The Australian Prudential Regulation Authority has released the
latest tranche of prudential reforms, this time affecting Level 2
insurers, which are general insurance groups that have either an
APRA-authorised general insurer or an APRA-authorised non-operating
holding company as the parent entity of the group.
General insurance groups have commercial advantages, such as
greater pool of resources and risk diversification, but the
trade-off is that financially sound insurers can be dragged down by
failures in other parts of the corporate group. The new framework
attempts to supervise those insurers in a way that will reduce the
risk of infection from the financially troubled parts.
The new Prudential Standards are the result of a consultation
process that started in 2005 after the HIH collapse. They are
substantially the same as the drafts released earlier this year,
and come into effect on 31 March 2009.
Broadly, the framework sets out the following:
Prudential Standard GPS 001 Definitions:
Subsidiaries that are not APRA-authorised insurers can be
consolidated or treated as non-consolidated subsidiaries, as APRA
determines. Consolidated subsidiaries will usually include related
service entities, insurance intermediaries and controlled entities
that provide a financing role to the insurance business. Unrelated
subsidiaries operating in other industries, unrelated to the
general insurance business, would usually need to be
Prudential Standard GPS 111 Capital Adequacy:
Level 2 Insurance Groups: The parent entity's board is
responsible for capital management. The Minimum Capital Adequacy
and Concentration Risk Capital Charge are determined using
prudential requirements similar to those applying to Level 1
general insurers. A Level 2 insurance group's capital base is
assessed on a group basis.
Prudential Standard GPS 221 Risk Management:
Level 2 Insurance Groups: The group must have a group-wide
framework for risk management and reinsurance, and have adequate
rules for outsourcing and business continuity. Annual declarations
must be sent to APRA dealing with risk management, financial
information, and reinsurance arrangements. A group can apply to
APRA to adjust or exclude a prudential requirement in GPS 221 from
applying to an entity in the group.
Prudential Standard GPS 311 Audit and Actuarial
Reporting and Valuation: Level 2 Insurance Groups: Each
group will need a Group Auditor and a Group Actuary, and report
semi-annually to APRA. APRA has made some changes to the draft
Standard, in particular to the treatment of insurance liability
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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