Regulator Seeks Control Over Foreign Insurers
Sydney Morning Herald
Tuesday May 17, 2005
The Australian Prudential Regulation Authority is looking to broaden its supervisory powers beyond stand-alone general insurers, putting conglomerates and foreign insurance companies under tougher scrutiny.
Conglomerates such as Wesfarmers and foreign insurance groups such as Munich Re and Swiss Re might be forced to change their corporate structures to fit APRA's proposed rules, outlined in a paper yesterday. At the same time, general insurers with wholly owned reinsurance companies will have to prove they have enough capital to cover related risks. And APRA will be able to lift capital requirements on a case-by-case basis.The move is part of APRA's response to the $5 billion collapse of HIH and recommendations that came out of the HIH royal commission.But insurers say they fear the industry is becoming over-regulated. "These proposals may add an extra layer of regulation to the industry, as the provisions are clearly designed to be in addition to existing regulation," Insurance Council of Australia executive director Alan Mason said yesterday. "ICA will be seeking some flexibility in the application of this regulatory framework to recognise this additional burden."APRA has its sights set on foreign companies with branches operating in Australia."The foreign conglomerate group containing an Australian insurer will need to satisfy APRA that it is subject to regulatory oversight broadly consistent with that applied by APRA," the paper says.If that's not the case, APRA proposes new rules that would allow it to apply "additional or more stringent ring-fencing arrangements".Similarly, APRA will look to "ring-fence" general insurance subsidiaries from local conglomerates. This would affect Wesfarmers, which owns two general insurance businesses, Lumley and Landmark."These reforms balance the need to protect policyholder interests at an individual entity level with the management and control issues associated with running commercial conglomerates," APRA board member Steve Somogyi said.
© 2005 Sydney Morning Herald