A new capital framework has been finalised by the Australian Prudential Regulation Authority (APRA) and will take effect on 1 July 2023.
These new standards enhance policyholder protection by seeking to ensure that private health insurers maintain an appropriate level of financial resilience to absorb unanticipated losses.
They better reflect the risks faced by insurers, improve comparability across the market, and align with international best practice and the introduction of new accounting standards for insurance AASB 17 Insurance Contracts (AASB 17).
The new capital standards will require improved capital management practices and heightened board oversight in the industry. Helen Rowell, Deputy Chair of APRA, said they bring the expectation of private health insurers in line with other insurance industries.
She said: "This is an opportunity for directors to improve the way their institutions manage capital, including the setting of new capital targets, increased scenario analysis and stronger monitoring and reporting where required.
"While the new standards will result in an increase in minimum capital requirements, the industry is well capitalised and expected to be able to absorb the increase.
"APRA is also making available transitional arrangements to support insurers with implementation of the new requirements. These, combined with reviews of capital management practices, means APRA sees no need for insurers to pass on costs arising from the capital changes to policyholders by pushing up premiums."
Rowell also explained that pricing remains a key risk that must be managed by private health insurers and considered as part of an insurer’s risk management strategy and internal capital adequacy assessment process.
The consultation for this new capital framework launched in 2018 and involved industry and other stakeholders. Detailed proposals, draft standards, and a quantitative impact study were released in December 2021.
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