The Australian Prudential Regulation
Authority (APRA) has taken the first step towards the introduction
of significant change in the regulation of the country’s insurance
industry with the release of a discussion paper describing its
proposals to update capital standards.

Proposed changes for general insurers are quite
limited and focus on more risk-sensitive capital standards.

This change, said APRA executive member John
Trowbridge, would benefit insurers with assets well-matched to
their liabilities and with well-constructed reinsurance

For life insurers, changes would be far more
significant and involve simplifying the current dual reporting
requirements for solvency and capital adequacy and aligning the
capital structure for life insurers more closely with the capital
structure for authorised deposit-taking institutions and general

“The proposed new capital requirements for life
insurers are simpler and more risk-sensitive than the current
arrangements, as well as easier for all stakeholders to understand
and work with in both substance and presentation,” said

APRA will release three supplementary technical
papers in June 2010 and will also conduct a quantitative impact
study on the impact of the proposed changes on insurers.

APRA expects to release draft capital standards
by the end of 2010 and final capital standards in mid-2011, to take
effect in 2012.