson said. He pointed out – for the second week in a row – that APRA inherited an “old-fashioned and inflexible” Insurance Act”, and “a supervisory approach that was insufficiently risk-focused and excessively forbearing.”