Early Approvals of Auditors and Actuaries

Objective and Key Requirements of this Standard

This Prudential Standard enables general insurers to appoint, and APRA to approve, auditors (“Approved Auditors”) and actuaries (“Approved Actuaries”) for the purposes of sections 39 and 40 of the Insurance Act 1973 (“the new Insurance Act”) as amended on 1 July 2002 by the General Insurance Reform Act 2001 (“the GI Reform Act”).

Under this Standard appointments and approvals may be made before 1 July 2002, to facilitate a smooth administrative transfer to the regime under the new Insurance Act. However, such appointments and approvals will not come into effect until a day to be specified by APRA in relation to each proposed general insurer, which must be 1 July 2002 or a later day.

To facilitate the approval process this Standard specifies criteria in relation to eligibility and fitness and propriety for persons wishing to hold the position of Approved Auditor and Approved Actuary of a general insurer.

Transitional Prudential Standard

This Standard is made under Item 3 of Schedule 2 to the GI Reform Act and section 32 of the new Insurance Act.

Commencement

This Standard comes into effect on the day it is determined.[1]

Application

This Standard applies to a body corporate (“the insurer”) which:

(a) intends to become authorised as a general insurer under Part III of the new Insurance Act; and

(b) in preparation for that, wishes to:

(i) appoint, before 1 July 2002, an auditor and/or an actuary under section 39 of the new Insurance Act and Item 3 of Schedule 2 to the GI Reform Act (“Item 3”); and

(ii) have such an appointment approved by APRA, before 1 July 2002, under section 40 of the new Insurance Act and Item 3,

on the basis that the appointment, or appointments, are to take effect on or after 1 July 2002.

Early appointment

An insurer may appoint an Approved Auditor and/or an Approved Actuary, prior to 1 July 2002, in accordance with this Transitional Prudential Standard.
A person can only hold such an appointment if they have first been approved by APRA in accordance with paragraphs 6 to 10 below.[2]

The early approval process

The new Insurance Act requires that APRA approve the insurer’s appointment of an auditor and actuary. For this purpose, an application for approval of an auditor or actuary must be submitted in writing by the insurer to APRA. An application must include the following details:

(a) the name, address and telephone number of the person to be appointed;

(b) whether the person is an employee of the insurer, or if not, the name of any firm that the person is an employee or partner of;

(d) details on the criteria for fitness and propriety set out in paragraph 16 below;

(e) a statement of the pecuniary interests which the person, or a related person, has in the insurer, or a related body corporate of the insurer, for instance:

(i) a security in, or contract with, the insurer or a related body corporate; and

(ii) the receipt of any remuneration, specified by type of service, from the insurer or a related body corporate.

A related person of the Approved Auditor or Approved Actuary means a spouse, or a dependent child, or a business partner, or an employer (other than the insurer), or a firm of which the Approved Auditor or Approved Actuary is a director or partner.

(f) in the case of a proposed Approved Auditor, an attestation from the auditor that he/she complies with Statement of Auditing Practice AUP 32 “Audit Independence”. Where there is non-compliance, details of that must be provided.

In addition, the proposed Approved Auditor or Approved Actuary must provide APRA with a written undertaking that he or she will perform his or her functions in accordance with all prudential requirements issued by APRA and standards issued by relevant professional bodies.

Eligibility criteria for Approved Auditors and Approved Actuaries

In addition to the general requirements of fitness and propriety outlined in paragraph 16, APRA can only approve the appointment of an Approved Auditor and Approved Actuary if the person concerned meets the following eligibility criteria:[3]

(a) the person has appropriate formal qualifications and is a member of a suitable professional body;

(b) the person has a minimum of 5 years’ experience in the general insurance industry; and

APRA may approve individuals, on a case-by-case basis, who do not meet the eligibility criteria in paragraph 8 if the insurer can demonstrate to the reasonable satisfaction of APRA that exceptional circumstances exist as to why the person should be approved as an Approved Auditor or Approved Actuary.
Reflecting the importance of the positions, and in order to demonstrate independence and avoid potential conflicts of interest, a person is not eligible to be appointed as both an Approved Auditor and Approved Actuary to the same insurer.

Fitness and Propriety

Insurers must ensure that Approved Actuaries and Approved Auditors have the degree of probity and competence commensurate with their responsibilities.
For this purpose, insurers should have in place policies and procedures to address fitness and propriety. These policies and procedures should at a minimum address the criteria for fitness and propriety that APRA uses to assess fitness and propriety set out in paragraph 16.
Insurers must assess proposed and existing Approved Auditors and Approved Actuaries, and must notify APRA immediately if an Approved Auditor or Approved Actuary no longer complies with the tests of fitness and propriety established by the insurer.
APRA may conduct a review of the fitness and propriety of an individual. Where APRA conducts such a review, APRA will allow access to the information collected as part of the review where the provider of the information has granted permission for the information to be released. APRA will not release information where it is prohibited from doing so under any agreement with the provider of the information or under any law.
The criteria for fitness and propriety[4] are as follows:

(a) the person has not been convicted of an offence against or arising out of the Insurance Act or the Financial Sector (Collection of Data) Act 2001;

(b) the person has not been convicted of an offence against or arising out of a law in force in Australia, or the law of a foreign country, if

the offence concerns dishonest conduct or conduct relating to a financial sector company within the meaning of the Financial Sector (Shareholdings) Act 1998;

(c) the person has never been bankrupt, has not applied to take the benefit of a law for the relief of bankrupt or insolvent debtors, or has not compounded with his or her creditors;

(d) the person has no actual or potential conflicts of interest that are likely to influence their ability to carry out their role and functions with appropriate probity and competence;

(e) the person has adequate experience and demonstrated competence and integrity in the conduct of business duties;[5]

(f) the person is not of bad repute within the business and financial community;

(g) in the case of an Approved Auditor:

(i) the person is not a director or employee of the insurer or of a related body corporate within the meaning of section 50 of the Corporations Act 2001; and

(ii) the person is registered as an auditor under the Corporations Act 2001;

(h) in the case of an Approved Actuary, the person is not the Chief Executive or a director of the insurer, or of a related body corporate within the meaning of section 50 of the Corporations Act 2001 (except where that related body corporate is a subsidiary of the insurer).

Revocation of approval and disqualification

APRA may revoke the approval of a person’s appointment as an Approved Auditor or Approved Actuary,[6] and disqualify a person from holding an appointment as an Approved Auditor or Approved Actuary,[7] where APRA finds that the person:

(a) has failed to perform adequately and properly the functions and duties of such an appointment; or

(b) otherwise does not meet one or more of the criteria for fitness and propriety; or

An individual affected by a decision made by APRA referred to in paragraph 17 may request that APRA review that decision. If APRA confirms or varies the decision, or fails to do either within 21 days, the person affected may then make an application to the Administrative Appeals Tribunal. The appeal process is set out in Part VI of the new Insurance Act.

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