Life insurance (prudential standard) determination No. 5 of 2006
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Life Insurance Act 1995, subsection 230A(5)
Under subsection 230A(1) of the Life Insurance Act 1995 (the Act), APRA has the power to determine standards (prudential standards), in writing, in relation to prudential matters to be complied with by life companies. Under subsection 230A(5) of the Act, APRA may, in writing, vary or revoke a prudential standard.
Life insurance (prudential standard) determination No. 2 of 2006 determined Prudential Standard LPS 510 Governance (LPS 510) to take effect on 1 October 2006. Life insurance (prudential standard) determination No. 5 of 2006 (the instrument) varies LPS 510.
- Background
LPS 510 provides that the Audit Committee must provide an objective non-executive review of the effectiveness of the risk management framework. Under the Act, it is possible for a life company to have a Board Committee, other than the Audit Committee, with responsibilities in relation to risk management, so long as the Audit Committee retains the functions prescribed by section 92 of the Act. APRA seeks to vary the prudential standard to remove any doubt that such an arrangement is acceptable to APRA.
Also, APRA has identified that LPS 510 contains a minor typographical error. Paragraph 6 of Attachment B to the prudential standard has three cross-references to subparagraphs 4(a), 4(b) and 4(c) which should refer to subparagraphs 5(a), 5(b) and 5(c).
2. Purpose of the instrument
The instrument varies LPS 510 to make explicit that a Board Committee, other than the Audit Committee, may have responsibilities in relation to risk management, provided the Audit Committee retains the function prescribed by section 92 of the Act.
The instrument also varies LPS 510 to correct the minor typographical error in paragraph 6 of Attachment B.
3. Consultation
APRA consulted extensively with industry in relation to LPS 510 which is varied by the instrument. This change will be favourable to life companies as it makes explicit the responsibilities of Audit Committees and other Board Committees in relation to risk management.