Life Insurance (prudential standard) determination No. 11 of 2010 - Prudential Standard LPS 600 - Statutory Funds

Administered by Department of the Treasury

Legislation au F2010L03285 Not in force Legislative Instrument

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Life Insurance (prudential standards) determination

No. 11 of 2010

 

EXPLANATORY STATEMENT

 

Prepared by the Australian Prudential Regulation Authority (APRA)

 

Life Insurance Act 1995, section 230A

 

 

Under subsection 230A(1) 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 or a specified class of life companies.

 

Life insurance (prudential standards) determination No. 11 of 2010 makes Prudential Standard LPS 600 Statutory Funds (LPS 600) to take effect from 1 July 2011. It applies to all life companies, other than friendly societies.

 

Background

 

As part of the Government’s response to Rethinking Regulation: the Report of the Taskforce on Reducing Regulatory Burdens on Business, the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007 (SRR Act) made significant changes to the Life Act. Of relevance to this explanatory statement is that the SRR Act requires that prudential rules be phased out by 1 July 2011 in favour of prudential standards. 

 

By way of background, the explanatory memorandum to the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007 (SRR Bill) explains that life company prudential requirements are currently provided for under prudential rules, actuarial standards, prudential standards, the Life Insurance Regulations 1995 (Life Regulations) and the Life Act. Prudential rules were the main tool used by the Regulator to prescribe requirements of life insurers under the Life Act, prior to APRA obtaining a prudential standards-making power. These amendments will simplify the Life Act by removing prudential rules from the Act and replace them with principles based prudential standards where necessary.

 

Accordingly, APRA is replacing the remaining prudential rules with prudential standards LPS 600 and Prudential Standard LPS 700 Friendly Society Benefit Funds (to be made by Life Insurance (prudential standards) determination No. 12 of 2010).   In addition, Prudential Standard LPS 900 Consolidation of Prudential Rules Nos. 15, 18, 22, 27 and 28 (LPS 900) is revoked and its content included in LPS 600.

 

LPS 600 applies to all life companies, other than friendly societies, and sets out requirements relating to statutory funds. It incorporates the relevant parts of Prudential Rule 36 Restructure of Statutory Funds (PR 36), Prudential Rule 50 Revised Starting Amounts (PR 50) and LPS 900.

 

Details of the mapping of the prudential rules to the new LPS 600, including the minor changes that have been made as part of the conversion process, are set out in the table below.

 

 

Prudential Standard LPS 600 Statutory Funds

 

Prudential Rules

Changes made – machinery in nature

PR 36

Restructure of Statutory Funds

 

  • Prudential Rule 36 has been split into two parts.  LPS 600 covers matters relevant to life companies and LPS 700 covers matters relevant to friendly societies.
  • The reference to Prudential Rule 47 has been removed as this prudential rule has been revoked.

PR 50

Revised Starting Amounts

  • Prudential Rule 50 has been merged with the starting amount content previously contained in LPS 900 and included in LPS 600.

LPS 900

Consolidation of Prudential Rules Nos. 15, 18, 22, 27 and 28

  • LPS 900 was a consolidation of Prudential Rules Nos. 15, 18, 22, 27 and 28.  Its entire contents have been incorporated in LPS 600 with minimal change.

 

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In undertaking the conversion, content that was previously included in the body of the prudential rule that related to making applications to APRA has been converted into forms. These forms are included at the end of each prudential standard.

 

The policy intent of LPS 600 is exactly the same as that contained in the prudential rules. For the most part, LPS 600 uses the same wording as the prudential rules.  This will minimise the impact of these changes on life companies.

 

APRA has determined that Life Insurance (prudential standards) determination No. 11 of 2010 be effective from 1 July 2011.

 

Purpose and operation of the Instrument

 

The purpose of this instrument is to revoke the existing PR 50. Life Insurance (prudential standards) determination No. 12 of 2010 revokes the existing PR 36. These revocations are consistent with the SRR Act which requires that prudential rules be phased out by 1 July 2011 in favour of prudential standards. The purpose of this instrument is also to revoke the existing LPS 900 applying to life companies and replace it with a corresponding standard which incorporates appropriate adjustments.  APRA considered that it would be clearer and more effective to consolidate the necessary changes within a new standard.   

 

Consultation

 

LPS 600 changes requirements imposed on industry only in form, not in substance.  The change merely moves requirements specified under prudential rules and a prudential standard to a new prudential standard.  Therefore there is no change in the policy being applied to industry. 

 

Regulation Impact Statement

 

A Regulation Impact Statement for the changes described in this explanatory statement was not required. 

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