Part Internal Capital Adequacy Assessment Pro - Health Insurance (prudential standard) determination No. 2 of 2024 - Internal Capital Adequacy Assessment Process | Zoe
A private health insurer must have in place an Internal Capital Adequacy Assessment Process (ICAAP) that considers each fund as well as the private health insurer as a whole. The ICAAP must:
be adequately documented, with the documentation made available to APRA on request; and
be approved by the Board initially, and when significant changes are made.
A private health insurer’s ICAAP must be appropriate to the private health insurer’s size, business mix and the complexity of its operations.
A private health insurer that is part of a group may rely on the ICAAP of the group provided that the Board of the private health insurer is satisfied that the group ICAAP meets the criteria in paragraph 11 in respect of the private health insurer.
The ICAAP must include at a minimum:
adequate policies, procedures, systems, controls and personnel to identify, measure, monitor and manage the risks arising from the private health insurer’s activities on a continuous basis, and the capital held against such risks;
a strategy for ensuring adequate capital is maintained over time, including specific capital targets set in the context of the private health insurer’s risk profile, the Board’s risk appetite and regulatory capital requirements. This includes plans for how target levels of capital are to be met and the means available for sourcing additional capital where required;
actions and procedures for monitoring the private health insurer’s compliance with its regulatory capital requirements and capital targets. This includes the setting of triggers to alert management to, and specified actions to avert and rectify, potential breaches of the regulatory capital requirements;
stress testing and scenario analysis relating to potential risk exposures and available capital resources;
processes for reporting on the ICAAP and its outcomes to the Board and senior management of the private health insurer, and for ensuring that the ICAAP is taken into account in making business decisions;
policies to address the capital impact of material risks not covered by explicit regulatory capital requirements; and
an ‘ICAAP summary statement’ as defined in paragraph 12.
The ICAAP summary statement is a high level document that describes and summarises the capital assessment and management processes of the private health insurer. It must outline at a minimum the aspects of the ICAAP listed in paragraphs 11(a) to 11(f) and this paragraph. The ICAAP summary statement must also include:
a statement of the objectives of the ICAAP, the expected level of financial soundness associated with the capital targets and the time horizon over which the ICAAP applies;
a description of the key assumptions and methodologies utilised by the private health insurer in its ICAAP, including stress testing and scenario analysis;
triggers for reviewing the ICAAP in light of changes to business operations, regulatory, economic and financial market conditions, and other factors affecting the private health insurer’s risk profile and capital resources;
a summary of the private health insurer’s policy for reviewing its ICAAP, including who is responsible for the review, details of the frequency and scope of the review, and mechanisms for reporting on the review and its outcomes to the Board and senior management;
a description of the basis of measurement of capital used in the ICAAP, and an explanation of the differences where this basis differs from that used for regulatory capital; and
references to supporting documentation and analysis, as relevant.
A private health insurer must ensure its ICAAP is subject to regular and robust review by appropriately qualified persons who are operationally independent of the conduct of capital management. The frequency and scope of the review must be appropriate to the private health insurer, having regard to its size, business mix, complexity of its operations, and the nature and extent of any changes that have occurred or are likely to occur in its business profile or its risk appetite. A review must be conducted at least every three years. The review must be sufficient to reach a view on whether the ICAAP is adequate and effective.
A private health insurer must, on an annual basis, provide a report on the implementation of its ICAAP to APRA (ICAAP report). A copy of the ICAAP report must be provided to APRA no later than three months from the end of the ICAAP annual reporting period to which it relates.
The ICAAP report must include:
detailed information on current and three-year projected capital levels relative to minimum regulatory capital requirements and target levels for the private health insurer and each fund;
detailed information on the actual outcomes of applying the ICAAP over the period, relative to the planned outcomes in the previous ICAAP report (including analysis of the private health insurer’s actual capital position relative to minimum regulatory capital requirements and capital targets and actual-versus-planned capital management actions);
description of material changes to the ICAAP since the previous ICAAP report;
detail and outcomes of stress testing and scenario analysis used in undertaking the ICAAP;
a breakdown of capital usage over the planning horizon, as relevant, by material:
business activity;
geographic spread of exposures; and
risk types;
an assessment of anticipated changes in the private health insurer’s risk profile or capital management processes over the planning horizon;
details of any review of the ICAAP since the previous ICAAP report, including any recommendations for change and how those recommendations have been, or are being, addressed; and
references to supporting documentation and analysis as relevant.
The ICAAP report submitted to APRA by the private health insurer must be accompanied by a declaration approved by the Board and signed by the CEO stating whether:
capital management has been undertaken by the private health insurer in accordance with the ICAAP over the period and, if not, a description of, and explanation for, deviations;
the private health insurer has assessed the capital targets contained in its ICAAP to be adequate given the size, business mix and complexity of its operations; and
the information included in the ICAAP report is accurate in all material respects.