Life Insurance (prudential standard) determination No. 2 of 2018

Administered by Department of the Treasury

Legislation au F2018L00742 Not in force Legislative Instrument

Legislation content

Insurance, Life Insurance and Health Insurance (prudential standards) determination No.1 of 2018

Insurance (prudential standard) determinations Nos.2 to 3 of 2018

Life Insurance (prudential standard) determination No.2 of 2018

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority (APRA)

Insurance Act 1973, section 32

Life Insurance Act 1995, section 230A

Private Health Insurance (Prudential Supervision) Act 2015, section 92

APRA may, in writing, determine a prudential standard that applies to an APRA-regulated institution under:

 (1) subsection 32(1) of the Insurance Act 1973 (Insurance Act), in relation to general insurers, authorised non-operating holding companies (authorised insurance NOHCs), and subsidiaries of general insurers and authorised insurance NOHCs. Under subsection 32(4) of the Insurance Act, APRA may, in writing, vary or revoke a prudential standard;

(2) subsection 230A(1) of the Life Insurance Act 1995 (Life Insurance Act), in relation to life companies (including friendly societies),registered non-operating holding companies (registered life NOHCs), and subsidiaries of life companies and registered life NOHCs. Under subsection 230A(5) of the Life Insurance Act, APRA may, in writing, vary or revoke a standard; and

(3)  subsection 92(1) of the Private Health Insurance (Prudential Supervision) Act 2015 (PHI Act), in relation to registered private health insurers. Under subsection 92(5) of the PHI Act, APRA may, in writing, vary or revoke a prudential standard.

On 31 May 2018, APRA made the following determinations (the instruments):

(1)          Insurance, Life Insurance and Health Insurance (prudential standards) determination No. 1 of 2018, which revokes Prudential Standard GPS 320 Actuarial and Related Matters (GPS 320) made under Insurance determination No. 1 of 2015; Prudential Standard LPS 320 Actuarial and Related Matters (LPS 320) made under Life Insurance determination No. 2 of 2014 and Prudential Standard HPS 320 Actuarial and Related Matters (HPS 320) made under Health Insurance determination No. 5 of 2015, and determines a new Prudential Standard CPS 320 Actuarial and Related Matters (CPS 320);

(2)          Insurance (prudential standards) determination No. 2 of 2018 which revokes Prudential Standard GPS 001 Definitions (GPS 001) made under Insurance determination No. 2 of 2014 and determines a new Prudential Standard GPS 001 Definitions (GPS 001);

(3)          Insurance (prudential standards) determination No. 3 of 2018 which determines a new Prudential Standard GPS 340 Insurance Liability Valuation (GPS 340);

(4)          Life Insurance (prudential standards) determination No. 2 of 2018 which revokes Prudential Standard LPS 001 Definitions (LPS 001) made under Insurance determination No. 1 of 2014 and determines a new Prudential Standard LPS 001 Definitions (LPS 001);

The instruments commence on 1 July 2019.  

  1. Background

APRA’s mandate is to ensure the safety and soundness of prudentially regulated financial institutions so that they can meet their financial promises to depositors, policyholders and fund members within a stable, efficient and competitive financial system.

 

APRA carries out this mandate through a multi-layered prudential framework that encompasses licensing and supervision of institutions. APRA is empowered under the Banking Act, the Insurance Act, the Life Insurance Act and the PHI Act to issue legally binding prudential standards that set out specific prudential requirements with which APRA-regulated institutions in each industry must comply. These standards are supported by prudential practice guides which clarify APRA’s expectations with regard to prudential requirements.

 

APRA regularly reviews its regulatory regime and amends its prudential requirements as a result of a number of factors including:

  • international developments;
  • changes in financial market conditions;
  • changes in risk management practices, in response to identified weaknesses in the prudential framework; and
  • to reduce potential negative impacts of emerging industry issues.

Since 2016, APRA has consulted with the general insurance, life insurance and private health insurance industries to review and reform the prudential requirements relating to the role of the Appointed Actuary. Prudential Standard CPS 320 Actuarial and Related Matters (CPS 320) establishes a new prudential standard for general insurers, life insurers and private health insurers to establish appropriate frameworks to allow the Appointed Actuary to focus on the matters most material to the sound and prudent operation of the insurer’s business. Prudential Standard GPS 340 outlines requirements for liability valuation for general insurers that were previously outlined in GPS 320.

 

Purpose of the instruments

 

The purpose of Insurance, Life Insurance and Health Insurance (prudential standards) determination No. 1 of 2018 is to set out prudential requirements for general insurers, life insurers and private health insurers to maintain appropriate actuarial advice. This advice is designed to assist the board and senior management in carrying out their responsibilities for the sound and prudent management of the insurer. The purpose of Insurance (prudential standards) determination No. 3 of 2018 is to set out the requirements for liability valuation for general insurers that were in GPS 320 in a new prudential standard, GPS 340. The purpose of Insurance (prudential standards) determination No. 2 of 2018 and Life Insurance (prudential standards) determination No. 2 of 2018 is to revoke and replace GPS 001 and LPS 001 respectively with new versions of those standards.

2.             Operation of the instruments

The key requirements of CPS 320 are:

  • an insurer must establish an actuarial advice framework;
  • an insurer must provide the Appointed Actuary with sufficient information, and access to the board and senior management, to allow the Appointed Actuary to fulfil specified roles and functions;
  • the Appointed Actuary must provide advice to the insurer on the valuation of the insurance liabilities, the insurer’s financial condition, and matters specified under the insurer’s actuarial advice framework, consistent with the insurer’s materiality policy;
  • the Appointed Actuary must assess the insurer’s financial condition and prepare a Financial Condition Report;
  • an insurer must submit a copy of the Financial Condition Report to APRA;
  • the Appointed Actuary must provide advice on the valuation of insurance liabilities, and Appointed Actuaries of general insurers and life companies must prepare an Actuarial Valuation Report; and
  • a general insurer or life company must submit a copy of the Actuarial Valuation Report to APRA.

The key requirements of GPS 340 are:

  • the ultimate responsibility for the valuation of insurance liabilities rests with the board of the general insurer or Level 2 insurance group;
  • a general insurer or Level 2 insurance group must value its insurance liabilities in accordance with the principles and methodology set out in GPS 340.

GPS 001 defines key terms referred to in other prudential standards applicable to general insurers and Level 2 insurance groups

 

LPS 001 defines key terms referred to in other prudential standards applicable to life companies.

 

Where CPS 320, GPS 340, GPS 001 and LPS 001 refer to an Act, Regulation or prudential standard, this is a reference to the document as it exists from time to time, and which is available on the Federal Register of Legislation at www.legislation.gov.au.

 

3.             Consultation

APRA undertook consultations on its review of the role of the Appointed Actuary between June 2016 and December 2017. Submissions were received from, and discussions held with, numerous insurers, industry bodies, and the professional body.

In June 2016, APRA released for public consultation a discussion paper, The role of the Appointed Actuary and actuarial advice within insurers. APRA received 26 written submissions in response to the discussion paper and presented the proposed reforms via a wide range of industry forums.

In September 2017, APRA released for public consultation a response to submissions paper which included two new draft prudential standards and a draft prudential practice guide. In the response, APRA outlined the significant issues raised in the submissions and APRA’s response to them. APRA received 10 submissions in relation to the response paper.

All submissions to the response paper were generally supportive of the proposed changes and mainly sought minor clarifications to the draft CPS 320. The key issue of concern related to the date of implementation with some stakeholders noting that given other concurrent regulatory changes, a later implementation date would be preferred.

4.             Regulation Impact Statement

The Office of Best Practice Regulation has advised that a Regulation Impact Statement is not required for these legislative instruments.

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, Life Insurance and Health Insurance (prudential standard) determination No.1 of 2018

Insurance (prudential standard) determinations Nos.2 to 3 of 2018

Life Insurance (prudential standard) determination No.2 of 2018

These Legislative Instruments are compatible with the human rights and freedoms recognised or declared in the international instrument listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (HRPS Act).

Overview of the Legislative Instruments

The purpose of these instruments is to set out prudential requirements for general insurers, life insurers and private health insurers to maintain appropriate actuarial advice. This advice is designed to assist the board and senior management in carrying out their responsibilities for the sound and prudent management of the insurer. It is also to set out the requirements for liability valuation for general insurers and to make consequential amendments to definitions contained in GPS 001 and LPS 001.

CPS 320 and GPS 340 are new prudential standards which are designed to ensure that the prudential framework for insurers remains fit for purpose. In particular, to protect policyholder interests and ensure sound prudential outcomes by improving the functioning of the Appointed Actuary role.

Human rights implications

APRA has assessed the instruments against the international instruments listed in section 3 of the HRPS Act and has determined that the instruments do not engage any of the applicable rights or freedoms.

Conclusion

These Legislative Instruments are compatible with human rights as they do not raise any human rights issues.

 

 

 

Overview

The Australian Prudential Regulation Authority (APRA) enacted the Insurance, Life Insurance and Health Insurance (prudential standards) determination No.1 of 2018, alongside the Insurance (prudential standards) determinations Nos. 2 to 3 of 2018 and the Life Insurance (prudential standard) determination No. 2 of 2018. These instruments, which commenced on 1 July 2019, aim to address the need for updated prudential standards for APRA-regulated institutions, including general insurers, life insurers, and private health insurers. The legislation, enacted under the authority of the Insurance Act 1973, the Life Insurance Act 1995, and the Private Health Insurance (Prudential Supervision) Act 2015, seeks to ensure the safety and soundness of the financial institutions by establishing specific prudential requirements. APRA’s role is to protect the interests of policyholders and ensure the financial stability of the institutions within a competitive financial system. The determinations also respond to changes in financial markets, risk management practices, and emerging industry issues to mitigate potential risks. The primary objective of these instruments is to enhance the role of the Appointed Actuary within the institutions, ensuring they provide appropriate actuarial advice and maintaining sound prudential outcomes.

Scope and Application

The Insurance, Life Insurance and Health Insurance (prudential standards) determination No. 1 of 2018, along with the Insurance (prudential standards) determination Nos. 2 to 3 of 2018, and the Life Insurance (prudential standards) determination No. 2 of 2018, pertain to prudential standards established by the Australian Prudential Regulation Authority (APRA) under the Insurance Act 1973, the Life Insurance Act 1995, and the Private Health Insurance (Prudential Supervision) Act 2015. These instruments apply to APRA-regulated institutions, including general insurers, life companies, registered non-operating holding companies, and private health insurers. The standards are designed to ensure the financial stability and soundness of these entities, focusing on aspects such as actuarial advice, liability valuation, and definitions used in prudential standards. The geographic reach of these instruments is national, given APRA's role in overseeing the prudential regulation of financial institutions across Australia. These determinations revoke certain previous standards and introduce new ones, effective from 1 July 2019, aiming to enhance the regulatory framework for actuarial practices and improve the quality of actuarial advice within the insurance sector. The instruments are supported by subordinate instruments and practice guides that provide further detail on the regulatory expectations. There are no specified exclusions, exemptions, or thresholds in these determinations, which apply broadly to all APRA-regulated entities within the scope of the referenced Acts.

Key Provisions

The primary operative sections of the legislative instruments under consideration are the Insurance, Life Insurance and Health Insurance (prudential standards) determination No.1 of 2018, the Insurance (prudential standard) determinations Nos.2 to 3 of 2018, and the Life Insurance (prudential standard) determination No.2 of 2018. These instruments establish new prudential standards for general insurers, life insurers, and private health insurers. Specifically, they introduce Prudential Standard CPS 320 Actuarial and Related Matters (CPS 320), which sets requirements for maintaining appropriate actuarial advice, and Prudential Standard GPS 340 Insurance Liability Valuation (GPS 340), which outlines requirements for the valuation of insurance liabilities for general insurers. Furthermore, these instruments also revise and update definitions in GPS 001 and LPS 001, which pertain to general insurers and life companies respectively. The obligations imposed by these instruments on APRA-regulated institutions are multifold. Firstly, under CPS 320, insurers must establish a comprehensive actuarial advice framework that enables the Appointed Actuary to effectively perform their specified roles and functions. This includes providing the Appointed Actuary with sufficient information and ensuring they have access to the board and senior management. Secondly, the Appointed Actuary must offer advice on the valuation of insurance liabilities, the insurer’s financial condition, and other matters outlined in the actuarial advice framework, consistent with the insurer’s materiality policy. Additionally, the Appointed Actuary must prepare a Financial Condition Report and, in the case of general insurers and life companies, an Actuarial Valuation Report. Insurers are required to submit these reports to APRA. Under GPS 340, the board of a general insurer or Level 2 insurance group must take ultimate responsibility for the valuation of insurance liabilities and ensure that these are valued in accordance with the principles and methodology set forth in GPS 340. The legislative instruments also delineate offences, penalties, and consequences for non-compliance. While the text does not explicitly state penalties for breaches, non-compliance with APRA’s prudential standards can lead to regulatory action. APRA has the authority to issue legally binding directives, impose fines, and in severe cases, revoke the licenses of institutions that fail to adhere to these standards. Moreover, failure to maintain appropriate actuarial advice or to correctly value insurance liabilities could undermine the financial stability and soundness of the insurer, potentially leading to regulatory sanctions and adverse impacts on policyholders. The instruments aim to ensure that the prudential framework for insurers remains robust and effective. By improving the functioning of the Appointed Actuary role and ensuring that actuarial advice and liability valuations are conducted in a sound and prudent manner, these standards help to protect policyholder interests and maintain the stability of the insurance sector.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.