Insurance (prudential standard) determination No. 11 of 2006
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Insurance Act 1973, subsection 32(1)
Acts Interpretation Act 1901, subsection 33(3)
Under subsection 32(1) of the Insurance Act 1973 (the Act), APRA has the power to determine standards (prudential standards), in writing, in relation to prudential matters to be complied with by general insurers. Subsection 33(3) of the Acts Interpretation Act 1901 gives APRA power to vary prudential standards so determined.
Insurance (prudential standard) determination No. 5 of 2006 determined Prudential Standard GPS 510 Governance (GPS 510) to take effect on 1 October 2006. Insurance (prudential standard) determination No. 11 of 2006 (the instrument) varies GPS 510.
- Background
APRA has identified that paragraph 32 of GPS 510 will, for some insurers, produce an unintended consequence with respect to the need for the Board Audit Committee to provide an objective non-executive review of the effectiveness of the risk management framework. This requirement was intended to ensure that there is a Board Committee which has responsibility for review of an insurer’s risk management function. Some insurers already have a Board Committee, other than the Board Audit Committee, with this responsibility. This is acceptable to APRA. However, the wording of paragraph 32 means that these institutions will be in breach of the prudential standard if they do not make review of the risk management framework an explicit responsibility of the Board Audit Committee. APRA therefore seeks to vary GPS 510 to address this matter.
2. Purpose of the instrument
The instrument varies GPS 510 to allow a Board Committee, whether the Board Audit Committee or another Board Committee, to have responsibility for the objective non-executive review of the insurer’s risk management framework.
3. Consultation
APRA consulted extensively with industry in relation to GPS 510, which is varied by the instrument. This change will be favourable to insurers as it provides greater scope for them to meet the requirement for a Board Committee which has responsibility for the objective non-executive review of the risk management framework (by removing the current requirement that this review be performed by the Board Audit Committee).