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AASB 17 – Finalisation and minor amendments to the prudential framework

Thursday 30 March 2023

On 27 September 2022, APRA finalised changes to the capital and reporting frameworks for insurance in response to the introduction of the Australian Accounting Standards Board’s new standard, AASB 17 Insurance Contracts (AASB 17). 

As part of this release, APRA commenced a targeted consultation on additional requirements to ensure regulatory capital levels are sufficient to protect the prudential soundness of insurers and encourage appropriate accounting decisions. This followed observations from the 2020 and 2021 quantitative impact studies where APRA identified circumstances where an insurer's accounting equity (or net assets) under AASB 17 was significantly lower than the capital base.

Finalising the standards


Eight submissions were received in response to the consultation, which closed on 31 October 2022. Five were opposed and three were supportive. Key issues raised in those submissions opposed to the changes were: 

  • preference for adopting a less prescriptive approach where APRA incorporates the requirements as part of its supervisory approach rather than in the prudential standards; 
  • concerns with APRA seeking to influence accounting decisions; 
  • limitations of the Quantitative Impact Assessment (QIS) data provided to APRA; and
  • lack of clarity around the specific situation the additional requirements are seeking to address.

Following consideration of the feedback, APRA’s view is that the additional requirements remain necessary to ensure that regulatory capital levels are sufficient to protect prudential soundness, taking into account consideration of the impact of accounting decisions, and ensure a consistent approach is achieved within the regulatory framework.

The current consultation has confirmed that the policy setting is appropriate for the vast majority of entities. This position has been supported by the QIS and detailed discussions with insurers. APRA has outlined in previous consultations situations where accounting equity under AASB17 can be significantly lower than the capital base and the risks associated with that.  

APRA has finalised the amendments without further revision and has incorporated them into Prudential Standard GPS 110 Capital Adequacy, Prudential Standard GPS 112 Capital Adequacy: Measurement of Capital, Prudential Standard LPS 112 Capital Adequacy: Measurement of Capital and Prudential Standard HPS 112 Capital Adequacy: Measurement of Capital as proposed. 

APRA will consider applications for transitional relief from insurers on a case-by-case basis. APRA will also continue to monitor implementation of the revised requirements to ensure they remain fit for purpose and do not impose undue regulatory burden.

Other minor amendments


APRA also received feedback on other aspects of the final package that has resulted in the following additional amendments. The details of these amendments can be found in Attachment A. The revised GPS 230 and LPS 117 will take effect on 1 July 2023. 

Prudential Standard GPS 230 Reinsurance Management

Submissions highlighted the operational difficulty of satisfying the ‘inception date rule’ (paragraph 41). APRA understands that these requirements introduced additional complexity for some insurers, as market practice no longer aligns with the specific documentation options detailed in the standard.

APRA has simplified the requirement by removing detail of the documentation options from the standard. This is intended to ease operational complexity for insurers, without compromising the original policy intent of achieving contract certainty prior to inception.

Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge

Submissions requested further clarification on two aspects of LPS 117.  Amendments have been made to the standard to ensure that it operates as originally intended.

Yours sincerely,


Helen Rowell
Deputy Chair


Note: Attachment A, which details amendments to GPS 230 and LPS 117, can be found in the PDF version of this letter embedded at the top of the page.