Insurance (prudential standard) determination No. 3 of 2006 - Prudential Standard GPS 310 - Audit and Actuarial Reporting and Valuation (Australia)

Insurance (prudential standard) determination No. 3 of 2006 - Prudential Standard GPS 310 - Audit and Actuarial Reporting and Valuation

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Insurance (prudential standard) determination No. 3 of 2006 Prudential Standard GPS 310 – Audit and Actuarial Reporting and Valuation Insurance Act 1973
I, Stephen Somogyi, Member of APRA, a delegate of APRA, under subsection 32(1) of the Insurance Act 1973 (the Act) and subsection 33(3) of the Acts Interpretation Act 1901: ·        REVOKE as of the Effective Date the Prudential Standard GPS 210 Liability Valuation for General Insurers (made in July 2002 under subsection 32(1) of the Act and amended as at January 2005); and ·        MAKE the Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation set out in the Schedule under subsection 32(1) of the Act. This Determination shall take effect upon registration on the Federal Register of Legislative Instruments. Dated   9 February, 2006 [Signed] S Somogyi Member
Interpretation In this Determination APRA means the Australian Prudential Regulation Authority. Effective Date means 1 October 2006
Schedule    Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation comprises the 26 pages commencing on the following page.

Prudential Standard GPS 310
Audit and Actuarial Reporting and Valuation
Objective and key requirements of this Prudential Standard
This Prudential Standard aims to ensure that the Board and senior management of a general insurer are provided with impartial advice in relation to its operations, financial condition and insurance liabilities. This advice is designed to assist the Board and senior management in carrying out their responsibility for the sound and prudent management of the general insurer. Accordingly, this Prudential Standard outlines the roles and responsibilities of a general insurer’s Approved Auditor and, where the general insurer is required to have one, its Approved Actuary; it also outlines the obligations of a general insurer to make arrangements to enable its Approved Auditor and Approved Actuary to fulfil their responsibilities. In addition, the Prudential Standard establishes a set of principles and practices for the consistent measurement and reporting of insurance liabilities for all general insurers. The key requirements of the Insurance Act 1973 and this Prudential Standard in relation to audit and actuarial reporting and valuation are: ·        an insurer must make arrangements to enable its Approved Auditor and Approved Actuary to undertake their roles and responsibilities; ·        an insurer will be exempt from the requirement to have an Approved Actuary in certain circumstances; ·        the Approved Auditor must audit the yearly statutory accounts of the general insurer and must review other aspects of the general insurer’s operations on an annual basis. The Approved Auditor must prepare a certificate and a report on these matters and provide them to the Board of the general insurer. An Approved Auditor may also be required to undertake other functions, such as a special purpose review;
·        the Approved Actuary must provide an assessment of the overall financial condition of the general insurer and advice on the valuation of its insurance liabilities on an annual basis. In particular, the Approved Actuary must prepare a Financial Condition Report and an Insurance Liability Valuation Report and provide these reports to the Board. An Approved Actuary may also be required to undertake other functions, such as a special purpose review; ·        for the purposes of Prudential Standard GPS 110 Capital Adequacy and reporting requirements under the Financial Sector (Collection of Data) Act 2001, a general insurer’s insurance liabilities must be valued in accordance with this Prudential Standard. This applies whether or not the general insurer is required to have an Approved Actuary; ·        a general insurer must arrange to have the Insurance Liability Valuation Report of its Approved Actuary peer reviewed by another actuary; and ·        a general insurer must submit to APRA all certificates and reports required to be prepared by its Approved Auditor and Approved Actuary.

Authority 1.             This Prudential Standard is made under paragraph 32(1)(a) of the Insurance Act 1973 (the Act). Application 2.             This Prudential Standard applies to all general insurers (insurers) authorised under the Act.[1] Certain requirements in this Prudential Standard have been tailored for foreign general insurers (foreign insurers). 3.             Certain requirements in this Prudential Standard also apply to all auditors and actuaries approved under the Act.[2] In particular, this Prudential Standard requires the preparation of certain reports by these auditors and actuaries and specifies matters which must be dealt with in the reports.[3] 4.             Subject to any specific transition rules set out in Attachment B, an insurer: (a)           must comply with this Prudential Standard from 1 October 2006 (effective date); (b)          must continue to comply with Prudential Standard GPS 210 Liability Valuation for General Insurers and Prudential Standard GPS 220 Risk Management for General Insurers (old Prudential Standards), both made on 7 February 2002, until the effective date. 5.             Where specifically indicated in this Prudential Standard, certain requirements may be complied with on an insurance group basis, provided the insurer has notified APRA of this prior to doing so and APRA has agreed. 6.             For the purposes of this Prudential Standard, an insurance group comprises: (a)           a company that is either: (i)            an insurer; or (ii)           an authorised non-operating holding company of an insurer; and (b)          one or more subsidiary companies of (a) that are insurers within a corporate group. A corporate group comprises two or more companies that are related bodies corporate within the meaning of section 50 of the Corporations Act 2001. There may be more than one insurance group within a corporate group.
Obligations of an insurer
7.             Under the Act, an insurer must appoint an auditor (Approved Auditor), being an auditor whose appointment is approved by APRA.[4] 8.             Under the Act, subject to certain exceptions, an insurer must appoint an actuary (Approved Actuary), being an actuary whose appointment is approved by APRA.[5] 9.             Under the Act, an insurer must make arrangements that are necessary to enable its Approved Auditor and Approved Actuary to undertake their functions as required by the Act and prudential standards made under the Act.[6] These arrangements include ensuring that an insurer’s Approved Auditor and Approved Actuary are fully informed of all prudential requirements applicable to the insurer. Prudential requirements include requirements imposed by the Act, prudential standards, the Financial Sector (Collection of Data) Act 2001 (the Collection of Data Act), reporting standards, conditions on the insurer’s authorisation and any other requirements imposed by APRA in writing. These arrangements also include ensuring that an insurer’s Approved Auditor and Approved Actuary are provided with any other information that APRA has provided to the insurer that may assist, or is requested by, the Approved Auditor or Approved Actuary, in performing their duties. 10.         An insurer must ensure that its Approved Auditor and Approved Actuary have access to all relevant data, information, reports and staff of the insurer (and must take all reasonable steps to ensure access to contractors of the insurer) that its Approved Auditor and Approved Actuary reasonably believe are necessary to fulfil their responsibilities. This will include access to the insurer’s Board[7] and Board Audit Committee. 11.         Under the Act, an insurer must submit to APRA all certificates and reports required to be prepared by its Approved Auditor and Approved Actuary.[8] Reports other than those relating to a special purpose review must be submitted on or before the day that the insurer’s yearly statutory accounts are required to be given to APRA in accordance with reporting standards made under the Collection of Data Act. Further details of those certificates and reports are set out in paragraphs 38 to 42. Reports relating to a special purpose review must be submitted to APRA in accordance with the time specified in paragraph 24. 12.         Prior to submitting to APRA an Insurance Liability Valuation Report (ILVR) prepared by its Approved Actuary, an insurer must arrange for it to be peer reviewed by another actuary (the Reviewing Actuary). Further details of the requirements for peer review are set out in paragraphs 64 to 72. 13.         Where an insurer is exempt from the requirement to have an Approved Actuary, the insurer is not required to submit the reports required to be prepared by an Approved Actuary and is not subject to the requirements for peer review. For the purposes of Prudential Standard GPS 110 Capital Adequacy (GPS 110) and reporting requirements under the Collection of Data Act, however, the insurer must still value its insurance liabilities in accordance with this Prudential Standard. The value of the insurance liabilities is the sum of the central estimate and the risk margin for both outstanding claims liabilities and premiums liabilities for all classes of business written by an insurer. Attachment A provides further details on the requirements of this insurance liability valuation.
Exemption from requirement to appoint an actuary
14.         For the purpose of subsection 47(3) of the Act, an insurer is exempt from the requirement to appoint an actuary when: (a)           the gross insurance liabilities of the insurer are less than $20 million; and (b)          the gross insurance liabilities of the insurer do not include a material amount in respect of long-tail business (comprising classes of business where the claims are typically settled one year or more after the date of occurrence of the event that gives rise to the claim). In cases where APRA considers the insurer to have a material amount of long-tail business based on the documentary evidence required to be submitted by the insurer to APRA in accordance with subparagraph (d) or on other relevant information, APRA may notify the insurer in writing that this criterion has not been satisfied; and (c)           the gross insurance liabilities of the insurer are valued in accordance with this Prudential Standard; and (d)          the insurer has provided APRA with documentary evidence that the criteria in subparagraphs (a) to (c) have been met; and (e)           the insurer has attested to APRA, in writing, that it will meet the criteria in subparagraphs (a) to (c) for the next 12 months. This attestation must be provided by the chief executive officer (CEO) of the insurer. 15.         To maintain the exemption, the insurer must annually attest to APRA, in writing, that it has met the criteria in subparagraphs 14(a) to (c) for the past 12 months and expects to meet these same criteria for the next 12 months. This attestation must be provided by the CEO of the insurer. 16.         An insurer may also be exempt from the requirement to appoint an actuary where APRA considers that the circumstances of the case merit an exemption (for example, insurers in full run-off). In such cases, APRA must seek the approval of the Treasurer before granting an exemption.[9] 17.         Notwithstanding any exemption, APRA may at any time require an insurer to commission, at the insurer’s expense, an independent actuarial investigation of its insurance liabilities in accordance with the Act.[10] The insurer must appoint an actuary that meets the criteria specified in the Act and APRA must approve the actuary.[11]
Roles and responsibilities of the Approved Auditor
18.         In addition to and without derogation from the role of an Approved Auditor as provided for under the Act,[12] an Approved Auditor’s primary roles are to provide an independent and objective view on the truth and fairness of the insurer’s financial statements and an assessment of the insurer’s systems, procedures and controls used to address compliance with prudential requirements and for the purposes of producing reliable financial data. An insurer may also seek the advice of its Approved Auditor in relation to other matters where the insurer considers this to be appropriate. 19.         The Approved Auditor must audit the yearly statutory accounts of the insurer and must provide a certificate to the insurer relating to the yearly statutory accounts.[13] The certificate must fulfil the requirements set out in paragraphs 38 to 40 of this Prudential Standard.[14] 20.         The Approved Auditor must, on an annual basis, review and test the insurer’s systems, processes, and controls designed to: (a)           address compliance with all prudential requirements; (b)          enable the insurer to report reliable financial information to APRA; and perform such other work as necessary to fulfil the Approved Auditor’s responsibilities under this Prudential Standard. 21.         The Approved Auditor must provide a report to the insurer relating to the findings of this review.[15] The report must meet the requirements set out in paragraphs 41 to 42 of this Prudential Standard.[16] 22.         The Approved Auditor must provide the certificate and the report to the insurer within such time as to enable the insurer to provide the certificate and the report to APRA on or before the day that the insurer’s yearly statutory accounts are required to be given to APRA in accordance with reporting standards made under the Collection of Data Act. 23.         When APRA specifies in writing, an Approved Auditor must undertake a special purpose review of matters specified by APRA relating to the insurer’s operations, risk management or financial affairs, and prepare a report in respect of that review.[17] The review must be completed in accordance with relevant professional standards and guidance notes issued by the Auditing and Assurance Standards Board, to the extent that they are not inconsistent with the requirements of this Prudential Standard. Where APRA considers, having regard to the nature of an insurer’s operations and the purpose of the review, that the review should not be completed in accordance with those professional standards and guidance notes, APRA may advise the insurer in writing that an alternative auditing standard must be used. 24.         The cost of a special purpose review will be borne by the insurer. The Approved Auditor must submit the report to APRA and the insurer simultaneously within three months of the review being commissioned unless APRA grants an extension of time in writing.
Roles and responsibilities of the Approved Actuary
25.         In addition to and without derogation from the role of an Approved Actuary as provided for under the Act,[18] an Approved Actuary’s primary roles are to provide advice on the valuation of an insurer’s insurance liabilities and to provide an impartial assessment of the overall financial condition of the insurer. An insurer may also seek the advice of its Approved Actuary in relation to other matters where the insurer considers this to be appropriate. 26.         An Approved Actuary must, on an annual basis (subject to paragraph 27), undertake an investigation to enable the preparation of the reports as required by this Prudential Standard.[19] These reports are the Financial Condition Report (FCR) and the ILVR (which may form part of the FCR).    27.         APRA may, in writing, specify that an FCR and an ILVR (or either) in respect of an insurer are to be prepared: (a)           more frequently than as required in paragraph 26 if, having regard to the particular circumstances of the insurer, APRA considers it necessary or desirable to obtain the reports more frequently for the purposes of the prudential supervision of the insurer; or (b)          less frequently than as required in paragraph 26 if, having regard to the particular circumstances of the insurer, APRA considers it unnecessary to obtain the reports on an annual basis for the purposes of the prudential supervision of the insurer. 28.         An Approved Actuary must provide the FCR and ILVR to the insurer within such time as to give the Board of the insurer a reasonable opportunity to: (a)           consider and use the FCR and the ILVR in preparing the insurer’s yearly statutory accounts; and (b)          provide the ILVR to the Reviewing Actuary for the purpose of peer review; and (c)           provide the FCR and the ILVR to APRA on or before the day that the insurer’s yearly statutory accounts are required to be given to APRA in accordance with reporting standards made under the Collection of Data Act. 29.        Where APRA has specified that an FCR and an ILVR (or either) are to be prepared more or less frequently, APRA may also specify, in writing, the time within which the FCR and the ILVR are to be provided by the Approved Actuary to the insurer and provided by the insurer to APRA. In doing so, APRA will have regard to the particular circumstances of the insurer and the need to obtain the reports for the purposes of the prudential supervision of the insurer. 30.        When APRA specifies in writing, an Approved Actuary must undertake a special purpose review of matters specified by APRA relating to the insurer’s operations, risk management or financial affairs, and prepare a report in respect of that review.[20] The review must be completed in accordance with any relevant professional standards (as appropriate to the nature of the special purpose review) published by the Institute of Actuaries of Australia.    31.         The cost of a special purpose review will be borne by the insurer. The Approved Actuary must submit the report to APRA and the insurer simultaneously within three months of the review being commissioned unless APRA grants an extension of time in writing.
Non-routine reporting by Approved Auditors and Approved Actuaries
32.         The Act specifies certain circumstances where Approved Auditors and Approved Actuaries are required to report to APRA on a non-routine basis.[21] This may be where APRA requests specific information, or where an Approved Auditor or an Approved Actuary has information that is specified in the Act or that they consider would assist APRA in performing its functions. 33.         APRA may require an Approved Auditor or an Approved Actuary to provide information, or to produce books, accounts or documents, about an insurer if it will assist APRA in performing its functions under the Act.[22] To ensure that an Approved Auditor or an Approved Actuary is able to comply with any such request from APRA, all working papers and other documentation of an Approved Auditor and an Approved Actuary in relation to the insurer must be maintained for a period of seven years after the date of the report or certificate to which the working papers or documentation relate, as required under the Corporations Act 2001.[23] 34.         In assessing whether the interests of policyholders may be materially prejudiced,[24] an Approved Auditor and an Approved Actuary must consider not only a single activity or a single deficiency in isolation. Policyholder interests may be materially prejudiced by a number of activities or deficiencies that may not individually result in a material threat to policyholder interests but, when considered in total, do amount to a material threat. In such cases, the Approved Auditor or Approved Actuary must provide such information to APRA as required under the Act if they have reasonable grounds for believing that the interests of policyholders may be materially prejudiced.[25] 35.         In most cases, matters reported to APRA by an Approved Auditor or an Approved Actuary should also be reported by that person to the insurer to which the matter relates. An Approved Auditor or an Approved Actuary must not notify the insurer where that person considers that by doing so the interests of policyholders would be jeopardised, or where there is a situation of mistrust between an Approved Auditor or an Approved Actuary and the Board or senior management of the insurer. 36.         An Approved Auditor or an Approved Actuary who is required to provide information to APRA on a non-routine basis[26] is not excused from such a requirement on the ground that doing so would tend to incriminate them or make them liable to a penalty. Certain protection is provided under the Act[27] to Approved Auditors or Approved Actuaries that supply information to APRA in these circumstances.
Meetings with Approved Auditors and Approved Actuaries
37.         APRA liaison with either an Approved Auditor or an Approved Actuary will normally be conducted under trilateral arrangements involving APRA, an insurer, and the insurer’s Approved Auditor or Approved Actuary. Any one of these parties may initiate a meeting or discussion when the party considers it necessary. Notwithstanding the trilateral relationship, APRA and an insurer’s Approved Auditor or Approved Actuary may meet on a bilateral basis where either party considers this to be necessary.
Audit certificate and report
38.         As required under the Act, an insurer’s Approved Auditor must prepare a certificate relating to the insurer’s yearly statutory accounts on an annual basis and provide that certificate to the insurer within the time prescribed in paragraph 22.[28] The certificate must be addressed to the Board of the insurer and provide the Approved Auditor’s opinion in respect of the insurer’s yearly statutory accounts. In preparing the certificate, the Approved Auditor must have regard to relevant professional standards and guidance notes issued by the Auditing and Assurance Standards Board, to the extent that they are not inconsistent with the requirements of this Prudential Standard. 39.         The certificate must specify whether, in the Approved Auditor’s opinion, the yearly statutory accounts of the insurer present a true and fair view of the results of the insurer’s operations for the year and financial position at year end, in accordance with: (a)           the provisions of the Act and prudential standards, the Collection of Data Act and reporting standards; and (b)          to the extent that they do not contain any requirements that conflict with the aforementioned, Australian accounting standards and other mandatory professional reporting requirements in Australia. 40.         Where, for reasons beyond their control, the Approved Auditor is unable to provide a certificate that complies with paragraph 39 (for example, if there are accounting records that have not been appropriately kept, transactions that appear irregular or that have not been accurately or properly recorded, requests for information and explanation that have not been met, or aspects of the accounts that do not represent a true and fair view of the transactions and financial position), the certificate must be qualified and contain details of these matters. 41.         An Approved Auditor must prepare a report on an annual basis and provide that report to the insurer by the time prescribed in paragraph 22.[29] The report must be addressed to the Board of the insurer and provide the Approved Auditor’s opinion on a range of matters. In preparing the report, the Approved Auditor must have regard to professional standards and guidance notes issued by the Auditing and Assurance Standards Board, to the extent that they are not inconsistent with the requirements of this Prudential Standard. This report must be based on at least a limited assurance engagement.[30] 42.         The report must specify the results of the Approved Auditor’s investigations, namely whether: (a)           there exist systems, procedures and controls, that are kept up to date, which address compliance with all prudential requirements (including requirements imposed by the Act, prudential standards, the Collection of Data Act, reporting standards, conditions on the insurer’s authorisation and any other requirements imposed by APRA in writing). If the Approved Auditor is of the opinion that the insurer does not have such systems, procedures and controls, the report must detail the reasons for this opinion; (b)          systems, procedures and controls relating to actuarial data integrity and financial reporting risks (the risks that incorrect source data will be used in completing returns to APRA in accordance with the Collection of Data Act) are adequate and effective; (c)           during the course of testing the insurer’s systems, procedures and controls, instances of non-compliance with prudential requirements have been identified. If so, details are to be provided; (d)          the insurer has complied, in all significant respects, with its Risk Management Strategy (RMS) and Reinsurance Management Strategy (REMS).[31] If the Approved Auditor is of the opinion that the insurer has not complied with its RMS and REMS, the report must detail the reasons for this opinion; (e)           the insurer has systems, procedures and controls in place to ensure that reliable statistical and financial data are provided to APRA in the quarterly returns required by reporting standards made under the Collection of Data Act. If the Approved Auditor is of the opinion that the insurer does not have such systems, procedures and controls, the report must detail the reasons for this opinion; and (f)            there are matters which have come to the Approved Auditor’s attention which will, or are likely to, adversely affect the interests of policyholders of the insurer. If so, details are to be provided.
Financial Condition Report
43.         An Approved Actuary must prepare an FCR.[32] The FCR must provide the Approved Actuary’s objective assessment of the overall financial condition of the insurer and should form an important input into decision-making by the Board and senior management in respect of the operations of the insurer.   44.         The FCR must be prepared on an annual basis and provided to the insurer within the time required by paragraph 28 (unless APRA requires more regular or less frequent reporting under paragraph 27). The FCR must be addressed to the Board of the insurer and provide the Approved Actuary’s objective assessment of the overall financial condition of the insurer. In preparing an FCR, an Approved Actuary must have regard to relevant professional standards issued by the Institute of Actuaries of Australia, to the extent that they are not inconsistent with the requirements of this Prudential Standard. 45.         Subject to relevance, an FCR must include (but need not be limited to) the matters listed below: (a)           business overview; (b)          assessment of the insurer’s recent experience and profitability, including at least the experience during the year ending on the valuation date; (c)           summary of the key results of the ILVR (prepared in accordance with this Prudential Standard); (d)          assessment of the adequacy of past estimates for insurance liabilities (where appropriate, this may include references to the ILVR or past ILVRs); (e)           assessment of asset and liability management, including the insurer’s investment strategy; (f)            assessment of current and future capital adequacy and a discussion of the insurer’s approach to capital management; (g)           assessment of pricing, including adequacy of premiums; (h)           assessment of the suitability and adequacy of reinsurance arrangements, including the Maximum Event Retention, documentation of reinsurance arrangements and the existence and impact of any limited risk transfer arrangements; and (i)             assessment of the suitability and adequacy of the risk management framework. 46.         The Approved Actuary must consider the future implications and outlook for each of the matters listed immediately above. Where these implications are adverse, the Approved Actuary must propose recommendations designed to address the issues. 47.         As a general rule, an FCR must be completed in respect of each insurer. An insurance group may submit to APRA an FCR in respect of the insurance group where the Approved Actuary completing the FCR is the Approved Actuary for each insurer included in the insurance group FCR or it is practical to produce a single over-arching FCR. This insurance group FCR must adequately consider and address the operations of each insurer within that insurance group. Where APRA is of the view that the insurance group FCR does not adequately address the operations of each insurer and that a separate FCR is desirable to ensure that the requirements of this Prudential Standard are met, APRA may, in writing, do either or both of the following: (a)           require one or more insurers within the insurance group to prepare and submit to APRA a separate FCR; (b)          require the preparation and submission to APRA of an FCR for a different insurance group within the corporate group by a time specified by APRA. 48.         For foreign insurers, the FCR must be prepared in respect of the Australian branch operation, but with consideration given to the financial position of the head office.
Valuation of insurance liabilities
49.         An insurer’s insurance liabilities must be valued in accordance with this Prudential Standard, whether or not the insurer is required to have an Approved Actuary. Attachment A provides further details on this valuation. The valuation must then be used for the purpose of calculating the insurer’s Minimum Capital Requirement in accordance with GPS 110 and completing the insurer’s yearly statutory accounts in accordance with reporting standards made under the Collection of Data Act. 50.         Where an insurer includes in its yearly statutory accounts a value for insurance liabilities which is inconsistent with the advice received from its Approved Actuary, the insurer must notify APRA in writing at the same time it submits its yearly statutory accounts to APRA. This written notification must include: (a)           the reasons for not accepting the Approved Actuary’s advice; and (b)          where relevant, details of the alternative assumptions and methodologies used for determining the value of the insurance liabilities. 51.         In determining the value of its insurance liabilities, an insurer (after taking advice from its Approved Actuary where the insurer is required to have one) must determine a value for both its outstanding claims liabilities and its premiums liabilities for each class of business.[33] 52.         Outstanding claims liabilities relate to all claims incurred prior to the valuation date, whether or not they have been reported to the insurer. The value of the outstanding claims liabilities must include an amount in respect of the expenses that the insurer expects to incur in settling these claims. The outstanding claims liabilities are to be determined on a prospective basis, both net and gross of expected reinsurance recoveries and non-reinsurance recoveries. 53.         Premiums liabilities relate to all future claim payments arising from future events post the valuation date that will be insured under the insurer’s existing policies that have not yet expired. The value of the premiums liabilities must include an amount in respect of the expenses that the insurer expects to incur in administering and settling the relevant claims and allow for expected premium refunds. In respect of premiums liabilities for which reinsurance has not yet been purchased, allowance must be made for this reinsurance (refer Attachment B for further details on the assumptions relating to this reinsurance). Premiums liabilities are to be determined on a prospective basis, both net and gross of expected reinsurance recoveries and non-reinsurance recoveries. 54.         The value of outstanding claims liabilities and premiums liabilities must not include any Government charges imposed such as levies, duties and taxes. Also, a deferred acquisition cost asset must not be reported. 55.         Premiums liabilities relating to insurance and reinsurance contracts written on a long-term (or continuous) basis, with the option for the party accepting the risk to cancel the contract at pre-agreed dates prior to the expiry date, must make allowance for future claims payments anticipated up to the next possible cancellation date. For instance, if a multi-year contract is written on the basis that it can be cancelled by the risk carrier at annual anniversary dates, the insurer or reinsurer must account for premiums liabilities for any unexpired risks as at the annual anniversary cancellation date. 56.         Where the treatment in paragraph 53, when applied to an intra-group arrangement that existed prior to this Prudential Standard taking effect, results in a premiums liability valuation that is unsuitable in the Approved Actuary’s opinion, the insurer and the Approved Actuary must approach APRA to determine a suitable alternative valuation methodology. Insurers and Approved Actuaries cannot consider or propose alternative valuation methodologies for contracts entered into after this Prudential Standard comes into effect. 57.         The valuation of insurance liabilities for each class of business must comprise: (a)           a central estimate value of the outstanding claims liabilities; (b)          a central estimate value of the premiums liabilities; and (c)           risk margins that relate to the inherent uncertainty in the central estimate values for outstanding claims liabilities and premiums liabilities. Allowance for diversification and/or reinsurance can be made in determining the risk margin. 58.         The valuation of insurance liabilities reflects the individual circumstances of the insurer. In any event, the minimum value of insurance liabilities must be the greater of a value that is: (a)           determined on a basis that is intended to value the insurance liabilities of the insurer at a 75 per cent level of sufficiency; and (b)          the central estimate plus one half of a standard deviation above the mean for the insurance liabilities of the insurer. 59.         For insurers in run-off wanting to repatriate capital, the liability valuation has to be at a higher level of sufficiency. This is explained in greater detail in GPS 110.
Insurance Liability Valuation Report
60.         An Approved Actuary must prepare an ILVR on an annual basis and provide that ILVR to the insurer within the time required by paragraph 28.[34] The ILVR must be addressed to the Board of the insurer and provide the Approved Actuary’s advice in respect of the value of the insurer’s insurance liabilities, determined in accordance with this Prudential Standard. In preparing an ILVR, an Approved Actuary must have regard to professional standards issued by the Institute of Actuaries of Australia, to the extent that they are not inconsistent with the requirements of this Prudential Standard. 61.         The ILVR must, in respect of each class of business underwritten by the insurer, provide details (or abbreviated details for classes of business that are not material) of the following matters: (a)           the value of insurance liabilities determined in accordance with this Prudential Standard; (b)          assumptions used in the valuation process, including the extent to which the assumptions used are based on the experience of the insurer; (c)           availability and appropriateness of the data; (d)          significant aspects of recent experience; (e)           the methodologies used to model the central estimates of outstanding claims liabilities and premiums liabilities; (f)            an indication of the uncertainty in the central estimates, including statistics such as the standard deviation; (g)           the sensitivity analyses undertaken; (h)           a description of probability distributions and parameters, or approaches adopted to estimate uncertainty if these are not specifically determined; and (i)             risk margins that relate to the inherent uncertainty in the central estimate values for outstanding claims liabilities and premiums liabilities. Further detail on the measurement and reporting of insurance liabilities is contained in Attachment A. 62.         The Approved Actuary must, at least annually, reassess the appropriateness of the assumptions and valuation methods used to determine the insurance liabilities of the insurer. Where a change in assumptions or method is made, the effects of that change on the value of the insurance liabilities must emerge in the current calculation period and must not be spread over future calculation periods. The effects must be disclosed in the ILVR. 63.         The ILVR must provide sufficient information in relation to the assumptions and methods used for the valuation of liabilities so that another actuary reading the ILVR will be able to obtain a sound understanding of the valuation process and results, any inherent limitations in the process and results and the key risks pertaining to the insurance liabilities of the portfolio. An Approved Actuary must ensure that results are not presented in a way that gives the impression of greater reliability than is actually the case. This particularly applies in situations where materially different results could reasonably be justified.
Peer review
64.         An insurer must arrange to have the ILVR prepared by the Approved Actuary peer reviewed by a Reviewing Actuary, addressed to either the insurer or the insurer’s Approved Auditor. 65.         The FCR is not required to be subject to review by the Reviewing Actuary. However, an insurer may choose to have the FCR subject to peer review if the insurer considers it appropriate to do so. 66.         A Reviewing Actuary must meet the eligibility and fit and proper criteria required to be met by Approved Actuaries.[35] An insurer must provide APRA with the details of the Reviewing Actuary (name, address and telephone number) and a written statement from an authorised officer[36] of the insurer that the Reviewing Actuary meets the eligibility and fit and proper criteria for an Approved Actuary. Where APRA does not consider that the Reviewing Actuary meets these criteria, APRA may, in writing, require that the insurer engage an alternate actuary to conduct the peer review. 67.         A Reviewing Actuary must not be an employee of the insurer. Where an insurer’s Approved Actuary is not an employee of the insurer, the Reviewing Actuary must not be from the same firm[37] or company as the Approved Actuary, or from a related firm or company. A Reviewing Actuary may, however, be from the same firm or company as the insurer’s Approved Auditor or from a related firm or company. 68.         The insurer must take all practical steps to ensure that the Reviewing Actuary is given full access to the insurer’s Approved Actuary and the ILVR, including appendices. Where the Reviewing Actuary believes the provision of further information is necessary, equivalent access must be provided to other items on file supporting the report, relevant source data and staff or relevant contractors. All information must be provided electronically if available in this form. This will include informing the Reviewing Actuary of all prudential requirements applicable to the insurer. 69.         A Reviewing Actuary must prepare a report (the review report) that provides an assessment of the reasonableness of the Approved Actuary’s investigations and report(s) (including the results contained within). 70.         Copies of the review report must be provided to the Approved Actuary, the Approved Auditor, the Board and management of the insurer in the time prescribed by paragraph 28. The review report is not required to be provided to APRA, but must be available to APRA upon request. 71.         In preparing the review report, the Reviewing Actuary must have regard to relevant professional standards issued by the Institute of Actuaries of Australia, to the extent that they are not inconsistent with the requirements of this Prudential Standard. 72.         A review report must include: (a)           a description of the scope of the review, including details of the investigations and the reports being reviewed and the processes followed in the review; (b)          a description of the extent to which the Reviewing Actuary had access to relevant data, information, reports and staff (and contractors) of the insurer, and to the Approved Actuary; (c)           an assessment of the appropriateness to the ILVR of the data, information and reports to which the Reviewing Actuary had access; and (d)          an assessment of the reasonableness of the Approved Actuary’s investigations and report(s) (including the results contained within).
Attachment A Insurance Liability Valuation 1.             Where an insurer is required to have an Approved Actuary, it is the role of the Approved Actuary to provide advice to the insurer in respect of the value of the insurer’s insurance liabilities. This advice must be contained in an ILVR. 2.             This Attachment sets out requirements relating to the measurement and reporting of insurance liabilities that must be considered by insurers and Approved Actuaries in determining or providing advice in respect of an insurer’s insurance liabilities. In relation to data, materiality and uncertainty paragraphs 4 to 13 of this Attachment must be complied with by Approved Actuaries when preparing an ILVR. The remainder of this Attachment must be complied with by: (a)           all insurers in relation to the valuation of their insurance liabilities (whether or not the insurer is required to have an Approved Actuary); and (b)          all Approved Actuaries when preparing an ILVR. 3.             Where an Approved Actuary has provided the insurer with any other actuarial report in relation to liability valuation during the preceding 12 months, this must be noted in the ILVR and attached where relevant. An Approved Actuary should exercise judgement in the amount of detail included in the ILVR in respect of advice already given. Data 4.             An insurer must make the arrangements that are necessary to enable its Approved Actuary to prepare an ILVR.[38] The Approved Actuary must therefore advise the insurer of the data, information and reports that the Approved Actuary will need, and staff and relevant contractors of the insurer with whom the Approved Actuary will need to consult, in order to prepare the ILVR. Where the insurer does not provide adequate and timely access to data, information, reports and staff as required, the Approved Actuary may omit from the ILVR analysis that is dependent on that information, but must provide details as to why it has been omitted and explain any consequent limitations of the ILVR. 5.             The Approved Actuary must take reasonable steps to verify the consistency, completeness and accuracy of the data provided by the insurer with reference to the insurer’s financial and other records. Any discrepancies that cannot be resolved with the insurer must be outlined in the ILVR together with any consequent limitations of the ILVR. 6.             The Approved Actuary must be familiar with the administration and accounting procedures for policies and claims for the insurer and with the characteristics of the insurance policies and claim processes that may materially impact upon the estimation of insurance liabilities. 7.             The Approved Actuary must be familiar with, or obtain advice on, the economic, technological, medical, legal and social trends within the broader community that may impact upon the value of insurance liabilities.   8.             The degree to which the Approved Actuary relies on data, information or reports provided by the insurer, or upon testing of the data or other information by the insurer’s internal auditor, Approved Auditor or other external auditor, must be explained in the ILVR together with any consequent limitations of the ILVR. 9.             Where the Approved Actuary is relying on work undertaken by other actuaries, the Approved Actuary must be satisfied as to the suitability of assumptions and methods used by the other actuaries, and where the Approved Actuary is not satisfied, alternative methods must be used and explained in the ILVR. Materiality 10.         The Approved Actuary must take into account materiality when preparing an ILVR. Where information, if misstated or omitted, would cause the results or opinions of the Approved Actuary to be misleading to users of the ILVR, that information would be considered material (‘materiality’ for this purpose is independent of materiality within the meaning of Australian accounting standards). Whether something is material or not will always be a matter for an Approved Actuary’s judgement. Uncertainty 11.         The Approved Actuary must describe, qualitatively, the key drivers of uncertainty for each class of business or portfolio being valued. Material changes in these key drivers, or uncertainty generally, since the previous valuation, must be explained and, if appropriate, quantified in the ILVR. 12.         Any material changes or significant emerging experience since the previous evaluation in the insurance liability outcomes by class of business must be explained in the ILVR. 13.         The Approved Actuary must explain the practical consequences of the uncertainty of the estimates included in the ILVR. In many cases, the range of reasonable values of the liabilities will be very large. The conclusions that may be drawn from a value at one end of this range may be very different from the conclusions drawn by a value at the other end. Valuation of insurance liabilities 14.         An insurer must determine a value for both its outstanding claims liabilities and its premiums liabilities for each class of business underwritten by the insurer (after taking advice from its Approved Actuary, where the insurer is required to have one). 15.         In determining the value for outstanding claims liabilities and premiums liabilities, a value for the central estimate and associated risk margin must be determined by class of business (subject to considerations of materiality and the professional judgement of the Approved Actuary, where the insurer is required to have one). Central estimates and risk margins for outstanding claims liabilities and premiums liabilities must therefore be calculated and reported separately, and by class of business, to APRA.[39]   However, this should not prevent analysis being undertaken on a basis which is more suitable, taking into account the nature of the data and the particular circumstances of the insurer. 16.         The principles of this Prudential Standard must be applied to the calculation of both gross and net insurance liabilities. The central estimate 18.         The central estimate is intended to reflect the mean value in the range of possible values for the outcome (that is, the mean of the distribution of probabilistic outcomes). The determination of the central estimate must be based on assumptions as to future experience which reflect the experience and circumstances of the insurer and which are: (a)           made using judgement and experience; (b)          made having regard to available statistics and other information; and (c)           neither deliberately overstated nor understated. 19.         Where experience is highly volatile, model parameters estimated from the experience can also be volatile. The central estimate should therefore reflect as closely as possible the likely future experience of the insurer. Judgement may be required to limit the volatility of the assumed parameters to that which is justified in terms of the credibility of the experience data. 20.         The central estimate will be measured as the present value of the future expected payments. This measurement process will involve prospective calculations and modelling techniques, and will require assumptions in respect of the expected future experience, taking into account all factors which are considered to be material to the calculation, including: (a)           discount rates; (b)          claims escalation; (c)           claims and policy management expenses; and (d)          claims run-off. 21.         In establishing the central estimate assumptions, regard must be given to the materiality of: (a)           the class of business being considered; and (b)          the effect of particular assumptions on the determined result. 22.         The assumptions used should be consistent for the estimation of both outstanding claims liabilities and premiums liabilities. Where they are not, the reasons must be documented. The risk margin 23.         The risk margin is the component of the value of the insurance liabilities that relates to the inherent uncertainty that outcomes will differ from the central estimate. It is aimed at ensuring that the value of the insurance liabilities is established at an appropriate and sufficient level. The risk margin does not relate to the risk associated one class of risk for example those associated with the underlying assets, such as asset-liability mismatch risk. 24.         Risk margins must be determined, for each class of business and in total, on a basis that reflects the experience of the insurer. In any event, the risk margins must be valued so that the insurance liabilities of the insurer, after any diversification benefit, are not less than the greater of a value that is: (a)           determined on a basis that is intended to value the insurance liabilities of the insurer at a 75 per cent level of sufficiency; and (b)          the central estimate plus one half of a standard deviation above the mean for the insurance liabilities of the insurer. 25.         When selecting the methodology and assumptions to be used in determining the risk margin for a class of business, consideration should be given to a range of factors, including: (a)           the robustness of the valuation models; (b)          the reliability and volume of the available data and other information; (c)           past experience of the insurer and the general insurance industry; and (d)          the particular characteristics of each class of business. 26.         The risk margins must be determined having regard to the uncertainty of the gross insurance liabilities and to any uncertainty related to the estimate of reinsurance and non-reinsurance recoveries that are deducted from the estimate of gross insurance liabilities. 27.         Estimation of a standard deviation above the mean may present technical difficulties when components of the uncertainty in the central estimate do not permit statistical analysis to be undertaken. Estimation of a standard deviation above the mean will generally require both the exercise of judgement and technical analysis. 28.         The risk margin plays a role in achieving an appropriate pattern of profit emergence for a class of business. However, the risk margin must not be used as a tool for smoothing the effect of changes in assumptions or valuation methods. 29.         From year to year, risk margins would generally be a similar percentage of the central estimate for each class of business, unless there has been a material change in uncertainty. Changes in uncertainty may derive from changes in a number of elements such as reinsurance arrangements, the insurer’s risk profile or volume of business, or external factors (for example, legislative requirements). Any material changes must be documented. 30.         Allowance for diversification and/or reinsurance can be made in determining the risk margin. The justification for and method of determining such diversification allowance (which must be assessed on a holistic basis for the insurer) and reinsurance recoveries must be clearly documented. Discount rates 31.         The value of an insurer’s insurance liabilities is typically independent of the value of the insurer’s underlying assets. A discount rate that is based on current observable, market-based and objective rates that directly relate to the nature, structure and term of the future obligations must therefore be used. 32.         The rates to be used in discounting the expected future claims payments for a class of business are derived from the gross redemption yields, as at the calculation date, of a portfolio of sovereign risk securities in the currency of, and with a similar expected payment profile to, the insurance liabilities for that class (for example, Commonwealth Government securities for Australian liabilities). It is acceptable to use either the average rate or a series of discount rates taken from the relevant yield curve. 33.         Where the expected payment profile of the insurance liabilities cannot be matched (for example, because the duration is too long), a discount rate regarded as consistent with the intention of paragraphs 31 and 32 of this Attachment must be used. Methods for valuing insurance liabilities 34.         A method, or methods, must be adopted for valuing an insurer’s insurance liabilities. Comprehensive actuarial analysis and modelling techniques should be employed, subject to considerations of materiality. The appropriateness of any method, or methods, will depend on: (a)           the class of business being considered; (b)          the nature, volume and quality of the available data in relation to the experience of the insurer and the industry; (c)           the circumstances of the insurer; and (d)          considerations of materiality. 35.         Approximate methods may be used when valuing an insurer’s insurance liabilities subject to the principles of this Prudential Standard, and where the result is not material or not materially different from that which would result from a full valuation process. Approximate methods may, for example, be justified for short-tail classes of business where the effect of not discounting future expected claims is not material. 36.         The onus for justification of the appropriateness of any valuation method rests with the Board of the insurer and, where the insurer is required to have one, the Approved Actuary. Where an Approved Actuary has been involved in the valuation of the insurance liabilities, the Approved Actuary must explain in the ILVR the reasons for any valuation methods used. Claims escalation 37.         Appropriate allowance must be made for future claims escalation when determining the central estimates of both outstanding claims liabilities and premiums liabilities. Future claims payments may increase over current levels as a result of wages or price increases (inflation) and/or court-awarded interest, other environmental or economic causes (superimposed inflation), and appropriate allowance must be made for this. Claims payments include third party costs incurred in settling those claims, for example, investigation, medical and legal fees. Estimation of reinsurance recoveries 38.         The estimation of the value of the insurance liabilities may be undertaken on a gross basis, with a separate estimate of the value of reinsurance recoveries (that is, amounts expected to be recovered under the insurer’s reinsurance arrangements), or on a net basis. In either case, the principles of this Prudential Standard must be applied. Where the process is undertaken on a net basis, it is still necessary to value separately the estimates of the gross insurance liabilities and the reinsurance recoveries.[40] 39.         For the purpose of calculating an insurer’s insurance liabilities, it should be assumed initially that: (a)           reinsurance arrangements are fully documented; (b)          reinsurance arrangements are 100 per cent placed, that is, there are no gaps in the insurer’s reinsurance arrangements; and (c)           reinsurance recoveries will be made in full.[41] Where reinsurance arrangements are not fully documented or are not fully placed, or there is a risk that recoveries will not be received from a reinsurer, the insurer will either not be able to recognise the reinsurance recoveries as assets or will be required to hold capital against these risks.[42] 40.         Aggregate reinsurance recoveries must be separated into appropriate subsets to identify those that derive from documented and non-documented reinsurance arrangements, those that derive from reinsurance arrangements that are fully placed and not fully placed, and those likely to be recoverable and those not likely to be recoverable from reinsurers. In providing this advice, the Approved Actuary must consider the materiality of reinsurance recoveries. If they are material, the Approved Actuary must assess the potential range of amounts not recoverable from reinsurers, based on the uncertainty of individual and aggregate gross losses. 41.         The estimation of reinsurance recoveries in respect of premiums liabilities for which reinsurance has not yet been purchased can assume that the necessary reinsurance related to those liabilities will be purchased and documented. Allowance must be made for the purchase cost of this reinsurance. This assumption must only be made when existing reinsurance arrangements are documented and when the estimated reinsurance recoveries relate to the same classes of business that are currently covered by the existing documented reinsurance arrangements, and it is fully expected that the reinsurance will be replaced on similar terms when current arrangements expire. 42.         The estimation of the value of reinsurance recoveries would normally be undertaken on the basis of each class of business written by the insurer. However, there are certain forms of reinsurance where recoveries depend on the combined claims experience of several or all classes of business underwritten by the insurer. In such instances, the estimation will be required to factor in all the individual results by class of business covered by the reinsurance arrangements. Non-reinsurance recoveries 43.         Non-reinsurance recoveries are amounts that may be recovered under arrangements other than reinsurance arrangements, such as salvage, subrogation and sharing agreements. The treatment of non-reinsurance recoveries must be consistent with that required by reporting standards made under the Collection of Data Act.
Attachment B Transition Rules Expiry date of this attachment This Attachment will no longer have effect after 31 December 2007. Specific transition rules Exemptions from the requirement to have an Approved Actuary under the old Prudential Standards will not automatically continue after 1 October 2006 (effective date). An insurer must reassess its status of continued exemption in accordance with the revised criteria for exemption under subparagraphs 14 (a) to (e) of the new Prudential Standard and ensure that: (a)       if the insurer no longer qualifies for exemption under the revised criteria, arrangements are made for the appointment of an Approved Actuary from the effective date; or (b)      appropriate arrangements are in place prior to the effective date to meet the revised criteria for exemption. Regardless of when an insurer’s financial year ends, peer review of the insurer’s ILVR (under paragraph 64) is required when the insurer is required to submit its ILVR to APRA after the effective date. For an insurer with a financial year ending before the effective date which is required to report by a date after the effective date, both the audit report and audit certificate must be prepared according to the requirements under paragraphs 38 to 42. In preparing the audit report, an Approved Auditor must comment against each of the criteria based on the requirements under the old Prudential Standards. Where the Approved Auditor is of the opinion that one or more of the criteria could not be assured if tested against all Prudential Standards coming into force on the effective date, the Approved Auditor must highlight this in the audit report. For an insurer subject to the requirement to submit an FCR in accordance with paragraphs 43 to 48: (a)           the insurer must complete and submit the FCR to APRA by the time specified in paragraph 11 of this Prudential Standard if the end of the insurer’s financial year falls on or after the effective date; or (b)          the insurer must complete and submit an initial FCR to APRA if the end of the insurer’s financial year falls before the effective date and the submission date specified in paragraph 11 falls after the effective date. The insurer should prepare the initial FCR on a best endeavours basis in accordance with paragraphs 43 to 48 and the relevant professional standard issued by the Institute of Actuaries of Australia. If, for practical reasons, an insurer is not able to comply with particular requirements of paragraphs 43 to 48, the insurer must provide those reasons in the initial FCR.[43] Notwithstanding the requirements of paragraph 11, the initial FCR is due six months after the end of the insurer’s financial year. Application for a later date to comply with particular requirements APRA has the ability to determine a later date, but no later than 31 December 2007, to comply with particular requirements of this Prudential Standard (compliance date). APRA cannot exercise this discretion where the failure of the insurer to be able to comply by the effective date is due to the inaction of the Board and management in making adequate preparations to comply with this Prudential Standard. In relation to an application for a compliance date later than the effective date, the criteria that APRA will consider in assessing the application are: (a)           the insurer has submitted the application to APRA 20 business days before the effective date; (b)          the insurer can demonstrate that since the determination date of this Prudential Standard, it has been taking reasonable actions to ensure that it will be in a position to comply with this Prudential Standard by the effective date; and (c)           the insurer can demonstrate that since the determination date of this Prudential Standard, one of the following issues has given rise to the inability of the insurer to comply with this Prudential Standard by the effective date: (i)            an event has occurred, outside the insurer’s control that has led to it being in a position where it cannot comply with this Prudential Standard (e.g. loss of a key person); (ii)           the insurer has not been able to retain human resources of sufficient skill and experience after a genuine market search within a period that would enable it to put in place the necessary policies, systems and procedures to ensure compliance with this Prudential Standard by the effective date; or (iii)         for a foreign insurer, it cannot comply with this Prudential Standard by the effective date due to delays caused by home country regulatory issues relating to a significant demonstrable inconsistency between this Prudential Standard and legal requirements imposed by its home country regulator.

[1]          Refer sections 32 and 35 of the Act.
[2]          Refer section 41 of the Act.
[3]          Refer subsections 49J(4) and 49K(3) of the Act.
[4]          Refer section 39 of the Act.
[5]          Refer section 39 of the Act.
[6]          Refer sections 49J and 49K of the Act.
[7]           In the case of a foreign general insurer (foreign insurer), a reference to the “Board” in this Prudential Standard shall be taken to include a reference to the senior officer outside Australia to whom authority has been delegated in accordance with Prudential Standard GPS 510 Governance.
[8]          Refer section 49L of the Act.
[9]          Refer subsections 47(1) and 47(2A) of the Act.
[10]      Refer section 49E of the Act.
[11]        Refer section 49G of the Act.
[12]        Refer section 49J of the Act.
[13]        Refer paragraph 49J(1)(a) and subsection 49J(3) of the Act.
[14]        Refer subsection 49(J)(3) of the Act.
[15]        Refer paragraph 49J(1)(c) of the Act.
[16]        Refer subsection 49J(4) of the Act.
[17]        Refer paragraphs 49J(1)(b) and (c) and subsection 49J(4) of the Act.
[18]        Refer section 49K of the Act.
[19]        Refer paragraphs 49K(1)(a) and (b) of the Act.
[20]        Refer paragraphs 49K(1)(a) and (b) and subsection 49K(3) of the Act.
[21]        Refer sections 49 and 49A of the Act for details of these requirements. See also section 49B of the Act in relation to voluntary reporting.
[22]        Refer section 49 of the Act.
[23]        Refer section 307B, Corporations Act 2001 for further requirements in relation to audit working papers.
[24]        Within the meaning of paragraph 49A(2)(d) of the Act.
[25]        Refer subsection 49A(2) of the Act.
[26]        Refer sections 49 or 49A of the Act.
[27]        Refer sections 49C and 49D of the Act.
[28]        Refer subsection 49J(3) of the Act.
[29]        Refer paragraph 49J(1)(c) and subsection 49J(4) of the Act.
[30]        Limited assurance is defined in Auditing Standard AUS 108 Framework for Assurance Engagements.
[31]        As defined in Prudential Standard GPS 220 Risk Management and Prudential Standard GPS 230 Reinsurance Management respectively.
[32]        Refer paragraph 49K(1)(b) and subsection 49K(3)of the Act.
[33]        An insurer’s insurance liabilities may also include its exposure from surety bond business, depending on the treatment adopted under GPS 110.
[34]        Refer paragraph 49K(1)(b) and subsection 49K(3)of the Act.
[35]        Refer to Prudential Standard GPS 520 Fit and Proper Requirements (GPS 520)
[36]        As defined in Prudential Standard GPS 520
[37]        This has the same meaning and use as contained in the Corporations Act 2001.
[38]        Refer subsection 49K(2) of the Act.
[39]        Such reporting is required in both an ILVR and in statutory reporting (refer to reporting standards made under the Collection of Data Act).
[40]        This is also required to comply with reporting standards made under the Collection of Data Act.
[41]        For further details in respect of documentation of reinsurance arrangements, refer Prudential Standard GPS 230 Reinsurance Management.
[42]        Refer reporting standards made under the Collection of Data Act for recognition of assets. Refer GPS 110 for detail in respect of capital requirements in relation to these risks.
[43]         APRA is not enforcing full compliance with the requirements relating to initial FCRs in view of the need for insurers to familiarise themselves with these new requirements and for actuaries to develop processes to deal with the matters falling within the scope of these new requirements. The relevant professional standard issued by the Institute of Actuaries of Australia is intended to take effect on 1 October 2006.