The Australian Prudential Regulation Authority (APRA) today welcomed the amendments to the Insurance Act 1973 that were passed by Parliament earlier this week.

APRAs Chief Executive Officer, Graeme Thompson, said today:

We are pleased that the Government and Parliament have supported the need to amend the existing Insurance Act. The reform of prudential supervision for general insurers, which is a project that we
have been working on since APRAs establishment in 1998, can now proceed to implementation on 1 July 2002. APRA will be fine-tuning the requirements as necessary, and working with the industry
over coming months to ensure that transition to the new regime is as smooth as possible.

As part of this process, APRA today released two new draft prudential standards for general insurance companies. These are:

• a standard relating to assets inside Australia (GPS 120)  the previous versions of APRAs draft standards had included this matter within a guidance note applicable to foreign insurers operating
  as branches (GGN 110.6). The amended legislation imposes an inside Australia requirement on
  all insurers and specifies that it must be dealt with via a prudential standard. The new standard is therefore simply an updated version of the earlier draft guidance note.
  
  
• a standard relating to transfers of business between insurers (GPS 410)  the amended Insurance
  Act requires that insurers seeking approval of the Courts to give effect to a transfer of business
  must first meet the requirements set down by APRA in a prudential standard. This standard sets out APRAs requirements, which are very similar to those already applicable to life insurance companies.

Comments on the new Prudential Standards are welcome by 30 September 2001.

The new prudential regime will come into force on 1 July 2002. It will be based on the revised Insurance Act, from which APRA will derive its power to issue Prudential Standards. As well as the two new standards issued today, APRA has released draft standards on Capital Adequacy, Liability Valuation, Risk Management and Reinsurance. These have been discussed extensively with industry and, following consideration of latest industry submissions, APRA hopes to issue final versions of the Prudential Standards in early November. The Standards, which are disallowable instruments, will then go before Parliament for final endorsement.

• The new regime imposes a number of new requirements on general insurers. Some of the more important are:
  
  
• the need to apply to be authorised under the new regime;
  
  
• the need to appoint an auditor and an actuary, and have these appointments approved by APRA;
  
  
• the need to meet new capital adequacy requirements (including a new minimum capital requirement of $5 million);
  
  
• the need to review the composition of the insurers Board to ensure membership provides adequate independence and oversight;
  
  
• the need to ensure directors and senior management meet new standards of fitness & propriety;
  
  
• the need to establish a Board Audit Committee;
  
  
• the need to provide APRA with the insurers business plan and financial projections;
  
  
• the need to develop, and submit to APRA, a Risk Management Strategy document; and
  
  
• the need to develop, and obtain APRAs approval for, the insurers Reinsurance Management Strategy.