Life and General Insurance Capital (LAGIC)
Implications for business
This assessment highlights four areas of key changes for Life insurance and General insurance businesses as a result of APRA’s response to the industry submissions on the proposed Life and General Insurance Capital framework (LAGIC) on 9 December 2011. These are in the areas of:
- Supervisory adjustment
- Internal Capital Adequacy Assessment Process (ICAAP)
- Quality and composition of capital
- Governance and ownership.
A timeline for action and the key implications around each of these four areas are summarised as a ‘ready reckoner’ for insurers.
APRA’s response to the proposed LAGIC framework announcements in the context of the three pillar approach, similar to the capital requirements for Authorised Deposit-taking Institutions (ADIs) in Australia are outlined as well as Solvency II for insurers in Europe. These proposals are listed in greater detail and we provide our view of their implications for action for both General and Life insurers.
Examples of how to articulate the risk appetite and leverage the revised concept to assist executives make more informed, risk based decisions, and effectively allocate capital across the business and product sets are provided.
Given that the LAGIC framework, together with other regulatory change reforms, may require an assessment of the reporting systems and processes, also provided is an indication of some of the key systems and data management issues insurers may need to consider.