Life insurance (prudential standard) determination Nos.5 to 11 of 2007
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority
Life Insurance Act 1995, paragraph 230A(1)(a)
Under paragraph 230A(1)(a) of the Life Insurance Act 1995 (Life Act), APRA has the power to determine (in writing) standards in relation to prudential matters to be complied with by all life companies, including friendly societies.
Life insurance (prudential standard) determination Nos.5 to 11 of 2007 make the following prudential standards to take effect from 1 January 2008:
- Prudential Standard LPS 1.04 Valuation of Policy Liabilities;
- Prudential Standard LPS 2.04 Solvency Standard;
- Prudential Standard LPS 3.04 Capital Adequacy Standard;
- Prudential Standard LPS 4.02 Minimum Surrender Values and Paid-up Values;
- Prudential Standard LPS 5.02 Cost of Investment Performance Guarantees;
- Prudential Standard LPS 6.03 Management Capital Standard; and
- Prudential Standard LPS 7.02 General Standard.
1. Background
As part of the Government’s response to Rethinking Regulation: the Report of the Taskforce on Reducing Regulatory Burdens on Business (Rethinking Regulation), the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007 (SRR Act) removes a number of provisions from the Life Act. In particular, the amendments reflect Recommendation 5.4 of Rethinking Regulation, which states that the Government should ensure that APRA has sufficient flexibility to tailor requirements to accommodate differing circumstances.
These prudential standards reproduce the actuarial standards which were previously issued by the Life Insurance Actuarial Standards Board (LIASB). Effective from 1 January 2008, the SRR Act repeals Part 5 and Division 4 of Part 6 of the Life Act. These provisions of the Life Act established and regulated the actuarial standards and the LIASB. APRA will assume the role of the LIASB in relation to the making of actuarial standards.
APRA considers that, in the short term, the most efficient and transparent way of accomplishing this is to:
- reissue the current standards by attaching them, unchanged, to the new determination; and
- specify separately the changes that are necessary to allow the standards to operate as intended under the revised Life Act.
This approach allows life companies and their actuaries to have confidence that the only changes are those that are explicitly set out in the determinations.
APRA intends that, as far as possible, life companies should comply with the new prudential standards on actuarial matters in the same way that they complied with the LIASB actuarial standards.
2. Outline of the Determinations
Life insurance (prudential standard) determination No.5 of 2007: Prudential Standard LPS 1.04 Valuation of Policy Liabilities reissues the LIASB’s Actuarial Standard 1.04 Valuation of Policy Liabilities.
Life insurance (prudential standard) determination No.6 of 2007: Prudential Standard LPS 2.04 Solvency Standard reissues the LIASB’s Actuarial Standard 2.04 Solvency Standard.
Life insurance (prudential standard) determination No.7 of 2007: Prudential Standard LPS 3.04 Capital Adequacy Standard reissues the LIASB’s Actuarial Standard 3.04 Capital Adequacy Standard.
Life insurance (prudential standard) determination No.8 of 2007: Prudential Standard LPS 4.02 Minimum Surrender Values and Paid-up Values reissues the LIASB’s Actuarial Standard 4.02 Minimum Surrender Values and
Paid-up Values.
Life insurance (prudential standard) determination No.9 of 2007: Prudential Standard LPS 5.02 Cost of Investment Performance Guarantees reissues the LIASB’s Actuarial Standard 5.02 Cost of Investment Performance Guarantees.
Life insurance (prudential standard) determination No.10 of 2007: Prudential Standard LPS 6.03 Management Capital Standard reissues the LIASB’s Actuarial Standard 6.03 Management Capital Standard.
Life insurance (prudential standard) determination No.11 of 2007: Prudential Standard LPS 7.02 General Standard reissues the LIASB’s Actuarial Standard 7.02 General Standard.
3. Consultation
APRA consulted with industry participants from 2 August to 31 August 2007 by means of the consultation paper: Transition to the Revised Life Insurance Act. APRA received four submissions from the consultation process, which were generally in support of the amendments.