The Australian Prudential Regulation Authority has added an extra $2 million capital requirement to Sovereign Insurance Australia due to a heightened risk profile. 

The regulator says it has identified serious deficiencies in Sovereign’s risk management framework and its management of operational risk. 

The concerns are amplified by Sovereign’s failure to comply with prudential standard requirements, remediate issues in a timely and effective manner and lodge audited financial accounts with APRA, it says. 

APRA member Suzanne Smith says the regulator will take further action if necessary to ensure policyholder interests are protected. 

“Insurance underpins financial stability for millions of Australians. APRA’s prudential framework and active supervision are critical to ensuring insurers meet their commitments,” she said. 

“The additional capital requirement reflects the heightened prudential risks and should incentivise SIA to quickly and effectively remediate its risk management framework and management of operational risk.” 

The increase takes effect today and will remain until APRA concerns have been addressed and weaknesses rectified. 

Sovereign’s polices include vehicle add-on insurance products such as asset protection and mechanical and electrical breakdown cover, while its website says it has also established a position in other markets including travel, rental excess and pet insurance.