Australian Prudential Regulation Authority instrument fixing charges No. 5 of 2019

The core concept is the “Internal Models Based (IMB) Method for general insurers”. Although the instrument does not define the IMB Method, it is a regulatory approach under the prudential framework administered by APRA. General insurers that meet certain criteria may apply to use internal models to calculate their minimum capital requirements instead of the standard formula prescribed by APRA. Approval is discretionary and contingent on APRA being satisfied that the models are robust and appropriately calibrated. The instrument’s schedule lists the service as “Assessment of applications from general insurers seeking approval to use the IMB Method for general insurers.” That assessment is the service for which the charge is fixed. The term “general insurer” is expressly given the meaning in subsection 3(1) of the Insurance Act 1973. That definition is not reproduced in the instrument, but under the Insurance Act it includes a body corporate that is authorised to carry on insurance business in Australia, other than a life insurer or a private health insurer. The instrument creates a distinction based on whether the applicant is the “first general insurer within an insurance group” to seek approval. It does not define “insurance group”. That term is likely drawn from APRA’s prudential standards or the Insurance Act, where it ordinarily refers to a group of related bodies corporate that includes at least one general insurer and is subject to APRA’s supervision on a group basis. The lower charge of $165,000 applies only where the applicant is not the first within its group. If the group has no prior applicant, the full $440,000 applies. The charge is “inclusive of GST”. That wording means the amount payable includes any goods and services tax component. It is unusual because APRA is a government entity and its charges are generally subject to GST unless exempt; stating the amount inclusive of GST avoids ambiguity about whether the insurer can claim an input tax credit. The charge is “non refundable”. That means there is no avenue for a refund if the application is withdrawn, rejected, or if APRA takes longer than expected. The payment timing is “14 days after receipt of APRA’s invoice for the charge” and APRA may issue the invoice “at any time after the commencement of this instrument”. This gives APRA discretion to invoice immediately upon receiving the application or at any later stage. The invoice could arrive before APRA has commenced any substantive assessment work. The instrument does not link the charge to the completion of the assessment; it is simply a precondition set by APRA’s invoice. The concept of “fixing charges” under the APRA Act empowers APRA to determine the amount payable for specified services. This instrument is thus a delegated legislative instrument that sets a specific amount for a specific service, replacing the earlier 2009 instrument.

The direct effect is on general insurers that intend to apply for approval to use the IMB Method. These are typically large, complex insurers writing general insurance business such as property, casualty, motor, and liability lines. The high level of the base charge ($440,000) means that only insurers with sufficient balance sheet size and sophistication are likely to consider applying. Smaller general insurers are effectively priced out of the IMB approval pathway, which reinforces APRA’s implicit policy that only the largest entities should use internal models. Within an insurance group, the first applicant bears the higher charge; subsequent applicants from the same group pay a reduced charge. This creates an incentive for groups to coordinate their applications so that the most resource intensive assessment goes first. It may also encourage groups to apply for approval for only one entity within the group and then have others rely on that approval, if the regulatory framework permits. However the instrument does not grant any such reliance; each entity must individually seek approval and pay the applicable charge. The instrument also affects APRA itself as the service provider, though it creates no obligation on APRA to process applications within any timeframe. The cost recovery nature of the charges means APRA’s assessment resourcing is funded by applicants. This may affect how quickly APRA can schedule assessments, as it will receive the charge upfront. The instrument potentially affects policyholders and the broader insurance market indirectly. If the IMB Method allows an insurer to hold less regulatory capital than under the standard formula, that insurer’s costs may be lower, which could affect pricing in insurance markets. The high entry charge acts as a barrier to entry to adopting the IMB Method, which may reduce the number of insurers using models and thus limit any competitive pressure that model based capital could bring. The instrument does not affect insurers that do not apply for IMB approval. They are unaffected directly. However the overall cost of regulation is shifted: because the charge is user pays rather than spread across all general insurers via levies, the burden falls on the applicants rather than the entire industry. Industry bodies and compliance officers must track which instrument applies, especially given the revocation of the 2009 instrument and the new commencement date.

The instrument imposes one primary duty: the applicant general insurer must pay the charge as set out in the schedule. The duty is owed to APRA and arises once APRA issues an invoice. The timing for payment is strict: within 14 days after receipt of the invoice. There is no discretion to extend the period. The duty is backed by the legal effect of the instrument as a legislative instrument under the APRA Act, meaning non payment could be enforced as a debt due to the Commonwealth or could lead APRA to refuse to continue processing the application. The duty is absolute and non refundable. The applicant has no right to a reduction or waiver of the charge, even if the assessment is terminated early or if APRA decides not to approve the IMB Method. The applicant also has no right to a refund if the charge is paid and the application is later withdrawn or refused. The only right arising from the instrument is a right to apply for the assessment service. But that right is not created by this instrument; it exists under the broader prudential framework. The instrument merely fixes the price for that service. APRA has the right to invoice the applicant at any time after the instrument commences. APRA also has the right to determine which insurers are within the same “insurance group” and which is the “first” applicant, though the instrument does not specify the criteria for that determination. APRA likely must act reasonably in making that determination, but the instrument provides no express safeguard or review mechanism. The applicant has the right to rely on the instrument’s explicit charging structure: if the applicant is the first in a group, the charge is $440,000; if not, $165,000. The applicant can thus budget accordingly once its group classification is known. There is no right to negotiate the charge. The instrument does not provide for instalment payments or deferred payment. The applicant may also have rights under the APRA Act to seek review of APRA’s decisions (such as rejection of the application) but those rights are not found in this instrument. The instrument does not create any right to a timely decision, nor any right to be heard before the invoice is issued. On APRA’s side, the instrument gives it the power to fix charges and to revoke the earlier instrument. It also implicitly gives APRA the ability to decline to provide the assessment service until the charge is paid, but that is not expressly stated.

The instrument itself does not prescribe any penalties for non compliance. It is a charges fixing instrument, not a penal provision. However, non payment of the charge would likely have practical consequences. If a general insurer fails to pay the charge within 14 days after receipt of the invoice, APRA could treat the application as incomplete and decline to assess it. The instrument does not say that, but the duty to pay is central to the service. If APRA has already issued the invoice and the applicant does not pay, APRA may decide not to proceed further with the assessment. There is no express statutory right of set off or reduction. The charge is stated as non refundable; that suggests that if payment is made and then the applicant withdraws, APRA keeps the money. There is no penalty for late payment beyond the risk of assessment not proceeding. The APRA Act under which the instrument is made contains provisions for enforcement of amounts due. Section 52 of the APRA Act provides that an amount payable to APRA under regulations or an instrument made under the Act may be recovered as a debt due to the Commonwealth in a court of competent jurisdiction. So if the charge is not paid, APRA could sue for the outstanding amount. That debt recovery mechanism is independent of any criminal penalty. There may also be consequences under the Insurance Act 1973 for general insurers that fail to comply with APRA’s requirements, including directions, conditions on authorisation, or even suspension of authorisation. But those flow from non compliance with broader prudential obligations, not directly from non payment of this charge. The instrument does not create an offence for late payment. Its enforcement is thus primarily civil and administrative. For an insurer that pays the charge and then is refused approval, the instrument provides no avenue for challenge of the charge itself. Any challenge to APRA’s decision on the IMB application would be under administrative law rather than under this instrument. There is no penalty for misrepresenting whether the insurer is the first in an insurance group. If an insurer claims it is not the first and pays $165,000 but APRA later determines it was the first, APRA could argue the full $440,000 is due and recover the difference as a debt. The instrument does not address that scenario, so the general law of debt and restitution would apply.

The instrument is made under the Australian Prudential Regulation Authority Act 1998, specifically paragraphs 51(1)(a) and (b). Those paragraphs empower APRA to fix charges for services provided and for applications made under APRA administered legislation. The instrument also invokes subsection 33(3) of the Acts Interpretation Act 1901, which allows a power to make an instrument to be exercised from time to time and includes the power to revoke or vary earlier instruments. This instrument revokes the 2009 charges instrument. That is the only express interaction with another instrument. The instrument’s subject matter, the IMB Method, derives from the prudential framework for general insurers under the Insurance Act 1973. APRA’s prudential standards, particularly those dealing with capital adequacy for general insurers, set out the criteria for approval to use internal models. This instrument does not incorporate or amend those standards; it merely fixes the charge for the assessment of an application. The charge is separate from annual levies imposed under the Financial Institutions Supervisory Levies Collection Act 1998 or the Superannuation Industry (Supervision) Act 1993. It is a one off fee for a specific service, not a recurring charge. The instrument interacts with the A New Tax System (Goods and Services Tax) Act 1999 by stating the charge is inclusive of GST. That means the amount payable already accounts for GST; the insurer does not need to add GST on top. The insurer may be entitled to claim an input tax credit for the GST component if it is registered for GST and the service relates to its creditable purpose. However that is a tax matter, not regulated by this instrument. The instrument may interact with the Financial Sector (Shareholdings) Act 1998 or the Corporations Act 2001 if the insurer is a public company, but only indirectly through the broader regulatory environment. The revocation of the 2009 instrument means that any reference in other APRA documents to the earlier charges instrument should now be read as reference to this instrument. Legal practitioners and compliance officers must ensure that fee estimates in due diligence or transaction documents refer to the current charge. The instrument does not prevail over any other law; it is a subordinate instrument and must be consistent with the APRA Act and the Insurance Act. If there were a conflict (for example, if the Insurance Act provided for a maximum fee), this instrument would be invalid. No such conflict is apparent.

The instrument itself has not been amended since its commencement. It was made on 30 August 2019 by a delegate of APRA and registered on the Federal Register of Legislation. It revokes an earlier instrument: Australian Prudential Regulation Authority instrument fixing charges No. 1 of 2009. That 2009 instrument set charges for the same service (assessment of IMB method applications) at presumably different amounts. The revocation is the only amendment history mentioned in the text: the 2009 instrument and its schedule are revoked in their entirety. The instrument does not provide details of what those earlier charges were, nor does it explain why the charges were changed. The instrument also does not have an amendment history table; it is a standalone instrument. Any subsequent amendment would require a new instrument or an amending instrument, but none is referenced. The instrument includes a signature and date, indicating it was executed on 30 August 2019. It commenced upon registration, which would have occurred shortly after that date. The revocation of the 2009 instrument means that any applications for IMB approval pending on that date would have been subject to the new charges once the instrument commenced, unless transitional provisions existed elsewhere. The instrument itself contains no transitional provisions. The 2009 instrument had been in effect for approximately ten years. The change in charges could reflect APRA’s experience with the cost of assessing IMB applications over that period, or a change in policy regarding cost recovery. The instrument does not state the previous amounts, so it is impossible to determine whether charges increased or decreased from this text alone. The instrument is a simple one page document plus schedule, with no recitals or explanatory statement. Thus the history of the charge levels is not available from the instrument itself. Researchers would need to locate the revoked 2009 instrument to see the prior figures. The instrument’s form is standard for an APRA charges fixing instrument, which is generally not subject to extensive parliamentary scrutiny because it is a disallowable instrument under the Legislation Act 2003. That Act requires it to be tabled in Parliament and subject to disallowance, but no disallowance is recorded. Therefore the amendment history is limited: instrument made, instrument commenced, earlier instrument revoked. No further amendments have occurred as of the user provided source.

The source text provides no information about litigation concerning this instrument. There is no mention of any court case, tribunal decision, or review. As an analyst, we can only state what is in the source: none. However, given the nature of the instrument as a charges fixing instrument, litigation is possible but not referenced. Potential legal challenges could include an argument that the charge is invalid because it is contrary to the APRA Act (for example, if the fee is not reasonably related to the cost of the service, though the APRA Act likely gives broad discretion). Or an insurer could challenge APRA’s determination of whether it is the first in an insurance group. Such a challenge would be judicial review under the Administrative Decisions (Judicial Review) Act 1977 or the High Court’s original jurisdiction. But no such cases are recorded in the instrument. The absence of litigation history in the source does not mean none exists, but we cannot infer or speculate. The instrument itself is not a statute that attracts constitutional litigation. There is no recorded High Court challenge to this specific instrument. The revocation of the 2009 instrument suggests that any legal issues under that instrument would be moot. Statutory interpretation questions might arise, such as the meaning of “insurance group” or whether APRA can issue an invoice before any assessment work begins. But again, no case law is cited. The instrument uses standard drafting and is unlikely to be contested often because the sums involved, while large, are relatively small for major insurers compared to the costs of litigation. There is no indication that the instrument has been the subject of a Senate disallowance motion. Researchers looking for litigation history would need to search online legal databases. The instrument’s brevity and clear language reduce the scope for ambiguity. The main litigation risk is if APRA seeks to recover an unpaid charge as a debt, and the insurer raises a defence such as that the assessment service was not provided or that the charge was excessive. But the instrument states the charge is for assessment, not for approval, so the insurer cannot argue failure of consideration if APRA does assess the application even if it later refuses approval. The non refundable nature of the charge is clear. Without source, we cannot assert any actual litigation. Therefore the correct statement is that the instrument makes no reference to any litigation history and none is apparent from its text.

Several gotchas are embedded in the instrument. First, the charge is non refundable and payable 14 days after APRA’s invoice, which APRA may issue at any time after commencement. That means APRA could invoice an applicant immediately upon lodging an application, even before any assessment begins. If the applicant later withdraws or APRA refuses the application, the money is lost. There is no right to a refund. Second, the term “first general insurer within an insurance group” is not defined. An insurer that believes it is not the first (because another group entity has applied but perhaps not yet been assessed) may pay the lower $165,000. If APRA later determines that the other applicant was not properly regarded as the first (for example, because it was not within the same group as defined by APRA), the insurer could be liable for the full $440,000. There is no mechanism in the instrument for a refund of the difference if underpaid, nor for an adjustment if overpaid. Third, the charge is stated as “inclusive of GST”. That is unusual for a government fee, which might ordinarily be plus GST. The inclusive wording means an insurer that can claim an input tax credit for the full GST component (1/11th of the amount) must still pay the full amount upfront. The refund of the GST component depends on the insurer’s tax position and is not handled by APRA. Fourth, there is no timeframe for APRA to complete the assessment. The insurer pays the charge but may wait an indefinite period for a decision. The instrument does not entitle the insurer to interest or compensation if the assessment is delayed. Fifth, the instrument revokes the 2009 instrument but provides no savings or transitional provisions. Any application that was pending at commencement would be subject to the new charges, unless a separate transitional rule existed elsewhere. That could cause budgeting surprises for an insurer that had already paid the old charge or had budgeted based on the old amount. Sixth, the instrument does not specify that APRA must give reasons for refusing an application or that the charge is refundable if APRA decides not to consider the application at all. While APRA might have internal policies, the instrument does not lock them in. Seventh, the differential pricing may create perverse incentives: a group may be tempted to have its most marginal entity apply first to pay the higher charge, or to restructure its group to avoid triggering the higher charge. APRA’s discretion in defining the group could lead to inconsistent treatment. Eighth, the charge is a significant upfront cost; $440,000 is a material sum for even a large insurer. It may deter applications from smaller general insurers, reducing competition in the models space. That is not a legal gotcha but a practical one. Ninth, the instrument does not address the possibility of joint applications or applications from insurers that are not part of a clear group. The schedule only has two categories; it does not cover insurers that are unaffiliated or that have no group relationship. For those, presumably the $440,000 applies as they cannot claim the reduced tier, but the instrument does not explicitly say so. The wording “not the first general insurer within an insurance group to seek approval” implies that the lower charge only applies if there is a group and the insurer is not the first in that group. An insurer not in a group likely pays the full charge. Tenth, the instrument is a legislative instrument but is not subject to the same consultative processes as prudential standards. Insurers may not be aware of its exact terms until they file an application. Compliance teams should verify that the instrument has not been re revoked or amended since 2019, as the source does not show subsequent changes.

Compliance with this instrument is straightforward for a general insurer that wishes to apply for approval to use the IMB Method. The primary obligation is financial: pay the applicable charge within 14 days of receiving APRA’s invoice. To determine the correct amount, the applicant must first ascertain whether it is the first general insurer within its insurance group to seek such approval. That requires analysis of the group structure. The term “insurance group” is not defined in the instrument, so the insurer should consult APRA’s prudential standards (for example, Prudential Standard GPS 001 and GPS 110) which define a general insurance group. The insurer should also check with APRA whether any other entity in the group has already applied. It would be prudent to obtain written confirmation from APRA of the classification before paying, to avoid a later dispute about whether the full charge was due. Once the correct charge is identified, the insurer must ensure it has the funds available because APRA may issue the invoice at any time after commencement. There is no advance warning. The insurer should nominate a contact person to receive the invoice and ensure prompt processing of payment within 14 days. Late payment could lead APRA to suspend the application or potentially sue for the debt under the APRA Act. The insurer should keep a copy of the invoice and proof of payment as part of its compliance records. If the insurer withdraws its application after paying, it cannot recover the charge. Therefore the insurer should be confident in its decision to proceed before paying. The instrument does not require any other action, such as reporting or disclosure. The insurer must also comply with all substantive requirements for IMB approval under APRA’s prudential standards, but that is separate from this instrument. For insurers that are not applying, there is no compliance obligation. However, if an insurer mistakenly pays the charge without having made an application, or pays the wrong amount, it should contact APRA immediately to rectify the error. There is no statutory right to a refund in the instrument, but APRA might voluntarily refund an amount paid in error under administrative law principles. It would be unwise to rely on that. An insurer that is part of a group should coordinate with other group members to determine who will apply first, as the first applicant pays $440,000 while subsequent ones pay $165,000. Groups may want to have the largest or most complex entity apply first to justify the higher charge, or the smallest entity first to get the others at lower cost. The instrument does not restrict how the group orders its applications. The instrument should be read together with the APRA Act, Insurance Act, and relevant prudential standards. Compliance teams should maintain a current copy of this instrument and confirm that no later instrument has amended or replaced it. Given that the instrument is dated 2019, the insurer should check if APRA has published a later charges instrument for IMB applications. If a later instrument exists, the 2019 instrument may be revoked or amended. The absence of an amendment history in the source does not guarantee the instrument is still in force. Finally, if APRA issues an invoice before the insurer has officially lodged an application (which is permitted under the instrument), the insurer could dispute the invoice on the basis that no service is being provided yet. But the instrument’s wording that the invoice may be issued at any time after commencement suggests that APRA can invoice in connection with a prospective application. The safest approach is to pay under protest and then lodge the application, or seek legal advice.