APRA has published a report on the implementation of APRA’s new prudential capital adequacy standards for the private health insurance (PHI) industry, which commenced on 1 July 2023.

ICAAP Summary Statements
Insurers are required to have an Internal Capital Adequacy Assessment Process (ICAAP). This includes a requirement for insurers to prepare an ICAAP Summary Statement as set out in Prudential Standard HPS 110 Capital Adequacy (HPS 110).

Significant financial institutions (SFIs) were required to submit their first Summary Statements by 1 July 2023. Non-SFIs have until 1 July 2025 to submit their Summary Statements (unless otherwise notified by APRA).

Prudential Practice Guide CPG 110 Internal Capital Adequacy Assessment Process and Supervisory Review (CPG 110) sets out APRA‘s expectations regarding the development and implementation of insurers’ ICAAPs.

The ICAAP supersedes the Capital Management Plan.

APRA gives examples of better practice drawing on the relevant ICAAP experience from General Insurance and Life Insurance including

• Clear articulation on the linkages and interactions between the key components of an ICAAP in driving decisions on setting capital targets, capital allocation and business planning.
• Clear articulation on how the board is actively engaged in the development of ICAAP from an early stage. Example includes the board’s involvement in developing and setting stresses or scenarios. The board should be satisfied that its chosen capital settings support its desired risk appetite and risk profile, such that the business remains adequately capitalised across a range of scenarios or stress events.
• Clear articulation of the links between the insurer’s risk profile, risk appetite and capital requirements, including an ability to demonstrate how all the identified material risks have been considered in the Summary Statement.
• Using more sophisticated forms of stress testing, such as reverse stress testing and scenario analysis using a range of scenarios.

If you found this article helpful, then subscribe to our news emails to keep up to date and look at our video courses for in-depth training. Use the search box at the top right of this page or the categories list on the right hand side of this page to check for other articles on the same or related matters.

Author: David Jacobson
Principal, Bright Corporate Law
Email:
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.