APRA Chief Executive, Graeme Thompson, today announced that APRA had finalised the new Prudential Standards for general insurance companies operating in Australia.

The new Standards are scheduled to come into force on 1 July 2002, in conjunction with amendments to the Insurance Act 1973, which were passed by Parliament late last year.

Six new Prudential Standards were released today:

• GPS 110 Capital Adequacy
• GPS 120 Assets in Australia
• GPS 210 Liability Valuation
• GPS 220 Risk Management
• GPS 230 Reinsurance
• GPS 410 Transfer and Amalgamation of Insurance Business

As foreshadowed when the penultimate versions of the Standards were released in November 2001, some minor changes have been made to improve their presentation and legal effectiveness. Each Standard now contains an introductory section summarising the key requirements contained within the Standards and accompanying Guidance Notes. A number of other, specific changes are detailed in an Attachment to this release.

In addition to the six Standards noted above, an additional Prudential Standard was also issued today. This transitional Standard, which comes into effect immediately, provides APRA with the capacity to approve the appointment of auditors and actuaries under the new prudential framework, ahead of its commencement on 1 July. The transitional Standard does not impose any additional obligations on general insurers; it simply assists in facilitating the transition to the new regime by providing APRA with the capacity to grant approvals ahead of the formal commencement of the Insurance Act amendments. The transitional Standard expires on 1 July 2002.

All seven Prudential Standards will be tabled in Parliament at the first available opportunity. Parliament has 15 sitting days within which it may disallow the Standards.

For further information, please contact:

Wayne Byres
General Manager, Risk Analysis & Research
(02) 9210 3146

The following modifications have been made to the versions of the Prudential Standards issued on
5 November 2001:

1. The restriction on insurers purchasing their own shares and other capital instruments without APRAs prior approval has been clarified to ensure indirect arrangements are also covered (refer GGN 110.1, para 19).
2. The definition of operational risk, applicable to insurers using the Internal Model Based approach to capital adequacy, has been corrected to include external events (refer GGN 110.2, para 12).
3. The treatment of surety bond business has been adjusted (refer GGN 110.4, para 22).
4. The capital factor applied to investments in unit trusts and certain other assets has been reduced from 12 per cent to 10 per cent (refer GGN 110.4, Attachment 1).
5. The definition of assets in Australia has been amended to remove the exclusion of loans to directors and loans to staff, thereby removing an element of double counting (refer GPS 120, para 3)
6. The requirement for actuarial advice to be provided to an insurers Board at least annually has been modified to allow for less frequent advice with APRAs approval (refer GPS 210, para 3).
7. The capacity for captive insurers to apply for exemptions from certain aspects of the Board composition requirements has been specified (refer GGN 220.1, para 8).
8. The definition of related entities has been altered in a number of places in the Standards to be consistent with the definition of a related party within the meaning of Australian Accounting Standard 1017, thereby ensuring consistency between APRAs prudential and reporting standards.