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.
Overview
The Life Insurance (Prudential Standard) Determination No. 15 of 2007 was enacted to align with the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007, addressing the need for regulatory flexibility as recommended by the Taskforce on Reducing Regulatory Burdens on Business. This determination, issued by the Australian Prudential Regulation Authority (APRA) under the Life Insurance Act 1995, revokes the previous Prudential Standard LPS 520 Fit and Proper (LPS 520) from 1 January 2008 and introduces a revised version to ensure consistency and simplicity in regulatory requirements. The policy objective is to streamline and modernise the regulatory framework while maintaining stringent standards for the appointment of fit and proper persons, particularly Appointed Actuaries, in the life insurance sector. This change was motivated by the need to update references to the Life Act and remove the requirement for APRA to approve auditors, thereby extending the fit and proper criteria to all Appointed Actuaries.
Scope and Application
The Life Insurance (Prudential Standard) Determination No. 15 of 2007, issued by the Australian Prudential Regulation Authority (APRA) under the Life Insurance Act 1995, applies to all life insurance companies and friendly societies in Australia, along with their appointed actuaries. This determination was made necessary by amendments to the Life Insurance Act resulting from the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007. These amendments reflect the Government's initiative to streamline regulatory requirements, allowing APRA greater flexibility to tailor prudential standards to suit varying circumstances. The new standards, effective from 1 January 2008, replace the previously established Prudential Standard LPS 520 Fit and Proper, with specific updates including the replacement of "Approved Auditor" with "Auditor" and the extension of the fit and proper criteria to encompass all Appointed Actuaries, rather than just those approved by APRA. Furthermore, the eligibility criteria for Appointed Actuaries have been consolidated and now align with the criteria for general insurance actuaries, with the exception that the Appointed Actuary must be a Fellow or Accredited Member of the Institute of Actuaries of Australia. The new standards aim to ensure that all Appointed Actuaries meet stringent eligibility requirements, and life companies must notify APRA if their Appointed Actuary does not meet these criteria.
Key Provisions
The Life Insurance (Prudential Standard) Determination No.15 of 2007 outlines the revised Prudential Standard LPS 520 Fit and Proper (LPS 520), which took effect from 1 January 2008. This determination was issued under the Life Insurance Act 1995 (Life Act) and replaces the previously determined LPS 520 from 1 October 2006. One of the key changes is the extension of the fit and proper criteria to all Appointed Actuaries of life companies, including those not previously subject to APRA’s approval (section 1). Additionally, the term “Approved Auditor” has been replaced with “Auditor” throughout the standard, reflecting changes in the Life Act (section 1). The new standard also specifies that Appointed Actuaries must be Fellows or Accredited Members of the Institute of Actuaries of Australia (section 1).
The obligations imposed by this determination require life companies to ensure that all Appointed Actuaries meet the new eligibility and fit and proper criteria outlined in the standard. This includes notifying APRA promptly if an Appointed Actuary does not meet the criteria specified in paragraph 19 of LPS 520 (section 1). Life companies must also comply with the new auditor requirements, ensuring that the Auditor is appropriately qualified and independent as per the updated standard. APRA will consider requests for transitional relief from the eligibility criteria for Appointed Actuaries, as outlined in paragraph 20 of LPS 520 (section 1).
The determination introduces potential penalties and consequences for non-compliance. Life companies that fail to notify APRA of any non-compliance by an Appointed Actuary or other breaches of the new standards may face regulatory scrutiny and enforcement actions. While specific penalties are not detailed in the determination, non-compliance could result in regulatory penalties, fines, or other enforcement measures as determined by APRA under the Life Act. Furthermore, failure to meet the fit and proper criteria could lead to the revocation of an Appointed Actuary's authorisation, which would have significant implications for the life company concerned.