The Australian Prudential Regulation Authority (APRA) today released for public comment a draft prudential standard setting out a minimum prescribed capital amount for registered life companies.

The proposed prescribed capital amount will replace the minimum capital required of a life company (other than a friendly society) in its shareholders funds under the existing actuarial standard AS6.01: Management Capital Standard. From 30 June 2002, AS6.01 will be superceded by a new actuarial standard AS6.02 as part of the harmonisation process undertaken by the Life Insurance Actuarial Standards Board (LIASB). The draft prudential standard will supplement the requirements of the new actuarial standard, which establishes risk based capital requirements for the shareholders fund.

A life company will need to independently comply with the requirements of the draft prudential standard and actuarial standard AS6.02. However, the two requirements are not additive. The draft prudential standard will, generally, result in capital over and above that needed to comply with the actuarial standard only to the extent:

• the amount of capital established by the actuarial standard is less than that prescribed by the prudential standard; or

• the type of capital used in satisfying the actuarial standard does not comply with the prescribed form of capital required by the prudential standard.

The new prudential standard will apply to all life companies, including friendly societies. However, a nil prescribed requirement is proposed for friendly societies at this stage.

As foreshadowed in our media release dated 2 April 2001, APRA has commenced a broader review of the Life Insurance Act (LIA) to incorporate a fuller integration of friendly societies. The review will also determine the best way to harmonise the structure of the LIA with APRAs other legislative regimes. Matters relating to the level and form of capital will be considered in detail in the broader exercise.

The draft prudential standard, as well as existing and new actuarial standards, are available on the APRA website, www.apra.gov.au.

Comments are invited by 17 May 2002 and should be addressed to:

General Manager
Policy Development and Statistics
Australian Prudential Regulation Authority
GPO Box 9836
Sydney NSW 2001

Alternatively email to lifecapital@apra.gov.au.

For further information contact:

Pauline Hayes APRA  Public Affairs Telephone: 02 9219 3143 Mobile: 0418 649 474 Email: Pauline.Hayes@apra.gov.au