The Australian Prudential Regulation Authority (APRA) has released an updated prudential standard designed to manage risks associated with the growing use of offshore reinsurers by the Australian life insurance industry.
The updated standard includes amendments to ensure that the risks associated with using offshore reinsurers are appropriately managed and mitigated, following increased reliance by Australian life insurers.
APRA says its revisions aim to ensure the risks associated with the use of offshore reinsurers are being appropriately managed, while also allowing the benefits from their use to be realised.
“Reinsurance is an important aspect of the Australian life insurance market, and the use of offshore reinsurers brings benefits,” said APRA Deputy Chair Helen Rowell.
“They can be a source of extra reinsurance capacity and an avenue to access competitively priced reinsurance support for innovative product designs. However, when risk is placed offshore, APRA has a limited ability to ensure reinsurance arrangements adequately safeguard policyholders and insurer resilience.”
Rowell continued: “The updated LPS 117 addresses this by providing a balanced approach to mitigating these risks, setting appropriate limits so that Australian life insurers can continue using the offshore reinsurance market in a prudent manner. LPS 117 supports both financial sustainability and competition in the local reinsurance market, which was a major stakeholder concern.”
The revised rules will be implemented from 1 July 2023, although the APRA will continue to seek market feedback on minor amendments to the reforms in the meantime.
