Regulator beefed up for monitoring role
Australia’s prudential regulator is in a stronger position to monitor the banking, general insurance and superannuation industries thanks to receiving a significant boost in staff since the collapse of HIH in March 2001, according to its 2003/04 annual report.
The Australian Prudential Regulation Authority’s (APRA) annual report, released yesterday, said the regulator now has 525 employees, up from a little below 400 when HIH collapsed. Operating expenditure for 2003/04 increased 8.75 per cent from $71.5 billion in 2002/03 to $81.6 billion.
“APRA’s approach to the supervision of large and complex institutions was exposed by the HIH failure, and by subsequent international benchmarking, as being under-resourced and in the hands of relatively inexperienced supervisory teams,” said APRA chairman Dr John Laker.
“High calibre individuals with extensive experience in industry and the professions are now complementing our core of seasoned staff from predecessor agencies.”
Laker said the regulator has received budgetary approval to further increase this number over the course of 2004/05.
For the last financial year, APRA said it had conducted performance ratings on close to 1500 entities, including banks and general insurers, accounting for 98 per cent of APRA-regulated assets.
The results of several previously reported APRA monitoring programs have shown that 90 per cent of companies that offer home loans would be able to survive if there was a 30 per cent fall in house prices and significant increase in mortgage defaults.
APRA also found this year that the general insurance industry is holding more than twice the minimum amount of capital required to cover “reasonably foreseeable adverse scenarios”.
Looking to the year ahead, Laker said APRA will be emphasising that Australia’s continuing economic success, including this year’s recovery in investment markets, should not lull institutions into a false sense of security.
He said the risks in housing lending will remain a major focus for the regulator as will addressing “unfinished business” in the general insurance industry.
“Although the general insurance industry has been able to restore profitability over more recent years, premium cycles will turn and insurers will need to resist pressures to relax their underwriting standards in pursuit of fleeting gains in market shares.
“Australia’s history in this area is not one to repeat.”
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