The Australian Prudential Regulation Authority (APRA) has today released the latest versions of its proposed new Prudential Standards for general insurance companies in Australia.

Reform of the prudential arrangements for general insurance was one of the first policy priorities identified by APRA on its establishment in 1998. The new Prudential Standards therefore represent the product of a lengthy consultative process with the general insurance industry, the actuarial profession,
and other interested parties. APRA acknowledges the many submissions it has received from individual insurers, the Insurance Council of Australia, the Institute of Actuaries of Australia, and various individuals, consulting firms and other companies, that have helped to shape the new Standards and ensure they are both prudentially sound and commercially realistic.

Six Prudential Standards have been released. These cover:

• Liability Valuation  to ensure reliable and consistent valuation of insurance liabilities, and promote the provision of actuarial advice to management and Boards;
• Capital Adequacy  to ensure insurers maintain a minimum level of capital commensurate with the risk profile of their businesses;
• Reinsurance Arrangements  to ensure that an insurer has in place sound and prudent reinsurance arrangements;
• Risk Management  to promote strong corporate governance, access to appropriate independent expertise and systems for identifying, managing and monitoring risks;
• Transfer and Amalgamation of Insurance Business  to provide details on the requirements necessary to facilitate the transfer of business between insurers; and
• Assets in Australia  to define assets inside Australia for the purposes of meeting the requirements of the Insurance Act 1973.

Along with the General Insurance Reform Act 2001 (which amends the Insurance Act), the versions of the Prudential Standards released today represent the complete set of prudential requirements that general insurers will need to meet under the new regime. However, it will be necessary to make some further changes to the format and drafting of the Standards in the coming month or so. This is to ensure the Prudential Standards are fully aligned with the detail of the amended Insurance Act, and will be in a form acceptable to Parliament. (The Prudential Standards are disallowable instruments, and must be tabled in Parliament before they can come into effect.)

It is important to note that there is no intention that the process of producing the final version of the Prudential Standards will introduce new or amended requirements over and above those contained in
the Standards released today. As a result, there is no reason for insurers to await the release of the final versions of the Prudential Standards before beginning to assess their compliance with the new regime
and to implement necessary changes to their arrangements.

The new Prudential Standards are scheduled to come into effect from 1 July 2002. All companies will need to comply with the Prudential Standards at that time, unless they have previously agreed transitional arrangements with APRA. APRA has recently written to all insurers reminding them of the need to assess whether they are in compliance with the new framework in sufficient time to ensure that any actions they need to take can be completed before the new Prudential Standards formally come into effect.

For more information contact:

Wayne Byres General Manager, Risk Analysis & Research (02) 9210 3146 Craig Thorburn General Manager, Technical Advice & Support (02) 9210 3381