The prudential regulator has finalised its position on a revised reinsurance framework to support access to catastrophe bonds and other stop-loss options for general insurers.

New prudential standards will take effect from January 1, with changes including an expanded role for the appointed actuary in determining the capital treatment of certain reinsurance arrangements, which will reduce the need to refer matters to the Australian Prudential Regulation Authority.

“The amendments modernise the prudential framework and give insurers greater flexibility to access reinsurance arrangements, while maintaining appropriate safeguards for policyholders,” APRA member Suzanne Smith said.

“They also reduce regulatory burden and make the framework more efficient as reinsurance markets evolve.”

APRA began a review of the reinsurance framework in 2024 when premium affordability worsened as insurers priced in higher reinsurance costs following a series of weather events.

There were two rounds of industry consultation on proposals supporting access to alternative reinsurance.

Australian general insurers currently tend to rely on traditional reinsurance measures to meet APRA’s prudential requirements.

“While market conditions have since eased, APRA remains focused on modernising the prudential framework to support insurers’ ongoing access to a broad range of reinsurance options through the cycle,” the authority said.

“Reinsurance plays an important role in the [general insurance] industry by enabling insurers to manage risk effectively and meet capital requirements.”