APRA has announced a capital review of private health insurers in a letter to industry outlining the review process and timeline.

The objective of APRA’s review is to ensure that the capital standards applicable to private health insurers provide for an appropriate level of financial resilience for the protection of policyholders.

APRA has stated that it does not consider that current levels of capital held in the private health insurance industry are too high or should be reduced.

While APRA will not approach the review with the objective of increasing or reducing overall industry capital levels, there are factors that may lead to increased minimum capital requirements as the alignment of capital requirements to risk is enhanced.

APRA has decided to consult on proposals to adopt the Life and General Insurance Capital, or LAGIC, framework as the starting point for the capital framework for private health insurers.

This does not mean that APRA will apply standards designed for life insurers or general insurers unchanged to private health insurers. There are important differences in risk profiles and business models that must be recognised in the capital framework. APRA will carefully design appropriate modifications to the LAGIC framework to reflect these differences.

The capital review is expected to be finalised before the end of 2020, with transition arrangements put in place to help insurers adjust to the new framework.