Insurance (prudential standard) determination No. 3 of 2009 Prudential Standard GPS 001 Definitions (Cth)
Insurance (prudential standard) determination No. 3 of 2009
Prudential Standard GPS 001 Definitions
Insurance Act 1973
I, John Roy Trowbridge, a Member and delegate of APRA:
(a)under subsection 32(4) of the Insurance Act 1973 (the Act), REVOKE Prudential Standard GPS 001 Definitions made by Insurance (prudential standard) determination No.14 of 2008; and
(b)under subsection 32(1) of the Act, DETERMINE Prudential Standard GPS 001 Definitions in the form set out in the Schedule, which applies to:
(i)all general insurers and authorised NOHCs; and
(ii)a subsidiary of a general insurer or authorised NOHC, where that subsidiary is a parent entity of a Level 2 insurance group.
This determination takes effect on 22 December 2009.
Dated 15 December 2009
[Signed]
John Trowbridge
Member
Interpretation
In this instrument:
APRA means the Australian Prudential Regulation Authority.
authorised NOHC has the meaning given in section 3 of the Act.
Federal Register of Legislative Instruments means the register established under
section 20 of the Legislative Instruments Act 2003.
general insurer has the meaning given in section 11 of the Act.
Level 2 insurance group has the meaning given in paragraphs 6 to 12 as set out in the Schedule.
parent entity has the meaning given in paragraph 10 (which is affected by paragraph 11) as set out in the Schedule.
subsidiary has the meaning given in paragraph 13 set out in the Schedule.
Schedule
Prudential Standard GPS 001 Definitions comprises the 8 pages commencing on the following page.
Prudential Standard GPS 001
Definitions
| Objective and key requirements of this Prudential Standard The purpose of this Prudential Standard is to define key terms referred to in other Prudential Standards applicable to general insurers and Level 2 insurance groups. All Prudential Standards applicable to general insurers and Level 2 insurance groups must be read in conjunction with this Prudential Standard. |
Authority
This Prudential Standard is made under section 32 of the Insurance Act 1973 (the Act).
Application
This Prudential Standard takes effect on 22 December 2009.
Unless the contrary intention appears, definitions in this Prudential Standard apply to this Prudential Standard and all other Prudential Standards made under section 32 of the Act (collectively GI Prudential Standards) and to all prudential practice guides relating to general insurance made by APRA.
Interpretation
Certain terms referred to in the GI Prudential Standards are defined in the Act. By operation of subsection 13(1) of the Legislative Instruments Act 2003, terms not defined in the GI Prudential Standards but which are defined in the Act have the same meaning as in the Act.
Categories of insurers:
The different categories of insurers referred to in the GI Prudential Standards are defined as follows:
Category A insurer means an insurer incorporated in Australia. This category excludes all insurers falling within any of the other categories. For the purposes of clarification, wholly owned subsidiaries of corporate groups that are not insurance groups fall into this category where they do not already fall into another category of insurer under this Prudential Standard. Category A insurers could be mutual companies or shareholder companies.
Category B insurer means an insurer that is:
(a)incorporated in Australia; and
(b)a subsidiary of a local or a foreign insurance group.
Category B insurers are part of a local or foreign insurance group. They could be subsidiaries of mutual or shareholder companies. An insurance group captive is not a Category B insurer.
Category C insurer means a ‘foreign general insurer’ defined under subsection 3(1) of the Act. A Category C insurer is a foreign insurer operating as a foreign branch in Australia and could be a branch of a foreign mutual or shareholder company.
Category D insurer means an insurer incorporated in Australia that:
(a)is owned by an industry or a professional association, or by the members of the industry or professional association or a combination of both; and
(b)only underwrites business risks of the members of the association or those who are eligible, under the articles of association or constitution of the association, to become members of the association; but
(c)is not a medical indemnity insurer as defined under the Medical Indemnity Act 2002.
Category D insurers are often referred to as ‘association captives’ and could be mutual companies or shareholder companies.
Category E insurer means an insurer incorporated in Australia that is a:
(a)corporate captive; or
(b)partnership captive.
Category E insurers, often referred to as ‘sole parent captives’, will generally be shareholder companies.
Corporate captive means an insurer that:
(a)is owned by a single company or a group of related bodies corporate; and
(b)exists for the purpose of underwriting risks of the parent company or members of a group of related companies, which may include the risks of joint venture partners and contractors of the members of the group of companies.
Corporate captives include insurance group captives.
Insurance group captive is an insurer that:
(a)is a subsidiary of an insurer or an authorised NOHC; and
(b)exists for the purpose of reinsuring the risks of the insurer or members of the insurance group, which may include the risks of joint venture partners of the members of the insurance group.
Partnership captive means an insurer that:
(a)is owned by a partnership; and
(b)exists for the purpose of underwriting the business risks of the partners and/or the partnership.
Level 2 insurance group has the meaning given in paragraphs 6 to 12:
A Level 2 insurance group is either:
(a)if an insurer is not a controlled entity of an authorised NOHC and the insurer has controlled entities, the consolidation of the insurer and its controlled entities, subject to paragraphs 7 to 9 (inclusive);
(b)if an insurer is a controlled entity of an authorised NOHC, the consolidation of the authorised NOHC and its controlled entities, subject to paragraphs 7 to 9 (inclusive).
However, APRA may, in writing, determine that a group that meets subparagraph (a) or (b) is not to be treated as a Level 2 insurance group.
For the purposes of the prudential supervision of insurance groups at Level 2, all entities conducting insurance business (subject to paragraphs 8 and 9), both regulated and unregulated, within the insurance group must be consolidated. Consolidation at Level 2 must be in accordance with the requirements of Australian Accounting Standards for the production of consolidated financial statements except where APRA determines under paragraph 8 that an additional entity is to be consolidated or where an entity is to be treated as a non-consolidated subsidiary under paragraph 9.
APRA may, in writing, determine that an entity is to be consolidated, despite that entity not being a controlled entity of the insurer or authorised NOHC, if:
(a)the entity is subject to control by an entity or group of related entities that are the same or very similar to the entity or group of related entities that control other members of the Level 2 insurance group; and
(b)it conducts insurance business or business related to insurance business.[1]
[1] This includes controlled entities which provide a financing role to the insurance business, insurance intermediaries and service companies.
The following types of controlled entities are to be treated as non-consolidated subsidiaries[2] (unless APRA, in writing, determines otherwise):
[2] However, any entity specified in subparagraphs (a), (b), (c) and (d) which is not material may be consolidated.
(a)prudentially regulated entities that are neither insurers nor entities carrying on international business;
(b)entities acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management (including superannuation or pension fund business);
(c)entities involved in non-financial (commercial) operations;
(d)securitisation special purpose vehicles to which assets and/or liabilities have been transferred in accordance with any Prudential Standard made under section 32 of the Act; and
(e)an entity which APRA has determined, in writing, is to be deconsolidated because APRA is satisfied that its principal business is not related to any insurance business of the group or is immaterial to the group’s total business.
Subject to paragraph 11, the parent entity of a Level 2 insurance group is:
(a)where the Level 2 insurance group is headed by an authorised NOHC, the authorised NOHC; and
(b)where the Level 2 insurance group is headed by an insurer, the insurer.
Note: ‘authorised NOHC’ does not refer to the holding company of a wider corporate group which includes the Level 2 insurance group where the holding company has not been authorised under the Act as a NOHC.
APRA may, in writing, determine that a different entity within a Level 2 insurance group (which must be an insurer, authorised NOHC or a subsidiary of an insurer or authorised NOHC) is the parent entity of that group.
APRA may apply transition arrangements to a Level 2 insurance group in respect of entities which would otherwise be consolidated within the group. APRA may agree, in writing, upon these arrangements with such Level 2 insurance groups on a case-by-case basis to allow a transition period before these entities are required to be consolidated within a Level 2 insurance group.
Other key terms:
Other key terms referred to in the GI Prudential Standards are defined as follows:
Accounts of a Level 2 insurance group, for the purposes of the prudential standards applicable to Level 2 insurance groups, refers to accounts constituting reporting documents required to be prepared by the group in compliance with reporting standards made under the Financial Sector (Collection of Data) Act 2001 (Collection of Data Act) and includes both annual accounts and half-yearly accounts required under such reporting standards.
Agent in Australia has the same meaning as in the Act.
Annual accounts, in relation to a Level 2 insurance group, means the reporting documents that are required by reporting standards made under the Collection of Data Act to be lodged with APRA in respect of a financial year of a Level 2 insurance group.
Appointed Actuary means an actuary appointed under paragraph 39(1)(b) of the Act.
Appointed Auditor means an auditor appointed under paragraph 39(1)(a) of the Act.
APRA-authorised reinsurer means an insurer carrying on reinsurance business. For the purposes of this definition, a Lloyd’s underwriter as defined under the Act is an APRA-authorised reinsurer if it carries on reinsurance business.
Auditing and Assurance Standards is a reference to the Auditing and Assurance Standards issued by the Auditing and Assurance Standards Board (AUASB) as may be amended from time to time.
Australian Accounting Standards is a reference to the Australian Accounting Standards issued by the Australian Accounting Standards Board (AASB) as may be amended from time to time.
Australian business of a Level 2 insurance group, for the purposes of the prudential standards applicable to Level 2 insurance groups, means insurance business carried on (whether in Australia or elsewhere) by any Level 1 insurer within the group.
Authorised deposit-taking institution has the same meaning as in the Banking Act 1959.
Authorised NOHC has the same meaning as in the Act.
Business day has the same meaning as in the Act.
Capital standards refers collectively to prudential standards relating to capital adequacy.
Controlled entity of a NOHC or insurer, for the purposes of the prudential standards applicable to Level 2 insurance groups, means a subsidiary as defined in Australian Accounting Standards for the purposes of determining the entities included in consolidated general purpose financial statements.
Corporate agent has the same meaning as in the Act.
Corporate group is a group of companies comprising two or more companies that are related bodies corporate within the meaning of section 50 of the Corporations Act 2001 (Corporations Act).
Director has the same meaning as in the Act.
Expected reinsurance recoveries means any amounts due to an insurer, or to an entity that carries on international business within a Level 2 insurance group, from a reinsurer that arise from the recognition of Premiums Liabilities referred to in the capital standards and Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation. This is distinguished from reinsurance recoverables and forms part of reinsurance assets.
Financial year, in relation to a Level 2 insurance group, means the financial year (within the meaning of the Corporations Act 2001) of the parent entity of the Level 2 insurance group.
General insurer has the same meaning as in the Act.
Insurance business has the same meaning as in the Act.
Insurance group means a group of companies comprising:
(a)a company that is either:
(i)an insurer; or
(ii)an authorised non-operating holding company of an insurer; and
(b)one or more subsidiary companies or parent companies of the company referred to in subparagraph (a)
within a corporate group. There may be more than one insurance group within a
corporate group. An insurance group includes but is not necessarily limited to a
Level 2 insurance group as defined in this Prudential Standard.
Insurer means a general insurer as defined in the Act.
International business of a Level 2 insurance group means, for the purposes of the prudential standards applicable to Level 2 insurance groups, insurance business carried on by any entity within the group that is not authorised under the Act.
Level 1 insurer, for the purposes of the prudential standards applicable to Level 2 insurance groups, means an individual insurer that is authorised under the Act and is part of a Level 2 insurance group.
Limited assurance is as defined according to Framework for Assurance Engagements issued by the AUASB as may be amended from time to time.
Minimum capital requirement (MCR) is as defined in Prudential Standard GPS 110 Capital Adequacy. For the purposes of a Level 2 insurance group, MCR is as defined in Prudential Standard GPS 111 Capital Adequacy.
Non-APRA-authorised reinsurer means any reinsurer that is not an APRA-authorised reinsurer.
Non-operating holding company (NOHC) has the same meaning as in the Act.
Prudential matters has the same meaning as in the Act.
Prudential requirements includes requirements imposed by the Act, prudential standards, the Collection of Data Act, reporting standards, conditions on the insurer’s authorisation and any other requirements imposed by APRA in writing.
Reinsurance includes retrocession and reinsurer includes retrocessionaire.
Reinsurance assets refers to the aggregate of any amounts due to an insurer, or to an entity that carries on international business within a Level 2 insurance group, from a reinsurer and includes:
(a)reinsurance recoverables; and
(b)expected reinsurance recoveries.
Reinsurance recoverables means any amounts due to an insurer, or to an entity that carries on international business within a Level 2 insurance group, from a reinsurer that arise from the recognition of Outstanding Claims Liabilities referred to in the capital standards and Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation and Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance groups. This is distinguished from expected reinsurance recoveries and forms part of reinsurance assets.
Related body corporate, or related company, has the same meaning as in section 50 of the Corporations Act.
Related firms, in the context of Appointed Auditors, Appointed Actuaries and Reviewing Actuaries, means either two or more firms, or a firm and a body corporate, that have common ownership or management, or where one has a substantial shareholding in the other.
Responsible auditor is as defined in Prudential Standard GPS 520 Fit and Proper.
Reviewing Actuary means an actuary appointed by an insurer for the purpose of reviewing the Insurance Liability Valuation Report under Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation.
Run-off insurer means an insurer that is closed to new business and has not written renewal business for a period of at least 12 months.
Senior manager has the same meaning as in the Act.
Small insurer means an insurer that satisfies the following criteria:
(a)the gross insurance liabilities of the insurer are less than $20 million when valued in accordance with Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation; and
(b)the gross insurance liabilities of the insurer do not include a material amount in respect of long-tail business (comprising classes of business where the claims are typically settled more than one year after the date of occurrence of the event that gives rise to the claim).
Subsidiary means a subsidiary as defined under the Corporations Act.
Yearly statutory accounts has the same meaning as in the Act.
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