Insurance (prudential standard) determination No. 3 of 2009
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”) provides 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, such Prudential Standards are legislative instruments for the purposes of the Legislative Instruments Act 2003 (“the Legislative Instruments Act”). Subsection 32(4) of the Insurance Act gives APRA power to vary Prudential Standards so determined.
- Background
This Explanatory Statement explains the reasons for determining a new Prudential Standard GPS 001 Definitions.
GPS 001 Definitions was released publicly in July 2008 and was effective until 31 March 2009.
GPS 001 Definitions was released publicly and made effective on 31 March 2009, with necessary inclusions for Level 2 Group Supervision.
Both versions were subject to a period of public consultation.
APRA is amending GPS 001 Definitions to bring it fully in line with both:
- the July 2008 version of GPS 001 Definitions made on 23 June 2008; and
- the March 2009 version of GPS 001 Definitions made on 17 December 2008, which was updated for the Level 2 Group Supervision project.
The following definitions are re-inserted to the March 2009 version to update the glossary of definitions in paragraph 13:
APRA-authorised reinsurer means an insurer carrying on reinsurance business. For the purposes of this definition, a Lloyd’s underwriter as defined under the Act is an APRA-authorised reinsurer if it carries on reinsurance business.
Authorised NOHC has the same meaning as in the Act.
Non-APRA authorised reinsurer means any reinsurer that is not an APRA-authorised reinsurer.
Responsible auditor is as defined in Prudential Standard GPS 520 Fit and Proper.
Yearly statutory accounts has the same meaning as in the Act.
The definition of Minimum capital requirement (MCR) is also re-inserted to the glossary of definitions in paragraph 13. However, an additional reference to the definition of MCR for a Level 2 insurance group is intended to direct insurers to the appropriate standard. The appropriate capital standard for Level 1 insurers is Prudential Standard GPS 110 Capital Adequacy whereas the capital standard for Level 2 is Prudential Standard GPS 111 Capital Adequacy. To reinstate the missing definition for MCR exactly as it was in the July 2008 version would direct Level 2 groups to an incorrect standard when defining their MCR. Therefore, an additional reference to MCR at Level 2 has been included.
Minimum capital requirement (MCR), for the purposes of an APRA-authorised insurer is as defined in Prudential Standard GPS 110 Capital Adequacy. For the purposes of a Level 2 insurance group, Minimum capital requirement (MCR), is as defined in Prudential Standard GPS 111 Capital Adequacy.
The inclusion of a reference to the Medical Indemnity Act 2002 to the definition of a Category D insurer under section 5 at paragraph (c) is intended to clarify that ‘medical indemnity insurer’ is as defined under the Medical Indemnity Act.
Other minor changes have been made to clarify the intent of the standard.
These changes are considered mechanical and do not require further consultation.
2. Purpose of the Instrument
The purpose of the determination is to revoke and determine a new Prudential Standard GPS 001 Definitions.
3. Operation of the Instrument
The operation of the instrument is as described in the background.
4. Consultation
Section 17 of the Legislative Instrument 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 this change is a minor change with a machinery nature, it is exempt from the requirement of consultation.