APRA finalises prudential framework amendments for insurers

Changes aim to maintain framework's relevance between comprehensive reviews

APRA finalises prudential framework amendments for insurers

Insurance News

By Roxanne Libatique

The Australian Prudential Regulation Authority (APRA) has finalised its response to a consultation regarding minor adjustments to the prudential framework for insurers, authorised deposit-taking institutions (ADIs), and registrable superannuation entity (RSE) licensees.

These updates, originally proposed in September 2024, aim to provide technical clarifications and corrections within the framework, rather than making substantive changes to policy.

APRA described the amendments as part of its strategy to maintain the framework’s relevance between comprehensive reviews.

Prudential framework updates

During the consultation process, APRA received two submissions supporting changes to capital adequacy standards (APS 110 and APS 112).

No feedback was submitted on other proposals. The finalised updates, effective from various dates, include:

  • APS 110 (Capital Adequacy): Finalised and set to take effect for ADIs on Jan. 1, 2025.
  • APS 112 (Capital Adequacy: Standardised Approach to Credit Risk): Confirmed in principle, with formal registration planned for early Q1 2025.
  • APS 116 (Capital Adequacy: Market Risk): Finalised, effective Jan. 1, 2025, for ADIs.
  • HPS 110 and HPS 112 (Private Health Insurance Capital Adequacy): Finalised and effective Jan. 1, 2025.
  • CPS 511 (Remuneration): Deferred, with completion anticipated in the first half of 2025.
  • GPG 240 (Insurance Risk) and LPG 240 (Life Insurance Risk): Published for immediate application.

APRA’s website hosts the finalised standards along with non-confidential submissions for public reference.

Broader regulatory priorities 

Aside from making minor amendments to the prudential framework for insurers, APRA reaffirmed its commitment to financial stability amidst evolving risks such as economic shifts, geopolitical uncertainty, and inflation.

Cybersecurity and operational resilience remain key focus areas as financial institutions continue to expand their digital operations.

In the insurance sector, APRA is actively addressing issues of coverage availability and affordability. The regulator continues to collaborate with stakeholders through programs like the Hazards Insurance Partnership, which targets risks linked to natural disasters.

Plans and initiatives

Looking ahead, APRA is developing Australia’s first systemic financial stress test to evaluate interconnections between banks and superannuation funds during crises. Additional plans include:

  • a discussion paper addressing governance practices, board accountability, and structural reforms within regulated entities
  • extending the Financial Accountability Regime (FAR) to insurers and superannuation trustees by March 2025, following its implementation for banks
  • strengthening oversight with operational risk management standards (CPS 230) and cybersecurity requirements (CPS 234)

APRA has also released findings from its second voluntary climate risk survey, highlighting how financial institutions manage and disclose climate-related risks.

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