The Australian Prudential Regulation Authority's (APRA) draft prudential changes to reinsurance and investment capital regulations may cost insurers up to $2 billion, says Allianz Australia MD Terry Towell.

The changes are intended to protect policyholders and close a loophole in the new direct offshore foreign insurers (DOFI) legislation that would have allowed foreign companies to operate as reinsurers via unintended arrangements.

Proposals include the imposition of a 100% capital charge on reinsurance recoverables and a threefold increase in investment capital charges.

Mr Towell says based on the current reinsurance and investment mix, the industry would need additional capital in excess of $2 billion as a result, leading to a 2% price increase on every risk to cover that capital with a target return for shareholders.

Investors could face higher premiums as a result, he says.

APRA has proposed a four-year grace period for reinsurance arrangements made prior to June 30. It is seeking written submissions to the proposals by February 22.