Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 - Instrument Issuing Guidelines No. 3 of 2003

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Australian Prudential Regulation Authority

 

Medical Indemnity (Prudential Supervision and Product Standards) Act 2003

 

INSTRUMENT ISSUING GUIDELINES

No 3 of 2003

 

MADE UNDER SUBSECTION 13(9)

 

 

I, Charles Watts Littrell, a delegate of the Australian Prudential Regulation Authority, under subsection 13(9) of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 ISSUE the following guidelines, which are set out in the Schedule:

   Guidelines: Qualifications and Independence of Auditors and Actuaries.

 

 

 

 

 

Dated 6 August 2003

 

 

 

 

Charles Littrell

Executive General Manager

Policy, Research and Consulting Division

GUIDELINES

 

QUALIFICATIONS AND INDEPENDENCE OF AUDITORS AND ACTUARIES

 

 

 

 

Background

 

1. A body corporate, being either:

 

(a)  a  Medical  Defence  Organisation  (MDO)  within  the  meaning  of  the   Medical

Indemnity (Prudential Supervision and Product Standards) Act 2003 (the Act); or

 

(b)  a body corporate prescribed in the  Medical Indemnity (Prudential Supervision and

Product Standards) Regulations 2003 (the Regulations); or

 

(c)  a body corporate related to a body corporate mentioned in (a) or (b);

 

may  apply  to  APRA,  under  subsection  13(1)  of  the  Act,  for  a  determination  under subsection 13(3) of the Act that the minimum capital requirements1 do not apply to the body corporate during 1 July 2003 to 30 June 2008 (the transition period).

 

2. APRA can only make a determination under subsection 13(3) of the Act where, at the time of application by the body corporate, the body corporate:

 

(a)  is not a general insurer under the Insurance Act 1973 (Insurance Act), or is a general insurer and is prescribed by the Regulations; and

 

(b)  does not, or would not during the transition period, comply with the minimum capital requirements; and

 

(c)  lodges a funding plan that:

 

(i) is in the form prescribed by the Regulations;

 

(ii) is certified by an independent auditor and independent actuary; and

 

(iii)  complies with guidelines issued by  APRA.

 

3. APRA can not make any determinations on or after 1 July 2005.

 

Purpose

 

4. These guidelines set out:

 

(a)  the qualifications an auditor or actuary must have; and

 

 

 

 

1 Minimum capital requirements are those prescribed by  Prudential Standard GPS 110 Capital Adequacy for

General Insurers made under section 32 of the Insurance Act 1973.

 

 

 

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(b)  the  necessary  degree  of  independence  from  a  body  corporate  that  an  auditor  or actuary must have;

 

to certify a funding plan in accordance with subparagraph 13(3)(d)(ii) of the Act.

 

Authority

5. These guidelines are made under paragraphs 13(9)(c) and (d) of the Act. Guidelines on the qualifications and independence of the  auditor and the actuary Basic requirements

 

6. Where the body corporate is not a general insurer, the auditor and the actuary must meet:

 

(a)  the fitness and propriety criteria in paragraph 6 of Prudential Standard GPS 220 Risk

Management for General Insurers (GPS 220); and

 

(b)  the eligibility criteria in paragraphs 8(b) and (c) of GPS 220; and

 

(c)  the additional eligibility criteria in paragraph 10 or 11 of this guideline.

 

7. Where the body corporate is a general insurer:

 

(a)  the auditor must be the body corporate’s approved auditor;2 and

 

(b)  the actuary must be the body corporate’s approved actuary3 (except where paragraph

8 applies).

 

8. Where the body corporate is a general insurer and has been exempted under section 47 of the Insurance Act from the requirement to have an actuary, the actuary must meet:

 

(a)  the fitness and propriety criteria in paragraph 6 of GPS 220; and

 

(b)  the eligibility criteria in paragraphs 8(b) and (c) of GPS 220; and

 

(c)  the additional eligibility criteria in paragraph 11 of this guideline.4

 

9. For the purposes of paragraphs 6 and 8:

 

(a)  a reference to an ‘approved auditor’ or ‘approved actuary’ in GPS 220,  is taken to be a reference to the auditor or actuary; and

 

(b)  a  reference  to  the  ‘insurer’  in  GPS  220  is  taken  to  be  a  reference  to  the  body corporate.

 

 

 

2 An ‘approved auditor’ is a pers on appointed by a general insurer in accordance with section 39 of the

Insurance Act and approved by APRA in accordance with section 40 of the Insurance Act.

3 An ‘approved actuary’ is a person appointed by a general insurer in accordance with section 39 o f the

Insurance Act and approved by APRA in accordance with section 40 of the Insurance Act.

4 Section 39 of the Insurance Act requires a general insurer to appoint an auditor and an actuary, both of whom must be approved by APRA under section 40.  However, under section 47, APRA may exempt a general insurer from the requirement to appoint an actuary.

 

 

 

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Additional eligibility criteria

 

10. The additional eligibility criteria that relate to the auditor are that the auditor is:

 

(a)  under Division 2 of Part 9.2 of the Corporations Act 2001, registered, or taken to be registered, as an auditor; and

 

(b)  a member or fellow with at least one of the following professional organisations:

 

(i) CPA Australia; or

 

(ii) Institute of Chartered Accountants in Australia; or

 

(iii)  such  other  professional   organisation  as  APRA  considers  appropriate  and approves in writing.

 

11. The additional eligibility criteria that relate to the actuary are that the actuary is:

 

(a)  a Fellow or Accredited Member of the Institute of Actuaries of Australia; or

 

(b)  a member of such other professional organisation as APRA considers appropriate and approves in writing.

 

Additional requirements where the auditor and actuary belong to the same firm or related companies

 

12. Where:

 

(a)  the auditor is a partner, director or employee of  the  actuary’s  firm or of a body corporate related to the actuary’s firm; or

 

(b)  the actuary is a partner, director or employee of the auditor’s firm or of a body corporate related to the auditor’s firm;

 

then:

 

(c)  only one of the m (that is, either the auditor or the actuary)  may certify the funding plan; and

 

(d)  the funding plan must also be certified:

 

(i) if the person certifying it  in accordance with  paragraph (c) is the auditor – by a different actuary  who does not belong to the auditor’s firm or a related body corporate   (as   specified   in   paragraph   (b))              and              who   complies   with              the requirements in paragraphs 6 to 8;

 

(ii) if the person certifying it in accordance with paragraph (c) is the actuary – by a different  auditor  who does not belong to the actuary’s firm or a related body corporate   (as   specified   in   paragraph   (a))   and              who   complies   with              the requirements in paragraphs 6 or 8.

 

13. For the purpose of paragraph 12:

 

 

 

 

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(a)  the ‘actuary’s firm’ means:

 

(i) the partnership in which the actuary is a partner or by which the actuary is employed; or

 

(ii) the body corporate of which the actuary is a director or by which the actuary is employed; or

 

(iii)  where the actuary is a sole practitioner – the actuary.

 

(b)  the ‘auditor’s firm’ means:

 

(i) the partnership in which the  auditor is a partner or by which the  auditor is employed; or

 

(ii) the body corporate of which the  auditor is a director or by which the  auditor is employed; or

 

(iii)  where the auditor is a sole practitioner – the auditor.

 

(c)  ‘related   body  corporate’   has  the  same  meaning  as  under  section  50  of  the

Corporations Act 2001.

 

Statement by the auditor and actuary that they comply with these guidelines

 

14. The auditor and actuary must provide to the body corporate  a written statement that he or she complies with the requirements in these guidelines.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Overview

The Australian Prudential Regulation Authority Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 was enacted to address the need for prudential supervision and product standards for medical indemnity insurance in Australia. The Act was enacted by the Australian Parliament with the policy objective of ensuring that the medical indemnity insurance market remains stable and sustainable, thereby protecting the interests of consumers and maintaining confidence in the insurance system. The Act provides the Australian Prudential Regulation Authority (APRA) with the necessary tools to supervise and regulate the medical indemnity market. In 2003, under the authority of the Act, APRA issued guidelines setting out the qualifications and independence requirements for auditors and actuaries who are to certify funding plans for certain medical indemnity organisations during a specified transition period. These guidelines were necessary to provide clarity and ensure consistency in the application of the requirements set out in the Act. They establish the necessary qualifications and independence criteria that auditors and actuaries must meet to certify funding plans, including membership in recognised professional bodies and adherence to fitness and propriety criteria. The guidelines also address situations where the auditor and actuary belong to the same firm or related companies, ensuring that there is sufficient independence in the certification process. By providing these guidelines, APRA aims to maintain the stability of the medical indemnity insurance market and protect the interests of policyholders.

Scope and Application

The Australian Prudential Regulation Authority Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 applies to Medical Defence Organisations (MDOs) and other prescribed body corporates involved in the medical indemnity industry within Australia. These entities can apply to the Australian Prudential Regulation Authority (APRA) for a determination that the minimum capital requirements do not apply to them during the transition period from 1 July 2003 to 30 June 2008. The determination can only be made if the body corporate is not a general insurer or, if it is a general insurer, is prescribed in the Medical Indemnity (Prudential Supervision and Product Standards) Regulations 2003. Furthermore, the body corporate must not comply with the minimum capital requirements and must lodge a funding plan that is certified by an independent auditor and actuary and complies with guidelines issued by APRA. These guidelines, which were issued under the authority of the Act, specify the qualifications and independence required of auditors and actuaries. Auditors and actuaries must meet certain fitness and propriety criteria, eligibility criteria, and additional eligibility criteria to certify a funding plan. APRA cannot make any determinations on or after 1 July 2005.

Key Provisions

The key provisions of the guidelines issued by the Australian Prudential Regulation Authority (APRA) under the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 focus on the qualifications and independence of auditors and actuaries for entities applying for a determination that minimum capital requirements do not apply during a specified transition period. The guidelines specify the necessary qualifications and independence required for auditors and actuaries to certify a funding plan in accordance with the Act (sections 6 to 11). For entities that are not general insurers, the auditor and actuary must meet the fitness and propriety criteria and eligibility criteria set out in Prudential Standard GPS 220, as well as additional eligibility criteria specified in the guidelines (section 6). General insurers must use their approved auditor and actuary, except where exempted from appointing an actuary under section 47 of the Insurance Act, in which case the actuary must meet certain criteria (sections 7 and 8). Auditors must be registered under the Corporations Act 2001 and be members of approved professional organisations, while actuaries must be Fellows or Accredited Members of the Institute of Actuaries of Australia or members of other approved organisations (sections 10 and 11). These guidelines impose specific obligations on the entities applying for a determination under the Act. The entities must ensure that their auditors and actuaries meet the outlined qualifications and independence requirements, including providing a written statement of compliance with these guidelines (section 14). Additionally, where the auditor and actuary belong to the same firm or related companies, only one of them can certify the funding plan, and the plan must also be certified by another independent auditor or actuary (section 12). Breach of these guidelines or failure to comply with the requirements can have significant consequences. While the guidelines themselves do not specify penalties, non-compliance with the Act or the Prudential Standards could result in regulatory action, fines, or other penalties as prescribed by the relevant legislation. For instance, under the Insurance Act 1973, there could be civil penalties for non-compliance with the requirements to appoint approved auditors and actuaries, or for failing to meet the fitness and propriety criteria. These penalties can include substantial fines and, in severe cases, criminal charges. Therefore, it is imperative for the entities and their auditors and actuaries to adhere strictly to the guidelines to avoid such repercussions.

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