Insurance (prudential standard) determination No. 3 of 2010 - Prudential Standard GPS 001 - Definitions

Administered by Department of the Treasury

Legislation au F2010L01713 Not in force Legislative Instrument

Legislation content

Insurance (prudential standard) determination Nos. 3 to 11 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.  Subsection 32(4) of the Insurance Act gives APRA the power to vary Prudential Standards so determined.

 

  1.          Background

 

In December 2009, APRA released the discussion paper titled Proposed changes to general insurance prudential reporting.  APRA’s key proposal was the alignment of the balance sheet and income statement with the Australian equivalents to International Financial Reporting Standards (AIFRS).  A number of other refinements were also proposed. 

 

APRA’s objectives were to refine the prudential reporting requirements to reduce the reporting obligations for insurers, to align performance measures and to enhance APRA’s analysis of the financial performance of general insurers, while maintaining the current capital framework.

 

2.            Purpose of the Instruments

 

The changes to the prudential reporting framework required the introduction of new and amended reporting requirements.  This also required consequential changes to the terminology used in some general insurance prudential standards.

 

The purpose of making the instruments is to replace existing prudential standards with prudential standards that implement the proposals. 

 

Accordingly the Insurance (prudential standard) determination Nos. 3 to 11 of 2010 will revoke the following prudential standards with effect from 1 July 2010:

 

  • General Insurance Prudential Standard GPS 001 Definitions made on 15 December 2009;
  • General Insurance Prudential Standard GPS 110 Capital Adequacy made on 23 June 2008;
  • General Insurance Prudential Standard GPS 112 Capital Adequacy: Measurement of Capital made on 23 June 2008;
  • General Insurance Prudential Standard GPS 113 Capital Adequacy: Internal model-based method made on 19 December 2008;
  • General Insurance Prudential Standard GPS 114 Capital Adequacy: Investment Risk Capital Charge made on 23 June 2008 as amended by Insurance (prudential standard) No. 1 of 2009 made on 11 May 2009;
  • General Insurance Prudential Standard GPS 115 Capital Adequacy: Insurance Risk Capital Charge made on 23 June 2008;
  • General Insurance Prudential Standard GPS 116 Capital Adequacy: Concentration Risk Capital Charge made on 10 March 2010;
  • General Insurance Prudential Standard GPS 120 Assets in Australia made on 23 June 2008; and
  • General Insurance Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation made on 23 June 2008.

 

Additionally the Insurance (prudential standard) determination Nos. 3 to 11 of 2010 will make the following prudential standards to take effect from 1 July 2010:

 

  • General Insurance Prudential Standard GPS 001 Definitions (GPS 001);
  • General Insurance Prudential Standard GPS 110 Capital Adequacy (GPS 110);
  • General Insurance Prudential Standard GPS 112 Capital Adequacy: Measurement of Capital (GPS 112);
  •  General Insurance Prudential Standard GPS 113 Capital Adequacy: Internal model-based method (GPS 113);
  • General Insurance Prudential Standard GPS 114 Capital Adequacy: Investment Risk Capital Charge (GPS 114);
  • General Insurance Prudential Standard GPS 115 Capital Adequacy: Insurance Risk Capital Charge (GPS 115);
  • General Insurance Prudential Standard GPS 116 Capital Adequacy: Concentration Risk Capital Charge (GPS 116);
  • General Insurance Prudential Standard GPS 120 Assets in Australia (GPS 120); and
  • General Insurance Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation (GPS 310).

 

3.            Operation of the Instruments

 

  • Insurance (prudential standard) determination No. 3 of 2010: General Insurance Prudential Standard GPS 001 Definitions

 

The following definition has been added to GPS 001:

 

  1. Deferred reinsurance expense (DRE) represents the amount of reinsurance expense which is capitalised as an asset over the life of the reinsurance contract in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.

 

The following definitions for lenders mortgage insurance and lenders mortgage insurer from GPS 116 have now been included in GPS 001.

 

2.      Lenders mortgage insurance has its ordinary commercial meaning and includes insurance under a policy which protects a lender from losses in the event of borrower default on a loan secured by a mortgage over residential or other property.

 

3.      Lenders mortgage insurer means an insurer that has written or reinsured, or proposes to write or reinsure, policies of lenders mortgage insurance.

 

The definitions for classes of business as currently set out in general insurance reporting instruction guides[1] have now been reproduced in GPS 001.

 

The following definitions have been amended in GPS 001:

 

  1. Expected reinsurance recoveries means any amounts due to an insurer, or to an entity that carries on international business within a Level 2 insurance group, from a reinsurer that arise from the recognition of Premiums Liabilities referred to in the capital standards and Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation. This is distinguished from reinsurance recoverables.

 

The definition for expected reinsurance recoveries has been amended because it has been removed as a component of reinsurance assets.

 

2.      Reinsurance assets in relation to an insurer or an entity that carries on international business within a Level 2 group comprises:

(a)     reinsurance recoverables; and

(b)     deferred reinsurance expense.

 

One of the reporting simplification measures taken in the project was to risk charge ‘deferred reinsurance expense’ as a substitute for ‘expected reinsurance recoveries.’ The definition of reinsurance assets has been used to refer to the particular reinsurance-related assets that will have a risk charge applied. This definition has been modified to change the terminology from ‘expected reinsurance recoveries’ to ‘deferred reinsurance expense’, as expected reinsurance recoveries on premium liabilities will no longer be risk-charged.

 

These changes in terminology have required other minor consequential amendments to the following general insurance prudential standards to ensure consistency across all prudential standards. 

 

  • Insurance (prudential standard) determination No. 4 of 2010: General Insurance Prudential Standard GPS 110 Capital Adequacy;
  • Insurance (prudential standard) determination No. 5 of 2010: General Insurance Prudential Standard GPS 112 Capital Adequacy: Measurement of Capital;
  • Insurance (prudential standard) determination No. 6 of 2010: General Insurance Prudential Standard GPS 113 Capital Adequacy: Internal model-based method;
  • Insurance (prudential standard) determination No. 7 of 2010: General Insurance Prudential Standard GPS 114 Capital Adequacy: Investment Risk Capital Charge;
  • Insurance (prudential standard) determination No. 11 of 2010: General Insurance Prudential Standard GPS 115 Capital Adequacy: Insurance Risk Capital Charge;
  • Insurance (prudential standard) determination No. 8 of 2010: General Insurance Prudential Standard GPS 116 Capital Adequacy: Concentration Risk Capital Charge;
  • Insurance (prudential standard) determination No. 9 of 2010: General Insurance Prudential Standard GPS 120 Assets in Australia; and
  • Insurance (prudential standard) determination No. 10 of 2010: General Insurance Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation

 

4.   Consultation

 

Section 17 of the Legislative Instruments Act 2003 requires consultation when a rule-maker makes a legislative instrument.  APRA undertook consultation with the general insurance industry from 3 December 2009 to 12 February 2010 on the proposed changes to the current prudential reporting framework. The consultation process involved the release of a discussion paper outlining the proposed changes, draft prudential standards, draft reporting forms and instructions, together with a quantitative impact study. APRA received submissions that were generally supportive of the proposals and no material changes have been made to the key proposals. Some minor modifications have been made to address aspects raised in the submissions.

[1] Instruction guides form part of the reporting standards as made under the Financial Sector (Collection of Data) Act 2001.

Overview

The Insurance (prudential standard) determination Nos. 3 to 11 of 2010 were introduced to address the need for refinement in the prudential reporting requirements for general insurers and authorised non-operating holding companies (NOHCs). Enacted under the authority of the Insurance Act 1973, these determinations were made by the Australian Prudential Regulation Authority (APRA) to streamline reporting obligations, align performance measures, and enhance APRA's analysis of the financial performance of insurers while maintaining the existing capital framework. The primary objective of these determinations was to implement the alignment of the balance sheet and income statement with the Australian equivalents to International Financial Reporting Standards (AIFRS), proposed by APRA in its December 2009 discussion paper titled "Proposed changes to general insurance prudential reporting." These legislative instruments aim to replace existing prudential standards with new ones that incorporate the proposed changes, effective from 1 July 2010.

Scope and Application

The Insurance (prudential standard) determination Nos. 3 to 11 of 2010, issued under the authority of the Insurance Act 1973, applies to general insurers and authorised non-operating holding companies (NOHCs) operating in Australia. These instruments are intended to refine the prudential reporting requirements for the general insurance sector, aiming to reduce reporting burdens, align performance measures, and enhance the analysis of financial performance while maintaining the existing capital framework. This legislation is effective across the Commonwealth of Australia, impacting entities within the insurance industry that must comply with the specified standards to ensure their financial stability and regulatory compliance. The changes introduced by these determinations are designed to bring the prudential reporting framework in line with Australian equivalents to International Financial Reporting Standards (AIFRS), thereby ensuring consistency and transparency in financial reporting. The new standards replace and revoke previous prudential standards to reflect these updated requirements, with the changes taking effect from 1 July 2010. The instruments also incorporate amendments to terminology and definitions to ensure consistency across all prudential standards, further clarifying the obligations and expectations for the affected entities.

Key Provisions

The Insurance (prudential standard) determination Nos. 3 to 11 of 2010 establish new prudential standards for general insurers and authorised non-operating holding companies (NOHCs) under the Insurance Act 1973 (sections 32(1)(a), (b), and 32(4)). These determinations revise the existing prudential standards by aligning them with Australian equivalents to International Financial Reporting Standards (AIFRS) and simplifying reporting requirements, while maintaining the current capital framework. Effective from 1 July 2010, these determinations revoke several existing standards, including GPS 001 Definitions, GPS 110 Capital Adequacy, GPS 112 Capital Adequacy: Measurement of Capital, GPS 113 Capital Adequacy: Internal model-based method, GPS 114 Capital Adequacy: Investment Risk Capital Charge, GPS 115 Capital Adequacy: Insurance Risk Capital Charge, GPS 116 Capital Adequacy: Concentration Risk Capital Charge, GPS 120 Assets in Australia, and GPS 310 Audit and Actuarial Reporting and Valuation. They introduce new versions of these standards, incorporating changes such as the definition of deferred reinsurance expense and the inclusion of lenders mortgage insurance and lenders mortgage insurer definitions. The new standards impose obligations on general insurers and NOHCs to adhere to the updated prudential reporting requirements. These include ensuring that their balance sheets and income statements comply with the specified standards, capitalising deferred reinsurance expense as an asset over the life of the reinsurance contract, and accurately reporting on various classes of business. Insurers must also ensure that their actuarial and audit reporting aligns with the standards set forth in GPS 310. Failure to comply with these standards can lead to regulatory scrutiny, potential enforcement actions, and implications for the insurer's financial stability and reputation. Breaching the requirements set out in these prudential standards can lead to various consequences. Although the determinations themselves do not specify penalties for non-compliance, the Insurance Act 1973 provides for potential enforcement actions under sections 32(5) and 32(5A). Non-compliance can result in corrective measures, financial penalties, or other regulatory actions taken by the Australian Prudential Regulation Authority (APRA). Such actions are aimed at ensuring that insurers maintain adequate capital and solvency, thereby protecting policyholders and maintaining the stability of the insurance sector.

Legal classification tags

Area of Law
Insurance Law
Instrument
Regulation
Concepts
Definitions & Interpretation
Repeal & Amendment
Reporting & Disclosure Obligations
Regulatory Standards

Interactions

Authorises

All Versions

Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.