Insurance (prudential standard) determinations Nos. 2 to 6 of 2014
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Insurance Act 1973, section 32
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 and authorised non-operating holding companies. Under subsection 32(4) of the Act, APRA may, in writing, vary or revoke a prudential standard.
On 3 December 2014, APRA made the following determinations (the instruments):
(1) Insurance (prudential standard) determination No. 2 of 2014 (the instrument) which revokes Prudential Standard GPS 001 Definitions made under Insurance (prudential standard) determination No. 1 of 2012 and determines a new Prudential Standard GPS 001 Definitions (GPS 001);
(2) Insurance (prudential standard) determination No. 3 of 2014 (the instrument) which revokes Prudential Standard GPS 110 Capital Adequacy made under Insurance (prudential standard) determination No. 2 of 2012 and determines a new Prudential Standard GPS 110 Capital Adequacy (GPS 110);
(3) Insurance (prudential standard) determination No. 4 of 2014 (the instrument) which revokes Prudential Standard GPS 113 Capital Adequacy: Internal Model-based Method made under Insurance (prudential standard) determination No. 3 of 2012 and determines a new Prudential Standard GPS 113 Capital Adequacy: Internal Model-based Method (GPS 113);
(4) Insurance (prudential standard) determination No. 5 of 2014 (the instrument) which revokes Prudential Standard GPS 310 Audit and Related Matters made under Insurance (prudential standard) determination No. 2 of 2013 and determines a new Prudential Standard GPS 310 Audit and Related Matters (GPS 310); and
(5) Insurance (prudential standard) determination No. 6 of 2014 (the instrument) which revokes Prudential Standard GPS 320 Actuarial and Related Matters made under Insurance (prudential standard) determination No. 13 of 2012 and determines a new Prudential Standard GPS 320 Actuarial and Related Matters (GPS 320).
These instruments will take effect on 1 January 2015.
- Background
In January 2014, APRA released a new cross-industry prudential standard Prudential Standard CPS 220 Risk Management (CPS 220), that applies to authorised deposit-taking institutions (ADIs), general insurers and life insurers, and Level 2 and Level 3 groups. A revised Prudential Standard CPS 510 Governance (CPS 510) was also released to ensure risk management governance principles were aligned to the new CPS 220.
These new and amended standards come into effect from 1 January 2015.
CPS 220 and revised CPS 510 necessitate a series of consequential amendments to existing industry-specific and cross-industry prudential standards. The majority of changes are necessary to remove duplication and to update cross-references.
2. Purpose and operation of the instruments
The purpose of making these instruments is to introduce amended prudential standards and revoke existing prudential standards to give effect to consequential changes as a result of the making of CPS 220 and the amendment to CPS 510.
Insurance (prudential standard) determination No. 2 of 2014
The purpose of this instrument is to revoke GPS 001 and determine a new GPS 001.
GPS 001 defines key terms referred to in other prudential standards applicable to general insurers and Level 2 insurance groups.
The existing GPS 001 is updated with a new definition for ‘ensure’ and to update references to now revoked standards and replace them with references to applicable standards.
Insurance (prudential standard) determination No. 3 of 2014
The purpose of this instrument is to revoke GPS 110 and determine a new GPS 110.
GPS 110 requires a general insurer or Level 2 insurance group to maintain an adequate level and quality of capital commensurate with the scale, nature and complexity of its business and risk profile. A general insurer or Level 2 insurance group is also required to have a documented Internal Capital Adequacy Assessment Process (ICAAP), comply with any supervisory adjustment to capital imposed by APRA, obtain APRA’s written consent before reducing its capital, and inform APRA of any significant adverse changes to its capital position.
Under GPS 110, a general insurer or Level 2 insurance group is required to maintain required levels of capital, and determine its prescribed capital amount having regard to a range of risk factors that may adversely impact the insurer’s ability to meet its obligations. These factors include insurance risk, insurance concentration risk, asset risk, asset concentration risk and operational risk.
The existing GPS 110 is updated to include run-off plan requirements that were originally in Prudential Standard GPS 220 Risk Management (GPS 220), which is revoked from 1 January 2015. The run-off plan requirements apply to general insurers that are in run-off and not accepting new business. These general insurers can substitute the ICAAP requirements under GPS 110 and the business plan requirements under CPS 220 with a run-off plan.
Insurance (prudential standard) determination No. 4 of 2014
The purpose of this instrument is to revoke GPS 113 and determine a new GPS 113.
GPS 113 sets out the requirements that a general insurer or Level 2 insurance group must meet to use an Internal Model-based Method (IMB method) for calculating the prescribed capital amount of the general insurer or Level 2 insurance group, both at the time of application and subsequently.
The existing GPS 113 is updated to remove references to now revoked standards and replace them with references to applicable standards.
Insurance (prudential standard) determination No. 5 of 2014
The purpose of this instrument is to revoke GPS 310 and determine a new GPS 310.
GPS 310 sets out the roles and responsibilities of the Appointed Auditor and Group Auditor (Auditor), and the obligations of a general insurer or Level 2 insurance group to ensure that the Auditor can undertake those roles and responsibilities. Specific adjustments to the prudential standard for Level 2 insurance groups are set out in Attachment B of GPS 310.
The existing GPS 310 is updated to include financial information declaration requirements that were originally in GPS 220, which is revoked from 1 January 2015.
Insurance (prudential standard) determination No. 6 of 2014
The purpose of this instrument is to revoke GPS 320 and determine a new GPS 320.
GPS 320 sets out the roles and responsibilities of an Appointed Actuary and Group Actuary (Actuary), and the obligations of an insurer or Level 2 insurance group to make arrangements to enable its Actuary to fulfil those roles and responsibilities.
The existing GPS 320 is updated to remove references to now revoked standards and replace them with references to applicable standards.
3. Consultation
APRA undertook a seven week consultation on the proposed consequential changes from August 2014.
4. Regulation Impact Statement
A Preliminary Assessment was submitted the Office of Best Practice Regulation who confirmed that a Regulation Impact Statement is not required.
5. Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
A Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is provided at Attachment A to this Explanatory Statement.
Attachment A
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Insurance (prudential standard) determinations Nos. 2 to 6 of 2014 and
These instruments are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (HRPS Act).
Overview of the Legislative Instrument
These instruments:
- include a new definition for ‘ensure’;
- replace references to revoked standards with references to applicable standards; and
- move the run-off plan and financial information declaration requirements from a revoked standard to applicable standards.
Human rights implications
APRA has assessed these instruments and is of the view that they do not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the HRPS Act. Accordingly, in APRA’s assessment, the instruments are compatible with human rights.
Conclusion
These instruments are compatible with human rights because they do not raise any human rights issues.