Insurance (prudential standards) determination No. 2 of 2004
References to accounting standards
Insurance Act 1973
I, John Francis Laker, Chair of APRA, under paragraph 32(1)(a) of the Insurance Act 1973 (the “Act”) and subsection 33(3) of the Acts Interpretation Act 1901, VARY the prudential standards and guidance notes referred to in the Schedule as provided for in the Schedule.
This variation comes into force on 1 January 2005.
Dated 15 December 2004
[Signed]
……………………............
John Francis Laker
Chair
Note A general insurer that does not comply with a standard may be issued with directions by APRA under section 36 of the Act. Non-compliance with a direction is an offence (see section 37 of the Act).
Interpretation
In this Notice
APRA means the Australian Prudential Regulation Authority.
general insurer has the meaning given in section 11 of the Act.
Schedule
[1] Prudential Standard GPS 110 – Capital Adequacy for General Insurers, paragraph 19, after ‘Australian Accounting Standards’
insert
‘(as they applied in relation to reporting periods that began immediately before 1 January 2005)’
[2] Guidance Note GGN 110.4 – Investment Risk Capital Charge, footnote 1, after ‘Australian Accounting Standard 1017 Related Party Disclosures’
insert
‘(as it applied in relation to reporting periods that began immediately before 1 January 2005)’
[3] Prudential Standard GPS 210 – Liability Valuation for General Insurers, third paragraph under the heading ‘Objective and Key Requirements of this Standard’
omit
‘In developing this Standard, regard has been had to the requirements of AASB 1023 and to the merits, to both the preparer and user of the accounts, of establishing an integrated financial reporting framework for the insurance industry, ie a reporting framework that responds to the objects of the statutory and general purpose reporting regimes and avoids, to the extent possible, dual reporting by industry.’
substitute
‘In developing this Standard, regard has been had to the requirements of AASB 1023 (as it applied in relation to reporting periods that began immediately before 1 January 2005). Regard has also be had to the merits, to both the preparer and user of the accounts, of establishing an integrated financial reporting framework for the insurance industry, ie a reporting framework that responds to the objects of the statutory and general purpose reporting regimes and avoids, to the extent possible, dual reporting by industry.’
omit
‘there will be some inconsistency between this Prudential Standard and AASB 1023.’
substitute
‘there will be some inconsistency between this Prudential Standard and AASB 1023 (as it applied in relation to reporting periods that began immediately before 1 January 2005).’
[4] Prudential Standard GPS 210 – Liability Valuation for General Insurers, paragraph 8, after ‘relevant Australian Accounting Standards’
insert
‘(as they applied in relation to reporting periods that began immediately before 1 January 2005)’
[5] Prudential Standard GPS 210 – Liability Valuation for General Insurers, paragraph 43, after ‘relevant Australian Accounting Standards’
insert
‘(as they applied in relation to reporting periods that began immediately before 1 January 2005)’
Overview
The Insurance (Prudential Standards) Determination No. 2 of 2004 was enacted to address the need for aligning prudential standards for general insurers with the accounting standards that applied prior to 1 January 2005. This legislative instrument was issued under the authority of the Insurance Act 1973 by John Francis Laker, Chair of the Australian Prudential Regulation Authority (APRA). The policy objective was to ensure that prudential standards for general insurers incorporated the relevant accounting standards as they were applicable before the specified date, thereby providing clarity and consistency in regulatory oversight and compliance requirements for the insurance industry.
This determination modifies several prudential standards and guidance notes to reflect the accounting standards in force immediately before 1 January 2005. The aim was to prevent any potential confusion or non-compliance due to changes in accounting standards, thereby maintaining the integrity and stability of the insurance sector. Non-compliance with these standards could result in directions from APRA and, if disregarded, would constitute an offence under the Act.
Scope and Application
The Insurance (prudential standards) determination No. 2 of 2004 applies to general insurers, which are defined in section 11 of the Insurance Act 1973. This legislation, issued by the Australian Prudential Regulation Authority (APRA), modifies specific prudential standards and guidance notes to incorporate references to Australian Accounting Standards as they applied to reporting periods commencing immediately before 1 January 2005. The variation is intended to ensure that the standards remain relevant and consistent with the accounting standards in effect at that time. This determination operates nationally, affecting all general insurers within Australia, and comes into force on 1 January 2005. While the Act does not explicitly exclude any entities or types of conduct, non-compliance with the prudential standards may result in APRA issuing directions to the insurer, with failure to comply being an offence under the Act. The scope of the Act is further extended through subordinate instruments that may elaborate on the application of these standards.
Key Provisions
The Insurance (Prudential Standards) Determination No. 2 of 2004, made under the authority of the Insurance Act 1973, modifies several prudential standards and guidance notes as outlined in the Schedule (paragraph 1). These changes, which come into effect on 1 January 2005, primarily involve the incorporation of specific references to Australian Accounting Standards as they applied to reporting periods beginning just before this date (paragraph 1). For example, Prudential Standard GPS 110 – Capital Adequacy for General Insurers now explicitly refers to 'Australian Accounting Standards' as they applied to periods before 1 January 2005 (paragraph 1). Similarly, Guidance Note GGN 110.4 – Investment Risk Capital Charge includes a reference to 'Australian Accounting Standard 1017 Related Party Disclosures' with the same temporal application (paragraph 2). Additionally, certain paragraphs within Prudential Standard GPS 210 – Liability Valuation for General Insurers have been amended to reflect the application of accounting standards as they existed before the specified date (paragraphs 3 and 4).
The Act imposes certain obligations on general insurers to ensure they comply with the prudential standards and guidance notes. For instance, they must adhere to the modified standards concerning capital adequacy, investment risk, and liability valuation as stipulated in the Schedule (paragraphs 1-4). Failure to comply with these standards may result in directions being issued by the Australian Prudential Regulation Authority (APRA) under section 36 of the Act. These directions are intended to guide the insurer towards compliance and may include specific actions or measures the insurer must take to meet the required standards.
Breach of a direction issued by APRA constitutes an offence under section 37 of the Act. Non-compliance with these directions can lead to legal consequences for the insurer, including potential penalties. The exact penalties for such breaches are not detailed in the determination but can be severe, reflecting the critical nature of the prudential standards in maintaining the financial stability and integrity of the insurance industry. The implications for non-compliance underscore the importance of adhering to the prescribed standards to avoid legal repercussions.