The Australian Prudential Regulation Authority (APRA) today released new prudential standards as part of its general insurance stage 2 reforms, following extensive development and consultation.
The three standards address key recommendations of the HIH Royal Commission and form a crucial element of APRA's supervision of risk and financial management by general insurance companies.
APRA's general insurance stage 2 reforms commenced with the release of its discussion paper, Prudential Supervision of General Insurance Stage 2 Reforms in November 2003. A follow-up discussion paper, Risk and Financial Management, and draft standards were released in May 2005.
The package introduces a new approach to prudential guidance which will reduce the compliance burden on APRA-regulated general insurance companies while providing APRA with a strong and flexible prudential framework. The framework consists of principles-based prudential standards and separate prudential practice guides, which provide non-binding guidance on meeting these new standards and on prudent practices in these particular areas.
The standards clarify and strengthen APRA's previous requirements in risk and reinsurance management and emphasise the importance of documenting reinsurance contracts for more certainty. They also cover audit and actuarial reporting and valuation. The three standards are GPS 220 Risk Management, GPS 230 Reinsurance Management, and GPS 310 Audit and Actuarial Reporting and Valuation.
These standards include a requirement for:
- provision of a rigorous business plan including the insurer's ability to meet future capital requirements;
- senior management to provide a financial information declaration annually; documentation of reinsurance arrangements including a reinsurance arrangements statement;
- prior approval of limited risk transfer arrangements; and
- approved actuaries to prepare a financial condition report annually.
APRA Member, Mr Steve Somogyi, said the standards and prudential practice guides are the result of extensive industry consultation. "I thank the industry for the positive approach they have taken to providing comments", Mr Somogyi said.
"This package balances APRA's responsibility to provide a sound prudential framework for policyholders with the needs of the insurance industry to have a flexible, principles-based approach to regulation that does not restrict sensible business practices."
APRA-regulated general insurers must comply with the new standards from 1 October 2006.
The prudential standards are available on APRA's web site at: www.apra.gov.au/General/General-Insurance-Prudential-Standards-and-Guidance-Notes.cfm and the PPGs are available at: www.apra.gov.au/General/General-Insurance-PPGS.cfm
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $2.2 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.
Media and industry inquiries only:
Stuart Snell, Head of Public Affairs
Australian Prudential Regulation Authority
Telephone: 02 9210 3384
Mobile: 0407 250 276
All other inquiries:
APRA Contact Centre
1300 131 060
