The Australian Prudential Regulation Authority (APRA) has released detailed observations and feedback following its review of Internal Capital Adequacy Assessment Plan (ICAAP) Summary Statements and data submissions from the private health insurance (PHI) sector.
These assessments follow the commencement of the new capital framework on July 1, 2023, which was designed to align capital management practices across the insurance industry.
APRA conducted a peer review of ICAAP Summary Statements, identifying effective practices and potential improvements.
The framework requires insurers to develop an ICAAP summary statement, as outlined in Prudential Standard HPS 110 Capital Adequacy. While significant financial institutions (SFIs) were required to submit their first summaries by July 1, 2023, non-SFIs have until July 1, 2025, benefiting from a two-year transition period unless otherwise directed by APRA.
The letter noted that most insurers fulfilled the HPS 110 requirements, though APRA identified opportunities to enhance capital management practices.
APRA highlighted the importance of the ICAAP summary statement in overseeing risk and capital adequacy, and outlined observations on ICAAP best practices drawn from both general and life insurance.
The review of quarterly data submissions from September and December 2023 found that the new capital framework’s impact on the industry’s financial stability aligned with expectations set forth in APRA’s 2022 information paper.
Despite varied effects on individual insurers, APRA reported that the industry maintains a solid capital position overall.
To assist insurers with framework implementation and reporting, APRA compiled key insights and examples in two attachments.
The first provides industry-wide observations relevant to insurers, emphasising practices drawn from other insurance sectors. The second summarises APRA’s review of quarterly submissions and offers guidance for insurers to refine their reporting and compliance strategies.
Non-SFIs under transitional arrangements are required to submit their ICAAP implementation plans by July 1, 2024. APRA recommended that these plans be concise and focused on critical milestones and responsibilities. The regulator will monitor progress through discussions with senior management and boards of insurers.
“As part of APRA’s ongoing supervision of entities APRA may, from time to time, discuss the ICAAP implementation plan with senior management and the boards of insurers to understand progress,” it said. “APRA expects that industry practice will continue to improve across the areas identified in this letter as the implementation of the new prudential standards progresses.”
