The Private Health Insurance Administration Council (PHIAC) has released for comment a consultation paper in relation to the review of the Solvency and Capital Adequacy Standards applicable to private health insurers.

The consultation paper also includes draft legislation for the proposed Standards.

The proposed Standards would introduce a risk-based capital regime aimed at ensuring that:

• Capital Adequacy Standard: each health benefits fund conducted by an insurer has sufficient assets to ensure the continuing financial soundness of the fund’s balance sheet, taking into account business plans and the potential of adverse profitability outcomes and catastrophic losses in the asset portfolio; and
• Solvency Standard: each health benefits fund conducted by an insurer has sufficient assets of a sufficient quality to ensure that obligations to, and reasonable expectations of, policyholders and creditors can be met under adverse cash outflow circumstances.

Under the proposed Standards, each health benefits fund would be required to comply with four separate asset tests:

• Capital Adequacy Standard: a quantum of assets test and a concentration of assets test
• Solvency Standard: liquidity test and a concentration of liquid assets test.