Life Insurance (prudential standards) determination
No. 12 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.12 of 2010 makes Prudential Standard LPS 700 Friendly Society Benefit Funds (LPS 700) to take effect from 1 July 2011. It applies to all life companies that are 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 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 700 and Prudential Standard LPS 600 Statutory Funds (to be made by Life Insurance (prudential standards) determination No. 11 of 2010).
Details of the mapping of the prudential rules to the new LPS 700, including the minor changes that have been made as part of the conversion process, are set out in the table below.
Prudential Standard LPS 700 Friendly Society Benefit Funds
| ||
Prudential Rules | Changes made – machinery in nature | |
PR 36 | Restructure of Statutory Funds
| The part of Prudential Rule 36 which is relevant to friendly societies has been included in LPS 700. Reference to Prudential Rule 47 has been removed as this prudential rule has been revoked. |
PR 37 | Termination of Statutory Funds
| A minor wording change has been made to paragraph 2 of Part 1 of the Schedule to Prudential Rule 37 which referred to “restructure” and has been altered to “termination”.
The reference to Prudential Rule 47 has been removed as this prudential rule has been revoked. |
PR 38 | Restructure and Termination of Statutory Funds – Transitional Matters | Prudential Rule 38 will not be incorporated in LPS 700.
|
PR 39 | Adequate Adoption of Benefit Fund Rules or Amendments of Approved Benefit Fund Rules | The words “or a class of members as determined by APRA” in the sentence “a special resolution of the members of the friendly society (or a class of members as determined by APRA) in accordance with section 9 of the Corporations Act 2001” have been inserted. This provision is now aligned with the Life Act (section 16B).
|
PR 40 | Approval of Benefit Fund Rules | Incorporated into LPS 700 without change. |
PR 41 | Approval of Amendment of Approved Benefit Fund Rules
| The words “or a class of members as determined by APRA” in the sentence “a special resolution of the members of the friendly society (or a class of members as determined by APRA) in accordance with section 9 of the Corporations Act 2001” have been inserted. This provision is now aligned with the Life Act (section 16B).
|
PR 42 | Approval of Amendment of Approved Benefit Fund Rules as Required by APRA | Incorporated into LPS 700 without change. |
PR 43 | Approval of Consequential Amendments of Company’s Constitution | Incorporated into LPS 700 without change
|
PR 44 | Approval of Consequential Amendments of Company’s Constitution as Required by APRA | Incorporated into LPS 700 without change |
PR 45 | Joint Investments of Friendly Society Approved Benefit Funds | Incorporated into LPS 700 without change |
PR 46 | Single Bank Account for Friendly Society Approved Benefit Funds | Incorporated into LPS 700 without change
|
LPS 902 | Approved Benefit Fund Requirements | Incorporated into LPS 700 without change |
LPS 700 applies to all life companies that are friendly societies and sets out requirements relating to benefit funds. It incorporates the requirements contained in Prudential Rules 36 to 46 and LPS 902 Approved Benefit Fund Requirements.
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 700 is exactly the same as that contained in the prudential rules. For the most part, LPS 700 uses the same wording as the prudential rules. This will minimise the impact of these changes on friendly societies.
APRA has determined that Life Insurance (prudential standards) determination No.12, be effective from 1 July 2011.
Purpose and operation of the Instrument
The purpose of this instrument is to revoke the existing prudential rules. This is 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 prudential standard LPS 902 applying to life insurers 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. For that reason, APRA also decided to revoke and replace the affected standard rather than to amend it.
Consultation
LPS 700 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.