{"id":"F2007L04560","name":"Life Insurance (prudential standard) determination No. 11 of 2007 - Prudential Standard LPS 7.02 - General Standard","slug":"life-insurance-prudential-standard-determination-no-11-of-2007-prudential-standard-lps-7-02-general-","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"repealed","isInForce":false,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":437024,"registerId":"F2007L04560-fast-fetch-1775954050450","compilationNumber":null,"startDate":"2026-04-12","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"1","sectionType":"section","heading":"Life Insurance (prudential standard) determination No. 11 of 2007 - Prudential Standard LPS 7.02 - General Standard","content":"---\nmeta-content-style-type: text/css\nmeta-content-type: application/xhtml+xml; charset=utf-8\n---\n\n?xml version=\"1.0\" encoding=\"utf-8\" standalone=\"no\"?>\n\n\n\nLife Insurance (prudential standard) determination No.11 of 2007\n\nPrudential standard LPS 7.02 General Standard\n\nLife Insurance Act 1995\n\nI, John Roy Trowbridge, Member of APRA, delegate of APRA, under subsection 230A(1) of the Life Insurance Act 1995 (the Act), DETERMINE Prudential Standard LPS 7.02 General Standard in the form set out in the Schedule, which shall apply to all life companies, including friendly societies.\n\nThis instrument takes effect from the later of 1 January 2008 and the date of registration on the Federal Register of Legislative Instruments.\n\n \n\n \n\n \n\nDated 27 November 2007\n\n \n\n[Signed]\n\n \n\n \n\nJohn Trowbridge\n\nMember\n\n\nInterpretation\n\nIn this Determination\n\nActuarial Standard 7.02 means Actuarial Standard 7.02 General Standard, made by the LIASB, as in force immediately prior to 1 January 2008.\n\nAPRA means the Australian Prudential Regulation Authority.\n\nFederal Register of Legislative Instruments means the register established under section 20 of the Legislative Instruments Act 2003.\n\nfriendly society has the meaning given in section 16C of the Act.\n\nLIASB means the Life Insurance Actuarial Standards Board established under section 100 of the Act.\n\nlife company has the meaning given in the Schedule of the Act.\n\nSRR Act means the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007.\n\nNote 1 A failure to comply with a prudential standard determined under section 230A of the Act is not an offence, but it may lead to a direction being given under section 230B of the Act.\n\n\nSchedule\n\nPart 1 \n\nEffective from 1 January 2008, the SRR repeals Part 5 and Division 4 of Part 6 of the Act. Those provisions of the Act established and regulated the actuarial standards and the LIASB. Prudential Standard LPS 7.02 – Solvency Standard (Prudential Standard LPS 7.02) re-creates Actuarial Standard 7.02 as a prudential standard made under subsection 230A(1) of the Act. There is no intention to alter any substantive aspect of Actuarial Standard 7.02, however, some modification is necessary to take account of the changes to the Act brought about by the SRR Act. Consequently, Prudential Standard LPS 7.02 comprises Actuarial Standard 7.02, reproduced as the 30 pages of Part 2 of this Schedule, subject to the following:\n\n1. Subject to paragraph 2. below, a reference in Actuarial Standard 7.02 to a power being exercised or exercisable by the LIASB is taken to be a reference to that power being exercised or exercisable by APRA.\n2. A reference to anything done by the LIASB, where that thing was done prior to 1 January 2008, shall continue to be read as a reference to the LIASB.\n3. Any approvals granted or matters agreed to by APRA under Actuarial Standard 7.02 and effective immediately prior to the commencement of Prudential Standard LPS 7.02 will continue to be effective under the corresponding provisions of Prudential Standard LPS 7.02, unless such approvals are revoked by APRA.\n4. The items appearing in Actuarial Standard 7.02, indicated in the first three columns of the following table, are amended as described in the fourth column in the Table for the purposes of Prudential Standard LPS 7.02:\n\n| Page number | Section | Paragraph number within that section | Amendment |\n| --- | --- | --- | --- |\n| 1 | “Table of contents” | | Substitute “prudential” for “actuarial” wherever occurring |\n| 1 | “Current Actuarial Standards” | Heading | Substitute “PRUDENTIAL” for “ACTUARIAL” |\n| 1 | “Current Actuarial Standards” | | Substitute “PS” for “AS” at the beginning of each line |\n| 2 | “Introduction to the Actuarial Standards” | Heading | Substitute “PRUDENTIAL” for “ACTUARIAL” |\n| 2 | “Introduction to the Actuarial Standards” | 1st | At the end of the paragraph add “Due to the operation of the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007 responsibility to make actuarial standards passed to APRA on 1 January 2008. |\n| 2 | “Introduction to the Actuarial Standards” | 2nd | Substitute “There are 6 prudential standards on actuarial matters, in respect of:” for “The Life Act makes provision for 6 actuarial standards, in respect of:” |\n| 2 | “The Valuation Standard” | 1st | After “actuarial standards” insert “,and prudential standards,” |\n| 3 | “The Valuation Standard” | 2nd | Substitute “prudential” for “actuarial” |\n| 3 | “Implications for Friendly Societies” | 1st | In the final sentence, after “Actuarial Standard 1.04” insert “(now LPS 1.04)” |\n| 3 | “Capital Standards for the Statutory Funds” | 1st | Substitute “prudential standards establish” for “Life Act establishes” |\n| 4 | “Capital Standards for the Statutory Funds” | 2nd | Remove the final sentence |\n| 4 | “Capital Standards for the Statutory Funds” | 5th | Substitute “APRA acknowledges” for “The LIASB acknowledges” |\n| 5 | “Other Actuarial Standards” | Heading | Substitute “Prudential” for “Actuarial” |\n| 5 | “Other Actuarial Standards” | 1st | Substitute “Prudential standards have also been made” for “The Life Act also provides for actuarial standards” |\n| 7 | “Application of the standards to friendly societies” | 1st | Final sentence, omit “,AS 1.04,” |\n| 7 | “Terminology” | 1st | Substitute “prudential” for “actuarial” wherever occurring |\n| 8 | “Benefit Funds” | 1st | Substitute “prudential” for “actuarial” |\n| 8 | “Management Fund” | 3rd | Substitute “prudential” for “actuarial” |\n| 9 | “3. How to use the actuarial standards” | 1st and 2nd | Omit the paragraphs |\n| 9 | “3. How to use the actuarial standards” | 3rd | Substitute “prudential” for “actuarial” |\n| 9 | “3. How to use the actuarial standards” | 5th | At the end of the paragraph insert “These materials will still provide useful background to the new prudential standards on actuarial matters.” |\n| 11 | “4. History of the Development of the Actuarial Standards” | At the end of the section | Add new date in left hand column “1 January 2008” and add a passage in the right hand column “Responsibility for developing standards on actuarial matters transferred to APRA. APRA has remade the actuarial standards in existence at that time as prudential standards. This process did not involve any change to policy settings.” |\n| 13 | “Application” | 1st | Substitute “paragraph 230A(1)(a)” for “section 101(2)” |\n| 13 | “Application” | 1st | Substitute “prudential standards LPS 1.04, LPS 2.04, LPS 3.04, LPS 4.02, LPS 5.02, LPS 6.03 and LPS 7.02” for “all actuarial standards” |\n| 13 | “Application” | 2nd | Omit the paragraph |\n| 13 | “Application” | 3rd | Substitute “LPS 1.04, LPS 2.04, LPS 3.04, LPS 4.02, LPS 5.02, LPS 6.03 and LPS 7.02” for “the actuarial standards” |\n| 15 | “Definitions” | “Capital Adequacy Requirement” | Omit “,as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 70 of the Act” |\n| 15 | “Definitions” | “Capital Adequacy Standard” | Delete the paragraph, insert “A prudential standard for the capital adequacy of a statutory fund (currently LPS 3.04 Capital Adequacy Standard).” |\n| 20 | “Definitions” | “Management Capital Requirement” | Omit “as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 73B of the Act” |\n| 20 | “Definitions” | “Management Capital Standard” | Delete the paragraph, insert “A prudential standard for the capital of the shareholders’ fund (currently LPS 6.03 Management Capital Standard).” |\n| 24 | “Definitions” | “Solvency Requirement” | Omit “as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 65 of the Act” |\n| 24 | “Definitions” | “Solvency Standard” | Delete the paragraph, insert “A prudential standard for the solvency of a statutory fund (currently LPS 2.04 Solvency Standard).” |\n| 24 | “Definitions” | “Surrender Value Standard” | Delete the paragraph, insert “A prudential standard for the minimum surrender value of a policy (currently LPS 4.02 Surrender Value Standard).” |\n| 26 | “Definitions” | “Valuation Standard” | Delete the paragraph, insert “A prudential standard for the valuation of policy liabilities (currently LPS 1.04 Solvency Standard).” |\n\n \n\n \n\nPart 2\n\n30 MARCH 2006\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nActuarial Standard 7.02\n\n \n\nGENERAL STANDARD\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n Life Insurance\n\nActuarial Standards Board\n\n \n\n\nTABLE OF CONTENTS\n\n Page\n\n \n\n \n\n \n\n[1. INTRODUCTION TO THE ACTUARIAL STANDARDS](#_Toc121561634)\n\n \n\n[2. APPLICATION OF THE STANDARDS TO FRIENDLY SOCIETIES](#_Toc121561635)\n\n \n\n[3. HOW TO USE THE ACTUARIAL STANDARDS](#_Toc121561636)\n\n \n\n[4. HISTORY OF THE DEVELOPMENT OF THE ACTUARIAL STANDARDS..................................................](#_Toc121561637)\n\n \n\n[5. DICTIONARY](#_Toc121561638)\n\n \n\n[ATTACHMENT 1 – COUNTERPARTY GRADE](#_Toc121561639)\n\nCURRENT ACTUARIAL STANDARDS\n\n \n\nAS1.04 Valuation Standard \n\nAS2.04 Solvency Standard \n\nAS3.04 Capital Adequacy Standard \n\n\nAS4.02 Surrender Value Standard \n\nAS5.02 Investment Performance Guarantee Standard \n\n \n\nAS6.03 Management Capital Standard \n\n \n\nAS7.02 General Standard\n\n \n\n \n\n \n\n \n\n\n1. INTRODUCTION TO THE ACTUARIAL STANDARDS\n\n \n\nThe Life Insurance Act 1995 (the Life Act) introduced a new financial reporting regime for life insurance companies which reflected principles of realistic valuation, appropriate capital support for risks and transparency of disclosure. An integral component of this new regime was the establishment of the Life Insurance Actuarial Standards Board (LIASB) with its responsibility to make actuarial standards.\n\n \n\nThe Life Act makes provision for 6 actuarial standards, in respect of:\n\n \n\n- the valuation of policy liabilities\n- the determination of solvency requirements\n- the determination of capital adequacy requirements\n- the determination of capital requirements for the management fund or shareholders’ fund\n- the calculation of minimum surrender values and paid up values\n- the valuation of performance guarantees in investment linked funds.\n\n\n \n\nThe most significant of these standards in terms of the financial management of the life insurance business, are the valuation and capital standards. These standards are discussed in relatively greater detail below. (The two remaining standards serve an important purpose in protecting policy owner interests and securing equity between different groups of policy owners).\n\n \n\nThe Valuation Standard\n\n \n\nImportant in the development and subsequent amendment of the actuarial standards were considerations of:\n\n \n\n- methodologies for determining the policy liabilities of a life insurance company in respect of Life Insurance Contracts which are consistent with objectives of realistic profit reporting;\n- proper and timely release of profit arising in respect of Life Insurance Contracts over the life of the business;\n- in respect of Life Investment Contracts, measurement of policy liabilities that follows the requirements of relevant accounting standards (to the extent that the financial reporting of Life Investment Contracts under such standards is appropriate for the purposes of the Act);\n- requirements for disclosure of this information in a transparent and comparable format; and\n- approaches to prescribing minimum capital requirements to support those liabilities and provide an indicator of the financial position of the company.\n\n\n \n\nThe actuarial standard for the valuation of policy liabilities addresses the first three of these issues, with a concern for the objectives of disclosure and reporting. The issue of capital requirements is addressed by separate actuarial standards - the Solvency Standard, Capital Adequacy Standard and Management Capital Standard.\n\n \n\nThe objectives of the Life Act in this regard provided the basis of the philosophy underlying the Valuation Standard.\n\n \n\nIn the special circumstances of participating business, a realistic valuation approach continues to apply. The integration of the Valuation Standard with the Life Act requirements for profit allocation and distribution are critical to achieving the objectives of priority of policy owner interest, equity amongst generations of policy owners and transparent disclosure of the operations of this business to facilitate policy owner and shareholder understanding.\n\n \n\nImplications for Friendly Societies\n\n \n\nThe Act was amended in 1999 to extend its application to friendly societies that undertake life insurance business. However, previous versions of this standard were only applicable to life companies (registered under the Act) other than friendly societies. A separate standard applied to friendly societies. For reporting periods commencing on or before 31 December 2004, friendly societies were exempted from the general purpose financial reporting standards applying to life companies by virtue of ASIC Class Order 99/1225. That class order has not been extended with effect for reporting periods commencing on or after 1 January 2005. It is therefore appropriate that regulatory financial reporting requirements be similarly aligned for reporting periods commencing on or after 1 January 2005, and that Actuarial Standard 1.04 also applies to Friendly Societies from this date.\n\nCapital Standards for the Statutory Funds\n\n \n\nThe Life Act establishes a two tier capital requirement on the statutory funds of the life insurance company with each tier considering the capital requirements in a different set of circumstances. The first tier – the Solvency Standard - is intended to ensure, as far as possible, the payment of the liabilities of the company. The second tier – The Capital Adequacy Standard - is intended to secure the financial soundness of the company as a going concern.\n\n \n\nJust as there are two tiers of capital requirement, the LIASB in developing these standards proposed two philosophies - discrete and independent; one for each of the standards. The result is that the Capital Adequacy Standard is not necessarily a stronger Solvency Standard; or more importantly, the Solvency Standard is not necessarily a weaker Capital Adequacy Standard. Each capital requirement stands on its own, serves different purposes and brings its own consequences. This is consistent with the intentions and provisions of the Life Act.\n\n \n\nThe essential features of the philosophy of the Solvency Standard are as follows:\n\n \n\nThe Solvency Standard\n\n considers capital needs in the context of an extended run off situation either under judicial management or following transfer of the business to another insurer, at a high level of confidence\n\n assumes the statutory fund is closed to new business\n\n aims to meet obligations to policy owners (and creditors) while the fund withstands shocks (adverse experience).\n\n \n\nFor Capital Adequacy, the essential features are:\n\n \n\nThe Capital Adequacy Standard\n\n considers capital needs in the context of an active and viable ongoing concern\n\n assumes the statutory fund is open to new business\n\n aims to meet reasonable expectations of policy owners (and creditors) while the fund withstands larger shocks (significant adverse experience).\n\n \n\n \n\nThe LIASB acknowledges that, as a consequence of these philosophies, it is possible that in certain circumstances no additional capital is required for capital adequacy purposes over the Solvency Requirement. The circumstances in which this may arise (for example, a slowly growing fund or a declining fund) do not suggest any inconsistency with the underlying philosophies.\n\n \n\nThe Solvency Requirement is disclosed in the financial statements of the life insurance company and is intended to be used as an indicator of the financial position of the company. To provide certainty of interpretation and facilitate consistency and comparability across the industry, the standard adopts a primarily prescriptive approach to the determination of the Solvency Requirement.\n\n \n\nThe Capital Adequacy Requirement is not required to be disclosed in the financial statements of the company. It will, however, be disclosed to APRA (on a confidential basis) and will be used as an important indicator of the longer term financial position of the company, and a trigger for closer regulatory monitoring in respect of short term solvency. The Capital Adequacy Standard adopts a less prescriptive approach to the determination of the Capital Adequacy Requirement in recognition of the differing business strategies of the companies. Reliance is placed on the professionalism of the Actuary for appropriate assessment of the Capital Adequacy Requirement of a company in accordance with the principles of this Standard.\n\n \n\nThe policy owner protection objectives of the Life Act are again reinforced through these standards – the distribution of retained profits or shareholder capital of a statutory fund is restricted where the Capital Adequacy Requirement is not met. Distributions to policy owners may continue while ever the company remains solvent.\n\n \n\nCapital Standard for the Management Fund/Shareholders’ Fund\n\n \n\nThe Management Capital Standard is established under the Life Act and establishes a requirement to hold capital in the management fund/shareholders’ fund to ensure the security of that fund and its business activities under adverse operating circumstances. This capital is additional to the capital requirements for the statutory funds.\n\n \n\nThe Management Capital Requirement is determined by considering the various risks which could impact the security of the company’s operations and, by consequence, policy owner entitlements and requiring the provision of a prudent level of reserve against such risks.\n\n \n\nThe approach to determining the Management Capital Requirement recognises the separate and distinct nature of a life company’s statutory funds in respect of its life insurance business and the extent to which the risks associated with undertaking life insurance business are provided for in the Solvency and Capital Adequacy Standards. \n\n \n\nSecurity of the entitlements of policy owners, however, cannot be considered totally isolated from risks associated with operations outside the statutory funds. In the case of friendly societies, the risks associated with the administration and operational support of the life insurance business are borne outside the statutory funds. Further, a life company may operate businesses (other than life insurance related business) outside its statutory funds. The risks incurred in all respects have implications for the overall security of the company and hence of the policy owners.\n\n \n\nOther Actuarial Standards\n\n \n\nThe Life Act also provides for actuarial standards in respect of the calculation of minimum surrender values and the cost of investment performance guarantees.\n\n \n\nThe principle of protecting the interests of policy owners and ensuring equity as between groups of policy owners (terminating as against remaining, those with guaranteed entitlements as against those with market related entitlements) underlies these standards.\n\n \n\nThe Surrender Value Standard serves an important purpose in the determination of solvency requirements, by providing a floor for the value of the solvency liabilities. The principle which prevails in this case is that the minimum value of the liabilities for solvency purposes (before adding margins for other risks relating to expenses and assets) must be sufficient to secure the minimum entitlement of all policy owners at that time.\n\n \n\n \n\n# 2. APPLICATION OF THE STANDARDS TO FRIENDLY SOCIETIES\n\nThe Life Act was amended in 1999 to extend its application to friendly societies that undertake life insurance business. In June 1999, the LIASB released a set of actuarial standards relevant to friendly societies. It was acknowledged at the time of release that these standards were transitional, largely reinstating the requirements of the pre-existing Australian Financial Institutions Commission regulatory regime. In 2002 there was a harmonisation of the Friendly Society standards with the life insurance standards. Following the adoption of the International Financial Reporting Standards and the lapse of the ASIC Class Order, there has been further alignment such that the Valuation Standard, AS 1.04, now applies to both life insurance companies and friendly societies.\n\n \n\nHarmonisation of Actuarial Standards\n\n \n\nIn developing a set of actuarial standards to apply commonly to friendly societies and life companies, regard must be had for the differences that exist between the two sectors of the industry.\n\n \n\nTerminology\n\n \n\nAt the simplest level, there are differences of terminology used within the industry sectors – for instance, benefit fund in a friendly society and statutory fund in other life companies. The actuarial standards adopt the same approach to terminology as taken in the Life Act. The following table provides linkages between the terminology adopted in the Life Act and actuarial standards, and that commonly used in practice by friendly societies.\n\n \n\n| Life Act Concept | Friendly Society Concept
|\n| --- | --- |\n| Statutory fund
| Benefit fund |\n| Life company, company | Friendly society
|\n| Best estimate liability
| Value of benefit entitlements |\n| Policy owner
| Benefit fund member |\n| Policy document
| Benefit fund rules |\n| Life policy, life insurance policy
| Interest in a benefit fund
|\n| Shareholders’ fund | Management fund
|\n\n\n \n\nStructure of a Friendly Society\n\n \n\nOne of the more significant differences is in the structure of the friendly society (compared to other life companies). \n\n \n\nBenefit Funds\n\nThe friendly society segregates its business through benefit funds, where those benefit funds are single product funds. As a consequence, requirements (in the Life Act and actuarial standards) for the segregation of the business of a statutory fund into classes, categories and/or related product groups are not relevant to a friendly society. The benefit fund of a friendly society is effectively a related product group. \n\n \n\nFollowing the lapse of the ASIC class order, it is appropriate, for the purposes of applying the Valuation Standard, for benefits provided in benefit funds where there is a provision for distribution of unallocated surpluses to policy owners to be valued as if they were participating. Benefits provided under benefit funds where is no provision for distribution of unallocated surpluses to policy owners are to be valued as if they were non-participating. \n\n \n\nManagement Fund\n\nFriendly societies also operate a management fund. This fund is distinct and separate from the benefit funds, and undertakes operational and administrative functions in respect of the life insurance business of those funds (as well as other business activities) for which the benefit funds pay a management fee. \n\n \n\nAs a result of this operational structure, certain of the risks associated with the life insurance business – in particular, expense risks - are borne by the management fund in the friendly society.\n\n \n\nTherefore, in applying the provisions of the actuarial standards to a friendly society, reference to expenses of the statutory fund, whether actual or expected, should be taken to mean the contracted management fees in respect of the business of that fund.\n\n \n\nExpense risks related to the life business of a friendly society are provided for in the management fund through the Management Capital Standard. The same risks for other life companies will be provided for in their statutory funds through the Solvency and Capital Adequacy Standards.\n\n \n\n \n\n# 3. HOW TO USE THE ACTUARIAL STANDARDS\n\nThe actuarial standards are made by the LIASB under prescribed powers in the Life Act. In developing the standards the LIASB follow a defined due process for exposure to, and consultation with, the industry and other stakeholders. \n\n \n\nThe standards are disallowable instruments and will have been through the parliamentary processes, with notice of the making of the standards being published in the Commonwealth Government Notices Gazette.\n\n \n\nThe legislative requirements prescribed in the actuarial Standard are shown in bold type.\n\n \n\nMost sections of the standard are preceded by an overview - shown in normal print - intended as a plain English introduction to the principles which are developed in greater detail in the relevant section. The overview facility can be used as an aid to interpretation, and to the intent of the Standard.\n\n \n\nNewsletters, released periodically, provide background to, and an insight to the considerations of the LIASB in, the development of the standards. The most recent changes to the Standards have also been accompanied by an Explanatory Memorandum at the Discussion Draft, Exposure Draft and final issue stages.\n\n \n\nDefined terms are Capitalised in the standards, and the definitions of those terms can be found in the consolidated dictionary at section 5 of this General Standard.\n\n \n\nChange in Style\n\n \n\nThe style of the actuarial standards was modified as part of the process for harmonisation of actuarial standards (March 2002 version of standards).\n\n \n\nPre March 2002 versions of the standards incorporated a significant amount of commentary to guide in the interpretation of the principles. Further, a please note facility was used as a means of emphasising special messages to the practitioner readers.\n\n \n\nThe benefit of this commentary is available, if required by the practitioner, by accessing these earlier versions of the standards.\n\n \n\nIt is also noted that the Institute of Actuaries of Australia (IAAust) has issued guidance material on the interpretation and/or practical application of certain aspects of the LIASB’s actuarial standards.\n\n \n\n# 4. HISTORY OF THE DEVELOPMENT OF THE ACTUARIAL STANDARDS\n\n \n\n9 October 1996 The Valuation Standard version AS1.01 was made.\n\n \n\n \n\n15 November 1996 The following actuarial standards were made:\n\n \n\n- The Solvency Standard version AS2.01\n\n- The Capital Adequacy Standard version AS3.01\n\n \n\n13 October 1997 The following actuarial standards were made:\n\n \n\n- The Surrender Value Standard version AS4.01\n\n- The Investment Performance Guarantee Standard version AS5.01\n\n \n\n24 June 1999 An Instrument of Variation was made, varying the following actuarial standards to apply only to life companies that are not friendly societies:\n\n \n\n- The Valuation Standard version AS1.01\n\n- The Solvency Standard version AS2.01\n\n- The Capital Adequacy Standard version AS3.01.\n\n- The Surrender Value Standard version AS4.01\n\n- The Investment Performance Guarantee Standard version AS5.01\n\n \n\nAND\n\n \n\n The following actuarial standards were made:\n\n \n\n- The Friendly Society Valuation Standard version ASFS1.01\n\n- The Friendly Society Solvency Standard version ASFS2.01\n\n- The Friendly Society Capital Adequacy Standard version ASFS3.01\n\n- The Friendly Society Investment Performance Guarantee Standard version ASFS5.01\n\n- The Friendly Society Management Capital Standard version ASFS6.01\n\n- The Management Capital Standard version AS6.01\n\n \n\n\n20 September 1999 An Instrument of Variation was made to prescribe a completion date for the following actuarial standards:\n\n \n\n- The Valuation Standard version AS1.01\n\n- The Solvency Standard version AS2.01\n\n- The Capital Adequacy Standard version AS3.01\n\n \n\n AND \n\n \n\n The following actuarial standards were made:\n\n \n\n- The Valuation Standard version AS1.02\n\n- The Solvency Standard version AS2.02\n\n- The Capital Adequacy Standard version AS3.02\n\n \n\n \n\n28 March 2002 An Instrument of Variation was made to prescribe a completion date for the following actuarial standards:\n\n \n\n- The Valuation Standard version AS1.02\n\n- The Solvency Standard version AS2.02\n\n- The Capital Adequacy Standard version AS3.02\n\n- The Surrender Value Standard version AS4.01\n\n- The Investment Performance Guarantee Standard version AS5.01\n\n- The Management Capital Standard version AS6.01\n\n- The Friendly Society Valuation Standard version ASFS1.01\n\n- The Friendly Society Solvency Standard version ASFS2.01\n\n- The Friendly Society Capital Adequacy Standard version ASFS3.01\n\n- The Friendly Society Investment Performance Guarantee Standard version ASFS5.01\n\n- The Friendly Society Management Capital Standard version ASFS6.01\n\n \n\nAND\n\n \n\nThe following actuarial standards were made:\n\n \n\n- The Valuation Standard version AS1.03\n\n- The Friendly Society Valuation Standard version ASFS1.02\n\n- The Solvency Standard version AS2.03\n\n- The Capital Adequacy Standard version AS3.03\n\n- The Management Capital Standard version AS6.02\n\n- The Surrender Value Standard version AS4.02\n\n- The Investment Performance Guarantee Standard version AS5.02\n\n- The General Standard version AS7.01\n\n \n\n5 December 2005 An Instrument of Revocation was made to revoke the following actuarial standards and to determine the completion date from which the requirements under those actuarial standards would cease to apply:\n\n \n\n- The Valuation Standard version AS1.03\n\n- The Friendly Society Valuation Standard version ASFS1.02\n\n- The Solvency Standard version AS 2.03\n\n- The Capital Adequacy Standard version AS3.03\n\n- The Management Capital Standard version AS6.03\n\n- The General Standard version AS7.01\n\n \n\n \n\n The following actuarial standards were made:\n\n \n\n- The Valuation Standard version AS1.04\n\n- The Solvency Standard version AS 2.04\n\n- The Capital Adequacy Standard version AS3.04\n\n- The Management Capital Standard version AS6.03\n\n- The General Standard version AS7.02\n\n \n\n \n\n# 5. DICTIONARY\n\n \n\n5.1 Application\n\n \n\nThe Dictionary is made under section 101(2) of the Life Insurance Act 1995 and is applicable to the interpretation of all actuarial standards made under that section.\n\n \n\nIt applies at all times from 31 December 2005.\n\n \n\nTerminology used in the actuarial standards, to the extent it is not specifically defined in the Dictionary, takes the same meaning as that in the Life Insurance Act 1995.\n\n \n\n \n\n5.2 Definitions\n\n \n\nAASB: Australian Accounting Standard Board\n\n \n\nAcquisition Expenses: The fixed and variable expenses of the company to the extent they are, either directly or indirectly, referable to those activities of the company related to the acquiring of that new business expected to derive from the expenditure.\n\n \n\nAcquisition Expense Recovery Carrier: A financially measurable indicator of the element of a Related Product Group designed or intended to recover Acquisition Expenses.\n\n \n\nAcquisition Expense Recovery Component: A uniform margin of an Acquisition Expense Recovery Carrier, determined in accordance with section 6 of the Valuation Standard.\n\n \n\nActuarial Gains and Losses: For the purposes of recognising the value of obligations arising in respect of a defined benefit superannuation fund in the accounts of the employer sponsor, actuarial gains and losses comprise\n\n- experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred); and\n- the effects of changes in actuarial assumptions.\n\n\n \n\nActuary: An appointed actuary as defined under the Act.\n\n \n\nAdequacy Threshold: The Adequacy Threshold is the minimum value for Profit Margins of a Related Product Group under the Valuation Standard - i.e. it is the level at which losses must be recognised. The Adequacy Threshold is to be determined in accordance with Section 11 of the Valuation Standard.\n\n \n\nAdmissible Assets: The total assets of the statutory fund or Fund as appropriate excluding those assets, or the parts of those assets, prescribed as inadmissible for the purposes of the Solvency, Capital Adequacy or Management Capital Standard.\n\n \n\nApproved Country: An overseas country having capital requirements in respect of life insurance business comparable to those in the Act. The business of such countries, when written in a separate statutory fund, is excluded from the capital requirements of the Act.\n\nThe Approved Countries are UK, USA, Canada.\n\n \n\nApproved Subordinated Debt: The quantum of debt under an instrument of subordinated debt that, in accordance with approval processes of the Australian Prudential Regulation Authority, can be used in meeting the capital requirements of a statutory fund.\n\n \n\nBest Estimate Assumptions: Assumptions about future experience determined in accordance with section 3 of the Valuation Standard.\n\n \n\nBest Estimate Liability: The amount expected on Best Estimate Assumptions to be required to the end of the benefit period to meet future benefits and expenses related to past transactions for the business in force. The calculation process will take into account all factors which are known to be material, including future investment earnings, taxation, any options under the policies and future premiums, where relevant to the calculation.\n\n \n\nBest Estimate Bonus: The maximum level of Bonus which (on Best Estimate Assumptions and taking into account the company’s profit distribution philosophy, including shareholder entitlements) can be added to a Participating Benefit over its benefit life without supplementary income from other sources, including policy owner retained profits. \n\n \n\nBest Estimate Discretionary Addition: The level of discretionary addition which (on Best Estimate Assumptions and taking into account the company’s crediting philosophy) can be added to a Non-Participating Benefit over its benefit life without supplementary income from other sources, including policy owner retained profits. \n\n \n\nBest Estimate Shareholder Profit: The maximum level of Shareholder Profit which (on Best Estimate Assumptions and taking into account the company’s profit distribution philosophy, including policy owner entitlements) can be attributed to shareholders without supplementary income from other sources, including shareholders’ retained profits.\n\n \n\nBonus: An amount of profit added at the discretion of the company (including additions in respect of investment experience) to the benefits due under a Participating Benefit, but excluding any guaranteed rate of addition also applicable to the benefit.\n\n \n\nCapital Adequacy Assumptions: Assumptions about future experience made in the context of the more adverse experience prescribed for the purposes of capital adequacy.\n\n \n\nCapital Adequacy Liability: An intermediate component in the determination of the Capital Adequacy Requirement, which reflects the assessed liabilities in respect of policies on the basis of Capital Adequacy Assumptions.\n\n \n\nCapital Adequacy Requirement: The capital requirement calculated in accordance with the Capital Adequacy Standard, as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 70 of the Act.\n\n \n\nCapital Adequacy Standard: An actuarial standard for the capital adequacy of a statutory fund as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 70 of the Act.\n\n \n\nClaims Cost Liability: The Claims Cost Liability for disability income policies is the component of the liability for active lives in respect of claims.\n\n \n\nCommencement: The inception of a policy being the point as at which Profit Margins or Acquisition Expense Recovery Components are, or would be, first determined.\n\n \n\nContractual Minimum Value: The lowest Termination Value the company is obliged to pay in accordance with the policy documentation and promotional material.\n\n \n\nCounterparty Grade: The Counterparty Grade of an investment is the Grade reflected under the first column of the table in Attachment 1 of this standard for the equivalent Standard and Poor’s, Moody’s, AM Best or Fitch rated investment.\n\n \n\nCurrent Termination Value: The Termination Value of a policy at the reporting date.\n\n \n\nDate of Commencement: A date used in the determination of minimum surrender values in the Surrender Value Standard. Refer to paragraph 4.2.4 of that standard.\n\n \n\nDiscretionary Addition: An amount added to a Non-Participating Benefit, at the discretion of the company, to reflect the investment experience of the assets backing the benefit, but excluding any guaranteed rate of addition also applicable to the benefit. For this definition an amount added to a benefit is defined to mean any change to the previously applying contractual conditions that is beneficial to the policy owner.\n\n \n\nDiscretionary Participation Feature: A contractual right to receive, as a supplement to guaranteed benefits, additional benefits:\n\n- that are likely to be a significant portion of the total contractual benefits;\n- whose amount or timing is contractually at the discretion of the issuer; and\n- that are contractually based on:\n - the performance of a specified pool of contracts or a specified type of contract;\n - realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or\n - the profit or loss of the company, fund or other entity that issues the contract.\n\n\n \n\nEducation Bond Business: A form of Unbundled Investment Business where the policies provide for the payment of a defined benefit for the specific purpose of contributing towards the expenses of and incidental to the education of the beneficiary.\n\n \n\nEquity: All investments categorised as Equities for the purpose of reporting under Prudential Rules No. 26 plus:\n\n- all listed trusts except those where the Actuary adopts a ‘look through’ approach; and\n- the equity exposure of convertible notes; and\n- other investment assets, unless the Actuary can justify including the asset in Property, Interest Bearing Securities or Indexed Bonds.\n\n\n \n\nEstablishment Fee: A fee received at the Commencement of a policy which is intended to, at least partially, cover Acquisition Expenses. It does not include contingent entitlement to exit fees or surrender penalties.\n\n \n\nExpense Category: A grouping of the expenses directly or indirectly referable to life business. For the purposes of actuarial standards, three categories of expense are defined: Acquisition Expenses, Maintenance Expenses and Investment Management Expenses.\n\n \n\nExpense Driver: A quantifiable measure in relation to which the relevant expenses of the company are expected to vary.\n\n \n\nExpense Reserve: A component of the determination of the Solvency Requirement and Management Capital Requirement, which reflects capital requirements arising from expense risks in a closed fund scenario.\n\n \n\nExperience Profit: The profit arising in a period from the difference between actual experience during that period and expected experience on the basis of Best Estimate Assumptions at the beginning of the period.\n\n \n\nFinancial Risk: The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract.\n\n \n\nFinancial Services Entity: A Financial Services Entity includes:\n\n- A life company (within the meaning of the Life Insurance Act 1995), general insurer (within the meaning of the Insurance Act 1973), health insurance institution (being a registered organization within the meaning of Part VI of the National Health Act 1953), ADI (within the meaning of the Banking Act 1959), foreign equivalent of any such company, or a Group containing one or more such companies;\n- A mortgage lender, leasing company or Group containing one or more such companies;\n- A superannuation trustee or administrative services company administering financial services business for third parties or the Group’s own business;\n- A financial advising distribution company providing financial advice and distributing products of third parties or the Group’s own products;\n- An investment management entity (such as a funds manager, property manager, asset custodian, trustee company, etc) managing the assets of third parties, or those of the Group;\n- An investment servicing company (such as a property maintenance company, property developer or share registry) providing services to the Group’s own investment assets or other third parties.\n\n\n \n\nFinancial Instrument Element: The activities and associated cash flows of a Life Investment Contract that relate directly to the establishment of a financial asset or financial liability.\n\n \n\nFixed Term/Rate Business: Policies which provide for guaranteed investment returns at a disclosed rate for a specified period. The guaranteed returns may be paid in the form of income or as capital at maturity. The specified period of the guarantee may be the full term of the policy, or may be to an interim point at which the option exists to ‘roll’ the policy for a further specified period at a new guaranteed return.\n\n \n\nFunctional Activity: A group of activities of a company consistent with the operational structure of the life business. The functional groupings facilitate the processes of expense recording, accounting and apportionment in the company.\n\n \n\nFuneral Bond Business: Policies providing continuous insurance against the contingency of death on terms and conditions agreed at the commencement of the policy, where:\n\na) the primary purpose of the benefit is to meet the expenses of and incidental to the funeral of the policy owner, their spouse or children; and\n\nb) the amount of the benefit (excluding any entitlement to bonus) is no greater than $15,000.\n\n \n\nFuneral Bond Business includes any business written prior to 30 June 2002 which is classified as traditional friendly society sick and funeral business and where no surrender value is payable on withdrawal.\n\n \n\nGeneral Fund: A term used in the Management Capital Standard to refer to the management fund for a friendly society or the shareholders’ fund for other life companies.\n\n \n\nInadmissible Assets Reserve: A component of the determination of the Solvency Requirement, Capital Adequacy Requirement and Management Capital Requirement, which reflects the capital requirements arising from holding assets qualifying as inadmissible under these standards.\n\n \n\nIndexed Bonds: All investments categorised as Index Linked Interest Bearing Securities for the purpose of reporting under Prudential Rules No. 26 but excluding listed trusts where the Actuary does not adopt a ‘look through’ approach.\n\n \n\nInsurance Contract: A contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.\n\n \n\nInsurance Risk: Risk, other than financial risk, transferred from the holder of a contract to the issuer.\n\n \n\nInterest Bearing Securities: All investments categorised as Non-index linked Interest Bearing Securities for the purpose of reporting under Prudential Rules No. 26, plus loans, convertible notes exposed to interest rates, and cash but excluding listed trusts where the Actuary does not adopt a ‘look through’ approach.\n\n \n\nInvestment Management Expenses: The fixed and variable expenses of the company to the extent they are, either directly or indirectly, referable to those activities of the company related to the management of the investment portfolio.\n\n \n\nInvestment Performance Guarantee: An investment performance guarantee in accordance with section 42 of the Act.\n\n \n\nLiability Component: A component of the determination of the Management Capital Requirement.\n\n \n\nLife Insurance Contract: An Insurance Contract, or a financial instrument with a Discretionary Participation Feature, regulated under the Life Insurance Act.\n\n \n\nLife Investment Contract: A contract which is regulated under the Life Insurance Act 1995 but which does not meet the definition of a Life Insurance Contract.\n\n \n\nLong Term Risk Business: Policies providing continuous insurance against the contingency of death, other than solely by accident, on terms and conditions agreed at the commencement of the policy, where:\n\n1. a level premium is paid through the term of the policy; and\n2. the term of the policy is:\n\n\n1. greater than or equal to 15 years; and\n2. such that the policy owner is aged greater than 70 at the expiry of that term; and\n\n\n1. the amount of insurance (excluding any entitlement to bonus) is greater than $15,000.\n\n\n \n\nMaintenance Expenses: The fixed and variable expenses of the company to the extent they are, either directly or indirectly, referable to those activities of the company related to the administration of:\n\n1. policies subsequent to their sale, including policies subject to claim; and\n2. the general operations, including maintenance of the overall health, of the company.\n\n\n \n\nMaintenance Expenses include all operating costs and expenses other than Acquisition Expenses and Investment Management Expenses.\n\n \n\nManagement Capital Requirement: The capital requirement calculated in accordance with the Management Capital Standard, as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 73B of the Act.\n\n \n\nManagement Capital Standard: An actuarial standard for the capital of the shareholders’ fund as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 73B of the Act.\n\n \n\nManagement Services Element: All activities and cashflows arising from the full range of management services provided under a Life Investment Contract, including investment management, financial planning and advice. This will equal all the activities and cashflows of the Life Investment Contract excluding those in respect of the Financial Instrument Element.\n\n \n\nMinimum Surrender Value: The surrender value determined in accordance with the Surrender Value Standard.\n\n \n\nMid Swap Rate: The Mid Swap Rate is the rate (or rates) equivalent to a series of current, observable and objective Australian Dollar interest rate swap mid rates (derived from the relevant zero coupon rather than the par curve) that relates to the term of the future liability cash flows.\n\n \n\nMinimum Termination Value: The greater of, at the reporting date:\n\n1. the lowest Termination Value that the company is obliged to pay; and\n2. the amount calculated in accordance with the Surrender Value Standard.\n\n\n \n\nMinimum Paid-up Value: The paid-up value determined in accordance with the Surrender Value Standard.\n\n \n\nNational Government Guaranteed Securities: Securities secured by the national government of the country in whose currency the liabilities of the statutory fund are denominated.\n\n \n\nNet Policy Liability: The Policy Liability calculated after allowing for outward reinsurance premiums as an expense and reinsurance recoveries as income.\n\n \n\nNew Business Capital: Capital recognised within the context of the Capital Adequacy Standard or Capital Management Standard as an appropriate offset against the new business capital requirements of the statutory fund or management/shareholders’ fund respectively.\n\n \n\nNew Business Reserve: A component of the determination of the Capital Adequacy Requirement and Management Capital Requirement, which reflects any additional capital requirements arising from future new business.\n\n \n\nNon-Participating Benefit: A non-participating benefit in accordance with section 15 of the Act.\n\n \n\nNormal Investment Earnings: A component of the determination of minimum surrender values in the Surrender Value Standard. (Refer to section 4.4 of that standard for more detail).\n\n \n\nNormal Ongoing Charges: A component of the determination of minimum surrender values in the Surrender Value Standard. (Refer to section 4.3 of that standard for more detail).\n\n \n\nOECD Government: In the context of determining credit risk factors, OECD Government refers to assets that are guaranteed by an Australian state or Federal government or by a national government of another OECD country. \n\n \n\nOffset Statutory Capital: Statutory Capital to the extent it has actually been utilised in offsetting components of the statutory fund capital requirements – either the Expense Reserve under the Solvency Standard or the New Business Reserve under the Capital Adequacy Standard.\n\n \n\nThe Offset Statutory Capital of a company should reflect the aggregate of amounts of Statutory Capital so utilised in each statutory fund and in respect of both Expense Reserve and New Business Reserve components. The Offset Statutory Capital of a company, by definition, may not exceed the Statutory Capital of that company. \n\n \n\nOperating Profit: Operating profit in accordance with section 58 of the Act.\n\n \n\nOperating Surplus: Operating surplus in accordance with section 58 of the Act as modified by Regulation in its application to friendly societies.\n\n \n\nOther Liability: A liability according to general accounting concepts, which is referable to the statutory fund, other than a Policy Liability or Approved Subordinated Debt.\n\n \n\nParticipating Benefit: A participating benefit in accordance with section 15 of the Act.\n\n \n\nPolicy Liability: A liability calculated in accordance with the Valuation Standard.\n\n \n\nPolicy Owner Profit Share: The entitlement of the policy owner to share in the profits emerging from the benefits.\n\n \n\nPrescribed Account Value: A component of the determination of minimum surrender values in the Surrender Value Standard. (Refer to section 4.2 of that standard for more detail).\n\n \n\nProfit Carrier: A financially measurable indicator of the provision of a service or related income.\n\n \n\nProfit Margin: A percentage of a Profit Carrier, determined in accordance with the Valuation Standard.\n\n \n\nProperty: All investments categorised as Investment Property for the purpose of reporting under Prudential Rules No. 26 plus owner occupied property, but excluding listed property trusts where the Actuary does not adopt a ‘look through’ approach.\n\n \n\nRegular Premium Business: Life business where:\n\n1. there exists a contractual obligation on the policy owner to make subsequent premium payments after the first premium payment; or\n2. the scale or level of charges levied against the policy distinguishes between first and subsequent premiums.\n\n\n \n\nReinsurance: Refers to all arrangements where some part of individual or aggregate insurance risks are ceded to another company or companies and include cessions of direct writing companies to reinsurance companies or other direct writing life companies and parent companies as well as retrocessions of Reinsurers to their parent companies or other Reinsurers.\n\n \n\nReinsured Best Estimate Liability: The component of the Reinsured Policy Liability, being the Best Estimate Liability in respect of outwards reinsurance business.\n\n \n\nReinsured Policy Liability: The Policy Liability calculated by considering as premiums only reinsurance premiums and considering as benefits only reinsurance recoveries.\n\n \n\nReinsurer: Any company providing reinsurance cover, whether a parent life company, direct writing company or reinsurance company.\n\n \n\nRelated Product Group: A grouping of products where those products are considered by the Actuary to exhibit benefit characteristics and pricing structures sufficiently similar as to justify grouping for the purposes of profit margin calculation, loss recognition or reporting. A Related Product Group must not extend over subcategories, where a subcategory is defined in the Act.\n\n \n\nResilience: The ability of a statutory fund to withstand shocks to the economic environment in which it operates and which are likely to cause a sudden reduction in asset values or a requirement to assess liabilities using reduced investment earning rates.\n\n \n\nResilience Reserve: A component of the determination of the Solvency Requirement, Capital Adequacy Requirement and Management Capital Requirement, which reflects the capital requirements that need to be held before the happening of a prescribed set of changes in the economic environment, such that after the changes the company is able to meet the policy owner and other liabilities of the statutory fund, including the assessed liability risks in accordance with these standards.\n\n \n\nRetail Business: Life business which is not Wholesale Business.\n\n \n\nRisk Business: Life business which does not include any investment component.\n\n \n\nRisk Free Discount Rate: The rate (or rates) based on the current observable, objective rates that relate to the nature, structure and term of the future liability cash flows.\n\n \n\nServicing Expenses: The combination of Maintenance and Investment Management Expenses.\n\n \n\nShareholder Profit Share: The entitlement of the shareholder to share in the profit emerging from the benefits.\n\n \n\nShareholder Profits: An amount of profits attributable to the shareholder.\n\n \n\nSingle Premium Business: Life business which is not Regular Premium Business.\n\n \n\nSolvency Assumptions: Assumptions about future experience made in the context of the more adverse experience prescribed for the purposes of solvency.\n\n \n\nSolvency Liability: An intermediate component in the determination of the Solvency Requirement, which reflects the assessed liabilities in respect of policies on the basis of Solvency Assumptions.\n\n \n\nSolvency Requirement: The capital requirement calculated in accordance with the Solvency Standard, as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 65 of the Act.\n\n \n\nSolvency Standard: An actuarial standard for the solvency of a statutory fund as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 65 of the Act.\n\n \n\nSpecialist Reinsurer: A registered life company under the Act, the predominant business of which is Reinsurance business.\n\n \n\nStatutory Capital: Assets of the General Fund to the extent available to be utilised in offsetting components of the statutory fund capital requirements; either the Expense Reserve under the Solvency Standard or the New Business Reserve under the Capital Adequacy Standard. In determining the availability of assets for this purpose, regard must be had for any implications for capital requirements on the General Fund under prudential standards of the Australian Prudential Regulation Authority. \n\n \n\nSurrender Value Standard: An actuarial standard for the minimum surrender value in respect of a policy as prescribed by the Life Insurance Actuarial Standards Board, in accordance with sections 65, 207 and 209 of the Act.\n\n \n\nTermination Value: The Termination Value of a policy is either:\n\n1. the amount that would be paid on the basis used in practice from time to time in the event of voluntary termination; or\n2. where no amount would be paid, the discounted present value of the unexpired risks, future payments and/or contractual premium refunds.\n\n\n \n\nTraditional Business: Life business containing an investment component but excluding Unbundled Investment Business, Fixed Term/Rate Business and income stream business. Traditional Business includes whole of life and endowment policies. Long Term Risk Business and Funeral Bond Business is, for the purposes of the Surrender Value Standard, Traditional Business.\n\n \n\nTransition End Date: 31 December 2007, or such other date as is agreed to by APRA for the particular life company.\n\n \n\nTransitional Materiality Limit: The Transitional Materiality Limit for the purpose of the Solvency Standard and the Capital Adequacy Standard, is the lesser of:\n\n \n\n1. 5% of the excess of the Solvency Requirement (determined prior to allowing for any Transitional Adjustment - i.e. after step 6.1(h) in the Solvency Standard) over the sum of:\n\n\n- the Minimum Termination Value; and\n- Other Liabilities;\n\n\n \n\nwhere those amounts are the same as applied in the calculation of the Solvency Requirement; and\n\n \n\n1. 5% of the excess of the Capital Adequacy Requirement (determined prior to allowing for any Transitional Adjustment - i.e. after step 7.1(h) in the Capital Adequacy Standard) over the sum of:\n\n\n- the Minimum Termination Value; and\n- Other Liabilities;\n\n\n \n\nwhere those amounts are the same as applied in the calculation of the Solvency Requirement.\n\n \n\nThe Transitional Materiality Limit for the purpose of the Management Capital Standard is 5% of the excess of the Management Capital Requirement (determined prior to allowing for any Transitional Adjustment - i.e. after step 6.1(e) in the Management Capital Standard) over the total of the realistic value of liabilities of the General Fund, where the realistic value of liabilities is the same as applied in the calculation of the Liability Component in accordance with the Management Capital Standard.\n\n \n\nUnbundled Investment Business: Life business containing an investment component, where that and the other components of service provided under the policy are unbundled (separately disclosed and costed). Unbundled Investment Business includes investment account and investment-linked business (including allocated annuities and deferred annuities during the period of deferment) and Education Bond Business.\n\n \n\nUnrecognised Actuarial Gains (losses): That portion of Actuarial Gains and Losses in respect of a defined benefit superannuation fund for which the life insurance company, or an associated entity, is the employer sponsor, that has not been recognised as income or expense in the company’s accounts.\n\n \n\nValue of Supporting Assets: The value of assets determined in accordance with the Valuation Standard as being available to support benefits entitled to bonuses or discretionary additions.\n\n \n\nValuation Standard: An actuarial standard for the valuation of policy liabilities as prescribed by the Life Insurance Actuarial Standards Board, in accordance with section 114 of the Act. \n\n \n\nWholesale Business: Superannuation business where the effective purchasing decision is made by a trustee or company except that where the number of members has always been less than 5 it is retail business.\n\n \n\n\nATTACHMENT 1 – COUNTERPARTY GRADE\n\n \n\n \n\n \n\nThe Counterparty Grade for investments that have been publicly rated is determined from the following table:\n\n \n\n \n\n \n\n \n\n \n\n- Short Term Ratings Long Term Ratings\n- Grade Standard & Poor’s Moody’s AM Best Fitch Standard & Poor’s Moody’s AM Best Fitch\n- 1 A1+ AMB-1+ F1+ AAA Aaa aaa AAA\n- 2 A1 P1 AMB-1 F1 AA+AAAA- Aa1Aa2Aa3 aa+aaaa- AA+AAAA-\n- 3 A2 P2 AMB-2 F2 A+AA- A1A2A3 a+aa- A+AA-\n- 4 A3 P3 AMB-3 F3 BBB+BBBBBB- Baa1Baa2Baa3 bbb+bbbbbb- BBB+BBBBBB-\n- 5 BB+BBBB- Ba1Ba2Ba3 bb+bbbb- BB+BBBB-\n- 6 B NP Vulnerable AMB-4 B B+,B, B- B b+, b, b- B+,B, B-\n- 7 C NP Currently Vulnerable C CCC or below Below B Below b CCC or below\n\n\n \n\n \n\n\nInvestments that have not been publicly rated, and cannot be shown by the use of appropriate methods to have equivalent credit risk characteristics to other rated assets, should be treated as follows:\n\n \n\n1. Secured or mortgaged assets:\n\n\n \n\nA secured or mortgaged asset is an investment with collateral that is either an existing residential property or such other asset for which a substantive valuation has been obtained within the preceding 3 years.\n\n \n\nThe Counterparty Grade for secured or mortgaged assets is determined from the following table:\n\n \n\n- Counterparty Grade Standard Residential Mortgage Other Secured Asset\n- Loan to Value Ratio No LMI >40% LMI No LMI >40% LMI\n- <=60% 2 2 3 2\n- >60% but <=80% 2 2 4 3\n- >80% but <=90% 3 2 5 4\n- >90% but <=100% 4 3 5 4\n- >100% 5 4 5 5\n\n\n \n\nLoan to Value Ratio is the ratio of the value of the asset (i.e. loan) to the market value of the collateral. The market value of the collateral is the value at inception or, where a substantive valuation has subsequently been carried out, this subsequent valuation.\n\n \n\nA standard residential mortgage is a mortgage on existing residential property which is marketable, and where the insurer has a documented lending policy and procedures manual specifying:\n\n- the process for assessing the ability of the borrowers to meet repayment obligations;\n- verification procedures to substantiate critical application data provided by borrowers;\n- the criteria used to justify the value of the collateral where a formal valuation is not obtained;\n- procedures for determining whether a formal valuation, or revaluation, of the collateral is required; and\n- procedures for assessing the marketability of the collateral.\n\n\n \n\nLMI refers to lenders mortgage insurance. “>40% LMI” refers to mortgages where insurance cover has been obtained for all realised losses up to at least 40 per cent of the original loan amount. Such insurance must be with an acceptable lenders mortgage insurer, being an insurer that is authorised for that purpose by APRA or domiciled in a country that APRA considers to have comparable prudential regulation of LMIs in accordance with criteria established for the purpose of ADI regulation under AGN 112.1.\n\n \n\n1. Investments that are not secured are to have a Counterparty Grade of 6.\n\n\n \n\n \n\n \n\n \n\nWhere investments are held via a trust which has itself been separately rated by a recognised rating agency, that rating may be applied to all the investments in the trust in lieu of the ratings of the individual trust assets provided that the trust is treated as a single investment for asset concentration purposes and is not subject to “look-through”. When a look-through approach is adopted the underlying assets need to be individually rated. If the trust is separately rated, that overall trust rating cannot be applied to the individual underlying assets.\n\n \n\nInsurers should, in general, use the same rating agency for determining counterparty gradings. Where the insurer has counterparties with multiple ratings from two or more of the rating agencies in the table above, the insurer should consistently choose the ratings of a single agency whenever possible. For example, an insurer may have a number of counterparties that are rated by Standard & Poor’s and AM Best. In this case, the insurer should choose a single agency that will be consistently used whenever the individual ratings conflict.\n\n \n\nAPRA’s approval must be sought if an insurer wishes to use the rating determined by a rating agency not included in the table above.\n\n \n","sortOrder":0}],"analysis":{"kimi_summary":{"_metrics":{"model":"kimi-k2.5","source":"moonshot-realtime","completionTokens":3445},"content_quality":"ok","complexity_score":8,"scope_assessment":{"changed":false,"description":"This instrument is a conversion exercise that remakes the existing Actuarial Standard 7.02 as a Prudential Standard without altering substantive policy settings. The scope remains limited to providing general definitions, interpretive guidance, and the overarching framework for life insurance prudential standards, now administered by APRA instead of LIASB."},"complexity_factors":["Incorporates by reference the entire text of Actuarial Standard 7.02 subject to specific amendments listed in a 24-row conversion table","50+ defined terms in the Dictionary section including technical actuarial concepts (e.g., Best Estimate Assumptions, Discretionary Participation Features)","Cross-references to six related prudential standards (LPS 1.04, 2.04, 3.04, 4.02, 5.02, 6.03)","Dual application framework requiring terminology translation between friendly societies and other life companies","Detailed tabular data for credit risk assessment and counterparty grading (Attachment 1)","Complex transitional provisions converting standards from LIASB administration to APRA administration"],"plain_english_summary":"This instrument remakes Actuarial Standard 7.02 as Prudential Standard LPS 7.02 under the Life Insurance Act 1995, reflecting APRA’s takeover of life insurance standard-setting from 1 January 2008. It updates references but makes no substantive policy changes.\n\nLPS 7.02 is the General Standard setting core definitions and principles that underpin the life prudential framework, affecting all life insurers (including friendly societies) and helping ensure insurers hold appropriate reserves and capital to protect policyholders."},"flash_summary":{"complexity_score":7,"scope_assessment":{"changed":false,"description":"The Determination does not materially change the substantive policy content of Actuarial Standard 7.02; it remakes that standard as a prudential standard and updates references and terminology while centralising standard‑making with APRA. Existing approvals and prior LIASB actions continue to operate unless APRA revokes them (Schedule Part 1 paras 1–4 and table of amendments). The change is primarily administrative and procedural rather than substantive."},"complexity_factors":["Extensive technical actuarial content (valuation, solvency, capital adequacy, surrender values) requiring specialist actuarial knowledge (Part 2 and Valuation/Solvency/Capital Standards).","Large consolidated dictionary of defined terms that interlock with multiple standards and calculations (Section 5/Dictionary).","Multiple cross‑references and substitutions between the Life Insurance Act, prior actuarial standards, and newly designated prudential standards, increasing interpretive complexity (Schedule Part 1 table of amendments).","Transitional provisions carrying over prior LIASB approvals and practices, with APRA given power to revoke—creates temporal conditionality and rollover complexity (Schedule Part 1 paras 2–3).","Differential application to friendly societies with alternative terminology and treatment of management/benefit funds (Part 2, 'Application to Friendly Societies').","Prescriptive numeric and grading rules (eg. Counterparty Grade tables and Loan‑to‑Value grids) that impose operational compliance steps and data requirements (Attachment 1).","Regulatory discretion concentrated in APRA (replacement of LIASB), affecting approvals, alternative treatments and possible future variation (Schedule Part 1 paras 1–3)."],"plain_english_summary":"This Determination re‑enacts Actuarial Standard 7.02 as Prudential Standard LPS 7.02, transferring responsibility for making the standard from the Life Insurance Actuarial Standards Board (LIASB) to APRA and updating cross‑references and terminology. It applies to all life companies, including friendly societies (subsection 230A(1); Schedule Part 1).\n\nMechanically it preserves the substantive actuarial rules and detailed definitions, carries forward existing approvals unless APRA revokes them, and keeps the solvency, capital‑adequacy and surrender‑value measurement rules in force—so life insurers bear ongoing compliance costs while APRA holds decision‑making discretion (Schedule Part 1; Dictionary/Part 2)."}},"importantCases":[],"_links":{"self":"/api/acts/life-insurance-prudential-standard-determination-no-11-of-2007-prudential-standard-lps-7-02-general-","history":"/api/acts/life-insurance-prudential-standard-determination-no-11-of-2007-prudential-standard-lps-7-02-general-/history","analysis":"/api/acts/life-insurance-prudential-standard-determination-no-11-of-2007-prudential-standard-lps-7-02-general-/analysis","conflicts":"/api/acts/life-insurance-prudential-standard-determination-no-11-of-2007-prudential-standard-lps-7-02-general-/conflicts","importantCases":"/api/acts/life-insurance-prudential-standard-determination-no-11-of-2007-prudential-standard-lps-7-02-general-/important-cases","documents":"/api/acts/life-insurance-prudential-standard-determination-no-11-of-2007-prudential-standard-lps-7-02-general-/documents"}}