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APRA to overhaul offshore reinsurance standards

The prudential regulator has commenced industry consultation on revisions to the prudential standards for life insurers to protect life insurance policy holders against the use of offshore reinsurers.

APRA is proposing an aggregate limit on exposures to offshore reinsurers, the addition of a new limit to exposures to related party reinsurers and modification of the calculation of the value of the assets of the fund for reinsurance exposers.

Offshore reinsurers that enter the market and become registered with APRA will be exempt from the aggregate limit.

APRA deputy chair Helen Rowell said the changes are for APRA to effectively supervise the market.

"The recent growth in life insurers placing business with offshore reinsurers has been a prudential concern, as APRA does not have regulatory authority over these reinsurers. This has limited our ability to maintain appropriate oversight of the financial safety and resilience of the market," Rowell said.

In addition, the regulator is proposing to redefine stressed reinsurance assets to improve the accuracy of capital calculation and broaden and clarify permissible risk mitigation techniques.

"The proposed revisions to the prudential standards for life insurers are necessary to address the potential risks to policyholders from growing use of offshore reinsurance. But APRA has also sought to balance this by still enabling the benefits of competition and innovation from the participation of offshore reinsurers in the Australian life insurance market," Rowell said.

APRA is seeking stakeholder feedback by 25 June 2021. The final standard is expected to be released by the end of 2021 and come into effect on 1 July 2023.

Read more: APRAReinsuranceHelen Rowell