APRA Proposes New Capital Framework for Private Health Insurance
APRA launched a consultation on updating and strengthening the capital framework for the private health insurance (PHI) sector. The changes in the capital framework are aimed at improving the sensitivity of prudential capital requirements to the risks private health insurers face and improving the comparability of performance between insurers. The consultation will close on March 27, 2020, with APRA expected to release draft updated prudential standards in the second half of next year for further consultation. APRA intends to implement the finalized PHI capital framework from July 01, 2023 to align with its proposed adoption of Australian Accounting Standards Board (AASB) 17 on Insurance Contracts, for prudential purposes.
The discussion paper describes the proposed structure for the capital framework for private health insurers. The proposals aim to increase the risk-sensitivity of capital requirements to the activities of insurers and to improve the alignment of capital standards across the insurance industries it regulates. The proposals in the discussion paper are aimed to:
- Align the PHI capital framework with the framework applicable to life and general insurers, unless characteristics of the industry warrant a different approach
- Integrate changes stemming from AASB 17
- Apply the capital framework to the entire business of an insurer, rather than just the health benefits fund
APRA’s proposals have been developed from the basis of the existing capital standards applying to the life and general insurance industries (known as the LAGIC framework). The LAGIC framework reflects the overall approach of APRA to capital. By starting with the LAGIC framework, APRA aims to strengthen prudential outcomes for policy holders and improve the resilience of the PHI industry to financial stresses. Consistency of capital frameworks across the insurance sectors would allow for a common language for capital and support discussions (about capital) between APRA and insurers and within groups that contain multiple APRA-regulated insurers. This will also improve alignment with the international prudential regulation of insurance, as established through the Insurance Core Principles (ICPs) developed by IAIS.
The review of the PHI capital framework represents the third and final phase of the PHI Policy Roadmap, which was released in 2016. Phase 1 (risk management) and Phase 2 (governance) of the Roadmap are complete. Although these proposals are expected to increase minimum capital requirements for insurers once implemented, the current strong capital levels mean APRA does not expect a material need to raise additional capital across industry. The impact of these reforms on premiums is expected to be immaterial, given that capital requirements are not a material driver of PHI premiums.
Related Links
Comment Due Date: March 27, 2020
Effective Date: July 01, 2023 (proposed)
Keywords: Asia Pacific, Australia, Insurance, Private Health Insurers, Capital Requirements, PHI Roadmap, LAGIC, AASB 17, Insurance Contracts, IFRS 17, ICPs, APRA
Featured Experts

Trevor Howes
IFRS 17 technical advisor; AXIS actuarial modeling system expert; extensive experience in life insurance and life reinsurance, with focus on modeling, valuation, and financial reporting

Nick Jessop
Scenario modeling expert; risk management specialist; quantitative financial modeler

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Previous Article
HKMA Publishes First Issue of Regtech Watch NewsletterRelated Articles
EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
EP Reaches Agreement on Corporate Sustainability Reporting Directive
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
PRA Consults on Model Risk Management Principles for Banks
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
EC Regulation Amends Standards for Calculating Credit Risk Adjustments
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
BIS Hub Updates Work Program for 2022, Announces New Projects
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
EIOPA Consults on Review of Securitization Framework in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
BIS Bulletins Discuss DeFi Lending and Aspects of Crypto-Assets
The Bank for International Settlements (BIS) published bulletins on lending in decentralized finance (DeFi) system, on blockchain scalability and fragmentation of crypto, and on extractable value and market manipulation in crypto and decentralized finance.
UK Authorities Issue Regulatory and Reporting Updates for Banks
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.