APRA finalises capital and reporting frameworks for insurance

The Australian Prudential Regulation Authority (APRA) has finalised its amendments to the capital and reporting frameworks for insurance to align them with the new accounting standard Australian Accounting Standards Board 17 Insurance Contracts (AASB 17).

The changes aim to minimise the regulatory burden caused by a misalignment between APRA's frameworks and AASB 17 while ensuring good prudential outcomes. The amendments include:

• Clarifications of the regulatory capital calculation given AASB 17's introduction;
• Clarifications to enable insurers to use AASB 17 accounting policies and principles to report financial statement information to APRA;
• Additional data reporting requirements to ensure APRA has adequate data for capital assessments and profitability monitoring; and
• Updates and clarifications to the Life and General Insurance Capital (LAGIC) framework to keep it fit for purpose, given the change in industry practices and operating environment over time.

Read more: APRA chair Wayne Byres on the industry's progress in managing major risk trends

AASB 17, the direct result of implementing the equivalent International Financial Reporting Standard (IFRS) 17 in Australia, establishes principles for insurance contracts' recognition, measurement, presentation, and disclosure.

The requirements are designed to help users of financial statements better understand an insurer's exposure, profitability, and financial position and facilitate comparison across similar insurance companies.

Given the changes AASB 17 may have on the balance sheet of insurers depending on accounting decisions they make, APRA is seeking industry feedback on additional requirements to ensure regulatory capital levels are sufficient to protect insurers' prudential soundness and encourage appropriate accounting decisions. Submissions on these requirements are sought by October 31, 2022. Meanwhile, the revised prudential and reporting standards will come into effect from July 1, 2023.

In a statement, APRA said it expects insurers to “be well progressed in their readiness for the implementation of AASB 17, including identifying and managing the risks associated with the transition process.”