Life insurance (prudential standard) determination No.15 of 2007
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority
Life Insurance Act 1995, paragraph 230A(1)(a) and subsection 230A(5)
Under paragraph 230A(1)(a) 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, including friendly societies. Subsection 230A(5) of the Life Act empowers APRA to vary or revoke a standard in writing.
Life insurance (prudential standard) determination No.1 of 2006 determined Prudential Standard LPS 520 Fit and Proper (LPS 520) to take effect from effect from 1 October 2006. Life insurance (prudential standard) determination No.15 of 2007 revokes LPS 520 from 1 January 2008 and determines a new LPS 520 to take effect from 1 January 2008.
1. Background
As part of the Government’s response to Rethinking Regulation: the Report of the Taskforce on Reducing Regulatory Burdens on Business (Rethinking Regulation), the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007 (SRR Act) removes a number of provisions from the Life Act. In particular, the amendments reflect Recommendation 5.4 of Rethinking Regulation, which states that the Government should ensure that APRA has sufficient flexibility to tailor requirements to accommodate differing circumstances.
The SRR Act amendments necessitate a number of minor changes to LPS 520 to update references to the Life Act. The SRR Act also removes from the Life Act the requirement for APRA to approve auditors of life companies. Therefore, in LPS 520, the term “Approved Auditor” is replaced by “Auditor”.
Appointed Actuaries
APRA is extending the application of the fit and proper criteria to cover all Appointed Actuaries. Prior to this determination, the fit and proper criteria in LPS 520 applied only to Appointed Actuaries approved by APRA under subsection 93(6) of the Life Act. It did not apply to Appointed Actuaries who were appointed by a life company using the eligibility criteria in paragraph 93(4)(a) of the Life Act. The SRR Act repeals both the eligibility criteria in paragraph 93(4)(a) and APRA’s power to approve an appointed actuary under subsection 93(6) of the Life Act.
Eligibility criteria and fit and proper criteria for Appointed Actuaries are now covered entirely under prudential standards. Furthermore, the criteria have been consolidated: the “fit and proper” criteria of LPS 520 now also act as eligibility criteria for Appointed Actuaries (see paragraph 10 of Prudential Standard LPS 310 Audit and Actuarial Requirements (LPS 310) determined in November 2007). The new eligibility criteria for Appointed Actuaries are also now consistent with the fit and proper criteria for general insurance actuaries (see Prudential Standard GPS 520 Fit and Proper), with the exception for the time being that LPS 520 requires the Appointed Actuary to be a Fellow or Accredited Member of the Institute of Actuaries of Australia.
APRA recognises that these changes may have the effect of imposing more stringent eligibility requirements upon existing Appointed Actuaries that were appointed in accordance with the criteria under paragraph 93(4)(a) of the Act. A life company must notify APRA promptly if its Appointed Actuary does not meet the criteria specified in paragraph 19 of LPS 520. APRA will consider any request for ‘transitional’ relief from the eligibility criteria by using the provisions of paragraph 20 of LPS 520.
2. Outline of the Determination
The substantive changes are:
- the “Approved Auditor” is referred to as the “Auditor”;
- paragraph 18 (additional criteria applying to Appointed Actuaries of life companies) now applies to all Appointed Actuaries, not just those “where the approval by APRA of the person’s appointment is required”; and
- the Appointed Actuary must be “a Fellow or Accredited Member of the Institute of Actuaries of Australia” rather than “a member of a recognised professional body” (paragraph 18(e)).
3. Consultation
APRA consulted with industry participants from 2 August to 31 August 2007 by means of the discussion paper: Transition to the Revised Life Insurance Act. APRA received four submissions from the consultation process which were generally in support of the amendments.