Insurance (Prudential Standards) Determination No. 1 of 2004 Variation of Prudential Standard GPS 110 Adequacy for General Insurers (Cth)

Insurance (Prudential Standards) Determination No. 1 of 2004

Variation of Prudential Standard (Guidance Note GGN 110.4)

Insurance Act 1973, s 32(1)(a); Acts Interpretation Act 1901, s 33(3)

Under s 32(1)(a) of the Insurance Act 1973 and s 33(3) of the Acts Interpretation Act 1901, I Charles Littrell, a delegate of APRA, VARY Guidance Note GGN 110.4 (made under s 32(1)(a) of the Insurance Act) as follows:

(1)After paragraph 5, INSERT:

“5A.  APRA may determine in writing that the Investment Risk Capital Charge for a specified asset, or an asset of a specified class, of a particular general insurer is to be calculated by applying:

(a)     an Investment Capital Factor of zero; or

(b)     an Investment Capital Factor specified in the determination (being greater than zero but lower than the Investment Capital Factor provided for in Attachment 1 for the asset) –

if the conditions in paragraph 5B are satisfied.  APRA’s determination shall apply for a period specified in the determination or until APRA revokes the determination, and upon the determination ceasing to apply the Investment Risk Capital Charge for an asset covered by the determination shall be calculated by applying the Investment Capital Factor specified in Attachment 1 for that asset.  For the avoidance of doubt, a determination in relation to a particular insurer may cover more than one asset, or more than one class of assets, of that insurer, and a determination may make different provision in respect of different assets or classes of assets.

5B.  APRA may only make a determination under paragraph 5A in relation to an asset, or an asset of a particular class, if:

(a)  the asset, or each asset in the class, is:

1. a reinsurance recovery, or other reinsurance asset, due from a reinsurer with a counterparty rating of Grade 1, 2, 3 or 4; or

2. an unpaid premium that is less than 6 months overdue; and

(b)     the party liable for the relevant payment (‘the obligor’) is a general insurer authorised under section 12 of the Insurance Act 1973; and

(c) the obligor is related (within the meaning of section 50 of the Corporations Act 2001) to the general insurer that holds the relevant asset; and

(d) APRA considers that it is appropriate to make the determination, having regard to relevant prudential matters within the meaning of section 3 of the Insurance Act 1973.”

(2)In paragraph 6, after the words “related entity”, INSERT the footnote symbol “1”, and at the foot of the page INSERT the following corresponding footnote:

“1. For the purposes of this Guidance Note, a ‘related entity’ is an entity which is a ‘related party’ within the meaning of Australian Accounting Standard 1017 Related Party Disclosures.”

(3)In paragraph 13, OMIT the footnote symbol “1”, and at the foot of the page OMIT the corresponding footnote.

(4)In footnote 2, after the words “Investment Concentration”, OMIT the word “Risk”.

(5)In paragraph 16, OMIT “(or group of related obligors)” and SUBSTITUTE “, or group of related obligors,”.

(6)In paragraph 18, OMIT “thresholds” and SUBSTITUTE “threshold”.

(7)In Attachment 1, after the words “Reinsurance recoveries” (wherever occurring) OMIT “, deferred reinsurance expenses”.

(8)In Attachment 1, after the words “other reinsurance assets due from reinsurers with a counterparty rating of Grade 1 or 2” INSERT “(subject to any determination by APRA under paragraph 5A)”.

(9)In Attachment 1, after the words “Unpaid premiums due less than 6 months previously” INSERT “(subject to any determination by APRA under paragraph 5A)”.

(10)In Attachment 1, after the words “other reinsurance assets due from reinsurers with a counterparty rating of Grade 3” INSERT “(subject to any determination by APRA under paragraph 5A)”.

(11)In Attachment 1, after the words “other reinsurance assets due from reinsurers with a counterparty rating of Grade 4” INSERT “(subject to any determination by APRA under paragraph 5A)”.

(12)On the last page of Attachment 1, delete the footnote symbol “5”, and at the foot of the page delete the corresponding footnote.

These variations are to come into effect on 1 July 2004.

Dated: 29/6/04

[Signed]

………………………

Charles Littrell

Executive General Manager

Policy, Research & Consulting Division

Interpretation

In this Instrument:

APRA means the Australian Prudential Regulation Authority.