APRA concern on big group mandates

The Australian Prudential Regulation Authority (APRA) has expressed concern that the emergence of mega-funds is now placing pressure on the capital capacity of the insurance companies competing for the major group insurance mandates.

APRA’s concern has been revealed in its latest annual report in which it warns “the consolidation of the larger industry superannuation funds has led to a concentration in buying power in the purchase of group risk insurance from the life insurance industry”.

The regulator said that price and service competition in the market had become intense with the result that “group risk contracts are now reaching a size that is testing the capital and operational capacity of the life insurance industry, giving rise to operational risk when these contracts are won and concerns that premiums will not prove sustainable”.

The regulator said it would continue to monitor developments in the group market, “particularly as some of the larger contracts may be re-tendered in the next 12 months”.

“It is industry’s role to find a market solution to providing group risk cover,” the annual report said. “APRA’s focus will be on the capital support for, pricing disciplines in, and operational management of these contracts.”