Overview

The Australian Prudential Regulation Authority (APRA) enacted the Insurance (prudential standard) determinations Nos. 10 to 13 of 2019 on 19 June 2019, under the authority granted by the Insurance Act 1973. These determinations address a specific issue where minor omissions inadvertently occurred in certain prudential standards (Prudential Standard GPS 110 Capital Adequacy and Prudential Standard GPS 116 Capital Adequacy: Insurance Concentration Risk Charge) following previous amendments in April 2019. The purpose of these determinations is to correct these omissions and establish new, accurate versions of the affected standards. Determination No. 10 and No. 11 commenced on the date of signing, while Determination No. 12 and No. 13 took effect on 1 July 2019. The policy objective behind these corrections is to ensure the integrity and precision of regulatory standards, thereby maintaining the stability and reliability of the insurance sector in Australia.

Scope and Application

The Insurance (prudential standard) determinations Nos. 10 to 13 of 2019, issued by the Australian Prudential Regulation Authority (APRA) under section 32 of the Insurance Act 1973, apply to general insurers, authorised non-operating holding companies (authorised NOHCs), and subsidiaries of general insurers and authorised NOHCs. These determinations focus on correcting minor omissions in previously issued prudential standards, specifically GPS 110 and GPS 116, which were inadvertently introduced due to consequential amendments arising from the introduction of Prudential Standard CPS 320 Actuarial and Related Matters and Prudential Standard GPS 340 Insurance Liability Valuation. The instruments revoke the flawed versions of these standards and determine corrected versions to ensure compliance with the Insurance Act. The instruments have a national jurisdictional reach as they pertain to entities regulated under the Commonwealth's Insurance Act. There are no exclusions, exemptions, or thresholds specified in these determinations; however, APRA retains the discretion to adjust or exclude specific requirements in the standards in relation to a regulated entity. While the instruments themselves are minor and machinery in nature, they facilitate substantive decisions by APRA that may lead to revocation of an authorisation to carry on insurance business or issuance of a direction to the insurer. These subsequent decisions are subject to merits review and may result in penalties for non-compliance.

Key Provisions

The key provisions of the Insurance (prudential standard) determinations Nos. 10 to 13 of 2019 relate to the revocation and amendment of specific prudential standards concerning capital adequacy and insurance concentration risk charges. Determination No. 10 of 2019 revokes Prudential Standard GPS 110 Capital Adequacy as made under Insurance (prudential standard) determination No. 1 of 2019, while determination No. 11 of 2019 revokes Prudential Standard GPS 116 Capital Adequacy: Insurance Concentration Risk Charge as made under Insurance (prudential standard) determination No. 6 of 2019. Determination No. 12 of 2019 revokes another version of GPS 110 as made under Insurance (prudential standard) determination No. 3 of 2014 and establishes a new GPS 110, and determination No. 13 of 2019 revokes another version of GPS 116 as made under Insurance (prudential standard) determination No. 6 of 2012 and establishes a new GPS 116. These determinations were made to correct minor omissions that inadvertently occurred when the original standards were amended in April 2019. The commencement dates for these determinations vary, with determinations No. 10 and 11 coming into effect on the date they are signed, and determinations No. 12 and 13 effective from 1 July 2019. The obligations imposed by these determinations primarily involve the Australian Prudential Regulation Authority (APRA) ensuring that the corrected versions of the prudential standards are correctly implemented by regulated entities. The revised standards aim to maintain the integrity and effectiveness of capital adequacy and concentration risk charge requirements within the insurance industry. Regulated entities are required to comply with these new standards, ensuring they maintain sufficient capital and appropriately manage concentration risks. The determinations also provide APRA with the discretion to adjust or exclude specific requirements in the standards for individual entities if necessary. Breaches of these prudential standards, while not carrying direct penalties, are significant because they may lead to further substantive decisions by APRA under the Insurance Act 1973. Such decisions can include revoking an entity's authorisation to carry on insurance business or issuing a direction to comply with the whole or part of the prudential standard. These substantive decisions are subject to merits review, and entities can face penalties, such as the loss of their licence or fines of up to 50 penalty units, if they breach a direction issued by APRA. The process leading to these decisions typically involves consultation with the regulated entity to address any concerns they may have, except in cases where APRA determines that such consultation would be contrary to the national interest. These determinations are machinery in nature, designed to correct minor errors in previously established prudential standards without substantially altering the existing regulatory framework. The Office of Best Practice and Regulation has advised that a Regulation Impact Statement was not required for these changes, as they do not introduce significant new regulatory burdens. Additionally, APRA has confirmed that these instruments are compatible with human rights, as they do not engage any of the rights or freedoms recognised in the international instruments listed in the Human Rights (Parliamentary Scrutiny) Act 2011.