Life Insurance (prudential standards) determination
No. 9 of 2010
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Life Insurance Act 1995, section 230A
Under subsection 230A(5) of the Life Insurance Act 1995 (Life Act) APRA may, in writing, revoke a prudential standard made in relation to prudential matters to be complied with by all life insurance companies (including friendly societies). Under subsection 230A(1) APRA may, in writing, determine a prudential standard made in relation to prudential matters to be complied with by all life insurance companies (including friendly societies).
Background
Life Insurance Amendment Regulations 2010 (No. 1) (2010 No. 24) were registered on 26 February 2010. A number of technical matters were excised from Schedule 2 of the Regulations with a view to addressing these matters under prudential standards. As the content is highly technical in nature and similar technical information has been placed in other prudential standards, this content is more appropriately placed in prudential standards.
The items to be removed from Schedule 2 of the Life Insurance Regulations 1995 are the definition of ‘relevant actuarial standard’ and items 1, 2, 3, 4, 5.1, 5.2, 6 and 7 of the table in Schedule 2, which relate to requirements on calculating minimum surrender values for certain types of life policies. These items are of a highly technical nature. Placing these items into prudential standards will assist APRA in amending the actual calculation requirements more responsively in line with industry developments.
It is proposed that the items in Schedule 2 be inserted into LPS 4.02 Minimum Surrender Values and Paid-up Capital and for the changes to take effect on the same day as the amendments to the Life Insurance Regulations 1995 made by the Life Insurance Amendment Regulations 2010 (No. 1) (2010 No. 24) are to commence. This will ensure that there is no gap in the application of the items being moved from the Life Regulations to LPS 4.02.
Accordingly, APRA has determined that Life Insurance (prudential standards) determination No. 9 of 2010 be effective from 27 August 2010.
APRA’s proposed amendments to LPS 4.02 do not change requirements imposed on industry in substance, only in form. The change in substance shifts content from the Life Regulations to APRA’s prudential standards. Therefore there is no change to the policy being applied.
Purpose and operation of the Instrument
The purpose of this instrument is to revoke the existing prudential standard applying to life insurers and replace it with corresponding standards which incorporate appropriate adjustments. APRA considered that it would be clearer and more effective to consolidate the necessary changes within new standards. For that reason, APRA decided to revoke and replace affected reporting standards rather than to amend them.
Consultation
APRA’s proposed amendments to LPS 4.02 change requirements imposed on industry only in form, not in substance. The change merely moves requirements specified under the Life Regulations to APRA’s prudential standards. Therefore there is no change to industry in the policy being applied.
Regulation Impact Statement
A Regulation Impact Statement for the changes described in this explanatory statement was not required.