Australian regulator looks to limit offshore reinsurance use

The Australian Prudential Regulation Authority (APRA) is seeking consultation on a package of updates that aim to limit the use of offshore reinsurance by life players in Australia.

The proposed updates will impose an aggregate limit on the exposure of life insurers to offshore reinsurers, which are not regulated by APRA.

Offshore reinsurers that enter the domestic market and become an APRA-registered entity will not be subject to the aggregate limit.

The APRA says its concerns are particularly heightened in relation to the group risk market, which plays an important role in Australia’s superannuation system.

“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,” said APRA Deputy Chair Helen Rowell.

“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,” Rowell went on.

“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.”

The APRA’s consultation also proposes changes that will provide greater clarity on regulatory requirements, facilitate the use of risk mitigation techniques and minimise the regulatory burden associated with bespoke amendments for individual entities.

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