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A bigger capital requirement for APRA

The Australian Prudential Regulation Authority (APRA) has imposed an additional $250 million capital requirement on Allianz Australia, based on the findings from their self-assessment.

Earlier this week, APRA said this capital requirement will remain in place until they have completed their remediation process to improve the entity’s risk management systems.

“By imposing this additional capital requirement, APRA is providing a financial incentive for Allianz to quickly and effectively implement its planned remediation work. We also want to send a message to the broader insurance and superannuation industries that APRA expects the same high standards of risk management, including for non-financial risks, as we do for the banks,” APRA Executive Board Member Geoff Summerhayes said.

The regulator said that Allianz showed in their self-assessments—also conducted on 36 other APRA-regulated entities—that issues with the monitoring and identifying of non-financial risks appears to be a perennial problem.

APRA Deputy Chairman, John Lonsdale, said in official statement last month, that the regulator would be taking a more targeted approach based on findings from the self-assessments.

“As a result of the self-assessments, we have intensified and more-precisely targeted our supervision of entities. And in some cases, we are considering imposing additional capital requirements due to the materiality of the weaknesses identified.”

Lonsdale also said greater focus was needed on non-financial risks.

“That’s the thing about non-financial risks: left unaddressed, the consequences become distinctly financial in nature. In the wake of the Royal Commission, our major banks have seen their profits eroded by the cost of remediating aggrieved customers and upgrading or putting in-place systems to stop it happening again.”

Allianz is not the only APRA-regulated entity to be given an additional capital requirement.

Last month, ANZ and NAB were advised to increase their capital requirements to a minimum of $500 million each, and CBA, whose prudential inquiry sparked the regulator on the path to getting other regulated entities to do self-assessments, had to add $1 billion to their capital requirement.

“Last financial year, APRA-regulated general insurers paid out $27.5 billion to their policyholders. With Australians relying on these policies to financially protect them when things go wrong, it’s essential that insurers have in place appropriate internal processes to honour those commitments,” Summerhayes said.

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