Insurance (prudential standard) determination No. 2 of 2010
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Insurance Act 1973, paragraphs 32(1)(a) and (b) and subsection 32(4)
Paragraphs 32(1)(a) and (b) of the Insurance Act 1973 (“the Insurance Act”) provide that APRA may determine, in writing, standards relating to prudential matters that must be complied with by general insurers and authorised NOHCs. Pursuant to subsection 32(5A) of the Insurance Act and paragraph 6(d) of the Legislative Instruments Act 2003 (“the Legislative Instruments Act”), 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 vary Prudential Standards so determined.
- Background
This Explanatory Statement explains the reasons for amending Prudential Standard GPS 116 Capital Adequacy: Concentration Risk Capital Charge (GPS 116) made on 10 March 2010.
2. Purpose of the Instrument
The purpose of the determination is to amend GPS 116 to correct minor errors when making the standard.
In making GPS 116, an error was made in identifying approvals, determinations, directions or requirements made by APRA under a previous standard. The references included at paragraph 24 of the standard mistakenly referred to superseded paragraph references from an earlier standard (Prudential Standard GPS 110 Capital Adequacy made on 25 September 2006). The amendments will replace the superseded references with the correct references in the table so as to make it clear that the approvals, determinations, directions or requirements in force (under Prudential Standard GPS 116 Capital Adequacy: Concentration Risk Capital Charge made on 23 June 2008) immediately before the making of the current standard (GPS 116) are taken to continue in force under GPS 116.
3. Operation of the Instrument
The amendments are minor in nature and the substantive intent of the standard remains unchanged. The variations involve replacing the existing table with the following table:
Column 1: Provision of Prudential Standard GPS 116 Capital Adequacy: Concentration Risk Capital Charge made on 23 June 2008 | Column 2: Provision of this Prudential Standard |
Paragraph 22: allow or require adjustments to calculation of an insurer’s MER | Paragraph 22 |
Attachment A, Paragraph 21: determine a formula for calculating PML in relation to certain exposures. | Attachment A, Paragraph 29 |
Attachment A, Paragraph 22: approve methodology for downward adjustment of an LMI’s PML. | Attachment A, Paragraph 31 |
Attachment A, Paragraph 26: direct classification of loan as non-standard loan. | Attachment A, Paragraph 30 |
Attachment A, Paragraph 28: direct reclassification of loan as commercial loan. | Attachment A, Paragraph 30 |
4. Consultation
Section 17 of the Legislative Instruments Act requires consultation when a rule-maker makes a legislative instrument. However, section 18 provides that consultation is not necessary when such consultation may be unnecessary or inappropriate. As the amendments are of a minor change and simply correct minor errors in identifying approvals, determinations, directions or requirements made by APRA under a previous instrument, consultation has not taken place.