Australia: APRA Enhances Prudential Framework for Life Insurers
Corporate Risk and Insurance Update

Four new prudential standards were released on 4 March 2010 (the Standards), taking effect from 1 July 2010.

Amendments

The Standards amend (albeit only slightly) the draft standards proposed by the Australian Prudential Regulation Authority (APRA) in May 2009. APRA also released a response paper in respect of submissions received in the interim.

The revised Standards are:

• Prudential Standard LPS 510 Governance (LPS 510);
• Prudential Standard LPS 520 Fit and Proper (LPS 520);
• Prudential Standard LPS 310 Audit and Related Matters (LPS 310); and
• Prudential Standard LPS 320 Actuarial and Related Matters (LPS 320).

The Financial Sector Legislation Amendment (Enhancing Supervision and Enforcement) Act 2009 gives APRA the power to register and govern non-operating holding companies (NOHCs) of life insurers in much the same way as APRA currently governs and implements fit and proper personnel standards on Authorised Deposit taking Institutions (ADIs) and general insurers. Accordingly, LPS 510 and LPS 520 have been extended to include registered NOHCs of life insurance companies. APRA did not receive any substantive comments on the extension of LPS 510 and LPS 520 to NOHCs.

APRA has amended LPS 320 to be consistent with standards for ADIs and general insurers by clarifying the obligations of a life company in ensuring compliance with the prudential standard. Further, LPS 310 provides that working papers retained in accordance with the Corporations Act 2001 will be limited to working papers in relation to prudential requirements of the life company. This clarifies the requirement and reduces incidental costs.

LPS 320 provides that APRA's requirements in respect of special purpose actuarial reviews may be conducted utilising an alternative professional standard. The response paper clarifies that if a conflict between standards arises, APRA's requirements override the professional standards to the extent of any inconsistency.

What this all means?

The changes should better protect life insurance policyholders by ensuring adequate governance procedures and that persons in positions of responsibility are fit and proper.

The practical implication of all four revised standards is that they give APRA greater powers in respect of the supervision of life companies and NOHCs, in much the same way as they currently supervise ADIs and general insurers.