The Australian Prudential Regulation Authority (APRA) will apply an additional $250 million capital requirement to Allianz Australia Limited (Allianz) to reflect the issues identified in the insurer’s risk governance self-assessment.
Allianz was one of 36 banks, insurers and superannuation licensees that APRA asked to undertake a self-assessment last year. The self-assessments were aimed at gauging whether governance weaknesses identified by APRA’s Prudential Inquiry into Commonwealth Bank of Australia (CBA) also existed in other institutions.
Overall, the self-assessments confirmed that many of the issues identified in the inquiry were not unique to CBA, including the need to strengthen non-financial risk management, ensure accountabilities are clear, cascaded and enforced, and enhance risk culture.
APRA has advised Allianz that the extra $250 million capital requirement will remain in place until it completes remediation work underway to strengthen risk management, and closes gaps identified in its self-assessment.
Allianz becomes the fifth APRA-regulated entity to have an additional capital requirement imposed due to heightened operational risk: APRA applied a $1 billion capital adjustment to CBA last May following the final report of the Prudential Inquiry, and last month imposed additional $500m capital requirements each on ANZ, National Australia Bank and Westpac.
APRA Executive Board Member Geoff Summerhayes said APRA’s decision sends a message to all insurers.
“The risk governance self-assessments not only demonstrated that the issues identified in the CBA inquiry exist beyond that institution – they also go beyond the banking sector.
“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.
“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,” Mr Summerhayes said.
APRA supervisors continue to provide tailored feedback to all of the institutions that provided self-assessments. Where material weaknesses have been identified, APRA is considering the need for the application of additional operational risk requirements for those institutions.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $6 trillion in assets for Australian depositors, policyholders and superannuation fund members.