Insurance (prudential standard) determinations No. 1 of 2011
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority
Insurance Act 1973, paragraph 32(1)(a) and 32(4)
Paragraphs 32(1)(a) and (b) of the Insurance Act 1973 (Insurance Act) provide that APRA may determine, in writing, standards relating to prudential matters that must be complied with by general insurers and authorised non-operating holding companies (NOHCs). Pursuant to subsection 32(5A) of the Insurance Act and paragraph 6(d) of the Legislative Instruments Act 2003, such prudential standards are legislative instruments for the purposes of the Legislative Instruments Act 2003. Subsection 32(4) of the Insurance Act gives APRA power to revoke prudential standards so determined.
- Background
Prudential Standard GPS 221 Risk Management: Level 2 Insurance Groups (GPS 221) contains risk management requirements for general insurance groups consisting of the requirement for a group-wide risk management framework, including reinsurance management, policies relating to outsourcing arrangements and business continuity management (BCM).
The requirements relating to outsourcing arrangements and BCM applicable to general insurance groups are now contained within Prudential Standard CPS 231 Outsourcing (CPS 231) and Prudential Standard CPS 232 Business Continuity Management (CPS 232), respectively.
The revised GPS 221 is identical to the previous version, with the exception of the following provisions that have been removed:
- the requirements relating to outsourcing and BCM ; and
- the ability of an insurance group to seek transitional arrangements from APRA prior to 2009.
2. Purpose of the instrument
The purpose of this instrument is to revoke GPS 221, as made by Insurance (prudential standard) determination No. 16 of 2008, and replace it with a revised version.
3. Operation of the instrument
The revised GPS 221 removes the requirements relating to outsourcing and BCM. The revised GPS 221 also removes a paragraph that provided for transitional arrangements prior to 2009, as this provision is no longer applicable. These amendments change requirements imposed on industry in form only, not in substance.
4. Consultation
In December 2010, APRA publicly consulted on its initiative to harmonise certain prudential standards across regulated industries, including CPS 231 and CPS 232. APRA received a small number of submissions during this consultation period and has reflected the feedback received where appropriate.
5. Regulation Impact Statement
A Regulation Impact Statement for the changes described in this Explanatory Statement was not required.
Overview
The Insurance (prudential standard) determinations No. 1 of 2011, prepared by the Australian Prudential Regulation Authority (APRA), was enacted to address the need for harmonisation of prudential standards across regulated industries, specifically by revoking and replacing Prudential Standard GPS 221 Risk Management: Level 2 Insurance Groups with a revised version. This legislative instrument aligns with the Insurance Act 1973, under which APRA has the authority to determine and revoke prudential standards for general insurers and authorised non-operating holding companies. The primary objective of this instrument is to streamline and clarify the regulatory requirements by removing redundant provisions concerning outsourcing and business continuity management, which are now governed by Prudential Standard CPS 231 and CPS 232, respectively. APRA’s initiative to harmonise certain prudential standards across regulated industries involved public consultation, and feedback was appropriately considered to ensure the effectiveness and relevance of the revised standards.
Scope and Application
The Insurance (prudential standard) determinations No. 1 of 2011, as detailed in the Explanatory Statement, pertains to the Insurance Act 1973 and its prudential standards for general insurers and authorised non-operating holding companies (NOHCs). This legislative instrument is crafted by the Australian Prudential Regulation Authority (APRA) and outlines the necessary risk management requirements for general insurance groups, specifically focusing on establishing a comprehensive group-wide risk management framework, including reinsurance management. The revised Prudential Standard GPS 221 removes specific provisions that were previously included, such as the requirements for outsourcing arrangements and business continuity management, as these have been integrated into separate standards (CPS 231 and CPS 232). The determination revokes the former GPS 221 and replaces it with the revised version, making no substantive changes to the obligations on the industry but altering the form of the requirements. This legislative instrument applies across the Commonwealth of Australia, impacting all entities within the scope of the Insurance Act 1973.
Key Provisions
The primary operative sections of the Insurance (prudential standard) determinations No. 1 of 2011, as referenced in paragraphs 32(1)(a) and 32(4) of the Insurance Act 1973, involve APRA’s authority to establish and revoke prudential standards for general insurers and authorised non-operating holding companies (NOHCs). Under these provisions, APRA can issue written standards relating to prudential matters that these entities must comply with. Furthermore, as stated in subsection 32(5A) of the Insurance Act and paragraph 6(d) of the Legislative Instruments Act 2003, these prudential standards are considered legislative instruments.
The revised Prudential Standard GPS 221 focuses on the risk management framework for general insurance groups, including aspects such as reinsurance management. However, it no longer includes requirements for outsourcing and business continuity management, which have been moved to Prudential Standards CPS 231 and CPS 232, respectively. Additionally, the ability to seek transitional arrangements from APRA prior to 2009 has been removed, as this provision is now outdated.
In terms of obligations, general insurers and NOHCs must adhere to the revised GPS 221, which mandates a group-wide risk management framework. This includes establishing robust policies for risk management and reinsurance. The removal of outsourcing and business continuity management requirements from GPS 221 shifts the responsibility for these areas to the respective new standards, CPS 231 and CPS 232. Additionally, the industry no longer has the option to request transitional arrangements prior to 2009, as this provision is no longer applicable.
Failure to comply with the prudential standards set out in GPS 221, or any other prudential standards under the Insurance Act 1973, may result in regulatory action by APRA. While the specific offences, penalties, or consequences for breach are not detailed in the provided text, non-compliance with APRA’s prudential standards can typically lead to enforcement actions, which may include fines, sanctions, or other penalties as prescribed by the Act. The severity of the consequences can depend on the nature and extent of the non-compliance.