{"id":"F2023L00206","name":"Life Insurance (prudential standard) determination No. 4 of 2023","slug":"life-insurance-prudential-standard-determination-no-4-of-2023","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":103842,"registerId":"commonwealth-F2023L00206-current","compilationNumber":null,"startDate":"2026-04-03","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"Prudential Standard LPS 370 Cost of Inve","sectionType":"part","heading":"Prudential Standard LPS 370 Cost of Investment Performance Guarantees comprises the document commencing on the following page.","content":"![Commonwealth Coat of Arms](image.001.png)\n\nLife Insurance (prudential standard) determination\n\nNo. 4 of 2023\n\nPrudential Standard LPS 370 Cost of Investment Performance Guarantees\n\nLife Insurance Act 1995\n\nI, Clare Gibney, a delegate of APRA:\n\n(a) under subsection 230A(5) of the Life Insurance Act (the Act) revoke Life Insurance (prudential standard) determination No. 14 of 2012, including Prudential Standard LPS 370 Cost of Investment Performance Guarantees made under that Determination; and\n\n    (b) under subsection 230A(1) of the Act, determine Prudential Standard LPS 370 Cost of Investment Performance Guarantees, in the form set out in the Schedule, which applies to all life companies, including friendly societies.\n\nThis instrument commences on 29 March 2023.\n\nDated: 7 March 2023\n\nClare Gibney\n\nExecutive Director\n\nPolicy and Advice Division\n\nInterpretation\n\nIn this instrument:\n\nAPRA means the Australian Prudential Regulation Authority.\n\nfriendly society has the meaning given in section 16C of the Act.\n\nlife company has the meaning given in the Schedule to the Act.\n\nSchedule\n\n# Prudential Standard LPS 370 Cost of Investment Performance Guarantees comprises the document commencing on the following page.","sortOrder":0},{"sectionNumber":"Prudential Standard LPS 370","sectionType":"part","heading":"Prudential Standard LPS 370","content":"##### ![Commonwealth Coat of Arms](image.001.png)\n\n# Prudential Standard LPS 370\n\n# Cost of Investment Performance Guarantees\n\n| Objective and key requirements of this Prudential StandardThis Prudential Standard sets out the requirements for calculating the cost of investment performance guarantees provided in association with investment-linked contracts for the purpose of section 42 of the Life Insurance Act 1995.The ultimate responsibility for the calculation and compliance with the requirements of the Act in relation to investment performance guarantees lies with the Board of the life company.The key requirements of this Prudential Standard are that a life company must:calculate the cost of any investment performance guarantees associated with its investment-linked business in accordance with this Prudential Standard; andbe able to demonstrate that at all times the cost of any investment performance guarantees represents less than 5 per cent of the total policy liabilities of each statutory fund to which this Prudential Standard applies. |\n| --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |\n\n  \n\n### Authority\n\n    This Prudential Standard is made under paragraph 230A(1)(a) of the Life Insurance Act 1995 (the Act).\n\n### Application\n\n    2. This Prudential Standard applies to all life companies including friendly societies (together referred to as life companies) registered under the Act[\\[1\\]](#_ftn1), except where expressly noted otherwise.\n    3. A life company must apply this Prudential Standard separately to each statutory fund where:\n    (a) the business of the fund consists of the provision of investment-linked benefits; and\n    (b) any of the policies referable to the fund includes an investment performance guarantee.\n    4. This Prudential Standard only applies to the business of an Eligible Foreign Life Insurance Company which is carried on through its Australian statutory funds but not otherwise.[\\[2\\]](#_ftn2)\n    5. This Prudential Standard applies to life companies from 1 January 2013.\n\n### Interpretation\n\n    6. Terms that are defined in Prudential Standard LPS 001 Definitions appear in bold the first time they are used in this Prudential Standard.\n\nLimit on investment performance guarantees\n\n    7. A life company must, at all times, ensure that the ‘investment performance guarantee factor’ of a statutory fund to which this Prudential Standard applies does not exceed 5 per cent.[\\[3\\]](#_ftn3)\n    8. The investment performance guarantee factor of a statutory fund at a particular time is the proportion of the amount of the current policy liabilities of the fund at that time that represents the total cost, as at that time, of providing the investment performance guarantees included in policies referable to the fund.\n    9. For the purpose of paragraph 8, policy liabilities must be determined gross of reinsurance.\n\n### The cost of investment performance guarantees\n\n    10. The cost of investment performance guarantees must be determined as the increase in the fair value of the financial instrument element that is attributable to the presence of the investment performance guarantees. For this purpose the fair value of the financial instrument element (both with and without the investment performance guarantees) must be assessed in accordance with the relevant accounting standards.\n\n### Adjustments and exclusions\n\n    11. APRA may, by notice in writing to a life company, adjust or exclude a specific requirement in this Prudential Standard in relation to that life company.\n\n### Determinations made under previous prudential standards\n\n    12. An exercise of APRA’s discretion (such as an approval, waiver or direction) under a previous version of this Prudential Standard continues to have effect as though exercised pursuant to a corresponding power (if any) exercisable by APRA under this Prudential Standard. Prudential Standard LPS 5.02 Cost of Investment Performance Guarantees may be regarded as a previous version of this Prudential Standard.","sortOrder":1},{"sectionNumber":"Cost of Investment Performance Guarantee","sectionType":"part","heading":"Cost of Investment Performance Guarantees","content":"# Cost of Investment Performance Guarantees\n\n| Objective and key requirements of this Prudential StandardThis Prudential Standard sets out the requirements for calculating the cost of investment performance guarantees provided in association with investment-linked contracts for the purpose of section 42 of the Life Insurance Act 1995.The ultimate responsibility for the calculation and compliance with the requirements of the Act in relation to investment performance guarantees lies with the Board of the life company.The key requirements of this Prudential Standard are that a life company must:calculate the cost of any investment performance guarantees associated with its investment-linked business in accordance with this Prudential Standard; andbe able to demonstrate that at all times the cost of any investment performance guarantees represents less than 5 per cent of the total policy liabilities of each statutory fund to which this Prudential Standard applies. |\n| --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |\n\n  \n\n### Authority\n\n    This Prudential Standard is made under paragraph 230A(1)(a) of the Life Insurance Act 1995 (the Act).\n\n### Application\n\n    2. This Prudential Standard applies to all life companies including friendly societies (together referred to as life companies) registered under the Act[\\[1\\]](#_ftn1), except where expressly noted otherwise.\n    3. A life company must apply this Prudential Standard separately to each statutory fund where:\n    (a) the business of the fund consists of the provision of investment-linked benefits; and\n    (b) any of the policies referable to the fund includes an investment performance guarantee.\n    4. This Prudential Standard only applies to the business of an Eligible Foreign Life Insurance Company which is carried on through its Australian statutory funds but not otherwise.[\\[2\\]](#_ftn2)\n    5. This Prudential Standard applies to life companies from 1 January 2013.\n\n### Interpretation\n\n    6. Terms that are defined in Prudential Standard LPS 001 Definitions appear in bold the first time they are used in this Prudential Standard.\n\nLimit on investment performance guarantees\n\n    7. A life company must, at all times, ensure that the ‘investment performance guarantee factor’ of a statutory fund to which this Prudential Standard applies does not exceed 5 per cent.[\\[3\\]](#_ftn3)\n    8. The investment performance guarantee factor of a statutory fund at a particular time is the proportion of the amount of the current policy liabilities of the fund at that time that represents the total cost, as at that time, of providing the investment performance guarantees included in policies referable to the fund.\n    9. For the purpose of paragraph 8, policy liabilities must be determined gross of reinsurance.\n\n### The cost of investment performance guarantees\n\n    10. The cost of investment performance guarantees must be determined as the increase in the fair value of the financial instrument element that is attributable to the presence of the investment performance guarantees. For this purpose the fair value of the financial instrument element (both with and without the investment performance guarantees) must be assessed in accordance with the relevant accounting standards.\n\n### Adjustments and exclusions\n\n    11. APRA may, by notice in writing to a life company, adjust or exclude a specific requirement in this Prudential Standard in relation to that life company.\n\n### Determinations made under previous prudential standards\n\n    12. An exercise of APRA’s discretion (such as an approval, waiver or direction) under a previous version of this Prudential Standard continues to have effect as though exercised pursuant to a corresponding power (if any) exercisable by APRA under this Prudential Standard. Prudential Standard LPS 5.02 Cost of Investment Performance Guarantees may be regarded as a previous version of this Prudential Standard.","sortOrder":2},{"sectionNumber":"Objective and key requirements of this P","sectionType":"part","heading":"Objective and key requirements of this Prudential Standard","content":"## Objective and key requirements of this Prudential Standard\n\nThis Prudential Standard sets out the requirements for calculating the cost of investment performance guarantees provided in association with investment-linked contracts for the purpose of section 42 of the Life Insurance Act 1995.\n\nThe ultimate responsibility for the calculation and compliance with the requirements of the Act in relation to investment performance guarantees lies with the Board of the life company.\n\nThe key requirements of this Prudential Standard are that a life company must:\n\n-   calculate the cost of any investment performance guarantees associated with its investment-linked business in accordance with this Prudential Standard; and\n-   be able to demonstrate that at all times the cost of any investment performance guarantees represents less than 5 per cent of the total policy liabilities of each statutory fund to which this Prudential Standard applies.","sortOrder":3},{"sectionNumber":"Authority","sectionType":"division","heading":"Authority","content":"### Authority\n\n    This Prudential Standard is made under paragraph 230A(1)(a) of the Life Insurance Act 1995 (the Act).","sortOrder":4},{"sectionNumber":"Application","sectionType":"division","heading":"Application","content":"### Application\n\n    2. This Prudential Standard applies to all life companies including friendly societies (together referred to as life companies) registered under the Act[\\[1\\]](#_ftn1), except where expressly noted otherwise.\n    3. A life company must apply this Prudential Standard separately to each statutory fund where:\n    (a) the business of the fund consists of the provision of investment-linked benefits; and\n    (b) any of the policies referable to the fund includes an investment performance guarantee.\n    4. This Prudential Standard only applies to the business of an Eligible Foreign Life Insurance Company which is carried on through its Australian statutory funds but not otherwise.[\\[2\\]](#_ftn2)\n    5. This Prudential Standard applies to life companies from 1 January 2013.","sortOrder":5},{"sectionNumber":"Interpretation","sectionType":"division","heading":"Interpretation","content":"### Interpretation\n\n    6. Terms that are defined in Prudential Standard LPS 001 Definitions appear in bold the first time they are used in this Prudential Standard.\n\nLimit on investment performance guarantees\n\n    7. A life company must, at all times, ensure that the ‘investment performance guarantee factor’ of a statutory fund to which this Prudential Standard applies does not exceed 5 per cent.[\\[3\\]](#_ftn3)\n    8. The investment performance guarantee factor of a statutory fund at a particular time is the proportion of the amount of the current policy liabilities of the fund at that time that represents the total cost, as at that time, of providing the investment performance guarantees included in policies referable to the fund.\n    9. For the purpose of paragraph 8, policy liabilities must be determined gross of reinsurance.","sortOrder":6},{"sectionNumber":"The cost of investment performance guara","sectionType":"division","heading":"The cost of investment performance guarantees","content":"### The cost of investment performance guarantees\n\n    10. The cost of investment performance guarantees must be determined as the increase in the fair value of the financial instrument element that is attributable to the presence of the investment performance guarantees. For this purpose the fair value of the financial instrument element (both with and without the investment performance guarantees) must be assessed in accordance with the relevant accounting standards.","sortOrder":7},{"sectionNumber":"Adjustments and exclusions","sectionType":"division","heading":"Adjustments and exclusions","content":"### Adjustments and exclusions\n\n    11. APRA may, by notice in writing to a life company, adjust or exclude a specific requirement in this Prudential Standard in relation to that life company.","sortOrder":8},{"sectionNumber":"Determinations made under previous prude","sectionType":"division","heading":"Determinations made under previous prudential standards","content":"### Determinations made under previous prudential standards\n\n    12. An exercise of APRA’s discretion (such as an approval, waiver or direction) under a previous version of this Prudential Standard continues to have effect as though exercised pursuant to a corresponding power (if any) exercisable by APRA under this Prudential Standard. Prudential Standard LPS 5.02 Cost of Investment Performance Guarantees may be regarded as a previous version of this Prudential Standard.","sortOrder":9}],"analysis":{"flash_summary":{"complexity_score":4,"scope_assessment":{"changed":false,"description":"The instrument revokes the earlier prudential determination and restates requirements, but maintains the same core application to life companies and statutory funds providing investment‑linked benefits with guarantees (preamble; paras 2–5). It preserves prior APRA discretions and gives APRA express power to adjust or exclude requirements, indicating continuity rather than an expansion of scope (paras 11–12)."},"complexity_factors":["Technical valuation requirement: cost defined as the increase in fair value attributable to guarantees, requiring application of relevant accounting standards (para 10).","Per‑statutory‑fund application: requirement applies separately to each statutory fund that issues investment‑linked benefits with guarantees (paras 2–3).","Quantitative cap: continuous monitoring to ensure the ‘investment performance guarantee factor’ does not exceed 5% of policy liabilities, measured gross of reinsurance (paras 7–9).","Governance allocation: ultimate responsibility placed on the life company Board, creating oversight and reporting obligations (Objective/key requirements).","Regulatory discretion: APRA may adjust or exclude requirements by written notice, and prior discretionary exercises continue to have effect, adding case‑by‑case variability (paras 11–12).","Interplay with legacy instruments: revocation of earlier Determination and continuity clauses require reconciliation of prior approvals and operational practices (preamble; para 12)."],"plain_english_summary":"This instrument replaces the prior prudential standard and sets how life insurers (including friendly societies and Australian statutory funds of eligible foreign life insurers) must measure and cap investment‑performance guarantees attached to investment‑linked policies. Each statutory fund must measure the guarantee cost as the increase in the fair value of the financial instrument element attributable to the guarantees (under relevant accounting standards) and keep that cost below 5% of the fund’s policy liabilities (measured gross of reinsurance). The board is ultimately responsible and APRA can adjust or exclude requirements by notice."},"flash_summary_failed":{"failed":true,"reason":"A positive credit balance is required for all requests, including BYOK, so fallback providers remain available. Add credits at https://vercel.com/d?to=%2F%5Bteam%5D%2F%7E%2Fai%3Fmodal%3Dtop-up to continue.","source":"analysis-cron"},"kimi_summary":{"content_quality":"ok","complexity_score":3,"scope_assessment":{"changed":false,"description":"This is a straightforward reissue/revocation of a 2012 determination, maintaining the same core purpose: capping investment performance guarantee costs at 5% of policy liabilities. The scope remains tightly focused on prudential risk management for investment-linked contracts and has not expanded beyond its original intent."},"complexity_factors":["Short document: only 12 operative paragraphs plus interpretation section","Minimal defined terms: relies on external definitions in LPS 001 and the Life Insurance Act 1995 rather than creating its own complex terminology","Single core calculation methodology (fair value differential) with one primary quantitative limit (5% cap)","No nested exceptions or conditional logic trees; straightforward application criteria in paragraphs 2-5","Simple administrative provisions: standard APRA modification power (paragraph 11) and continuity provision for previous determinations (paragraph 12)","Clear scope delineation with explicit exclusions (foreign insurers limited to Australian statutory funds)"],"plain_english_summary":"This law caps how much risk life insurers and friendly societies in Australia can take on via investment performance guarantees on investment‑linked policies: the cost of such guarantees in any statutory fund may not exceed 5% of that fund’s policy liabilities. It forces firms to measure guarantee cost under accounting rules, puts boards on the hook for compliance, and gives APRA limited power to modify or waive requirements to manage special cases."}},"importantCases":[],"_links":{"self":"/api/acts/life-insurance-prudential-standard-determination-no-4-of-2023","history":"/api/acts/life-insurance-prudential-standard-determination-no-4-of-2023/history","analysis":"/api/acts/life-insurance-prudential-standard-determination-no-4-of-2023/analysis","conflicts":"/api/acts/life-insurance-prudential-standard-determination-no-4-of-2023/conflicts","importantCases":"/api/acts/life-insurance-prudential-standard-determination-no-4-of-2023/important-cases","documents":"/api/acts/life-insurance-prudential-standard-determination-no-4-of-2023/documents"}}