Insurers are assessing how supply chain disruption arising from geopolitical risks could affect claim costs, according to the latest System Risk Outlook from the Australian Prudential Regulation Authority.

Australia’s financial system remains resilient and well positioned to absorb shocks, but APRA has intensified its oversight of banks, insurers and superannuation funds “and is sharpening its expectations for sound risk management”.

The insurance industry remains well capitalised, with key capital ratios comfortably above regulatory minimums, the regulator says.

APRA flags potential issues with private credit, noting life insurers internationally have increased investments in higher-risk assets such as private equity and private credit in search of higher returns.

“At the same time, private equity firms are increasingly acquiring life insurers to access stable, long-term assets to support their lending businesses.

“These developments have increased the degree of interconnectedness between private markets and the prudentially regulated sector.”

The regulator says that while private markets can provide diversification, they have vulnerabilities from weaker oversight and can be illiquid and opaque.

Failures abroad have raised concerns about asset quality, credit standards, infrequent valuations and data gaps.