Insurance Act 1973 - Determination of Prudential Standards - GPS 110 - Capital Adequacy for General Insurers; GPS 120 - Assets in Australia for General Insurers; GPS 210 - Liability Valuation for General Insurers; GPS 220 - Risk Management for General Insurers; GSP 230 - Reinsurance Arrangements for General Insurers; GPS 410 - Transfer and Amalgamation of Insurance Business for General Insurers and Transitional Prudential Standard GPS 900- Early Approvals of Auditors and Actuaries (07/02/2002)
Guidance Note GGN 220.4Guidance Note GGN 220.4
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Turn the raw legal text into a practical explanation grounded in Insurance Act 1973 - Determination of Prudential Standards - GPS 110 - Capital Adequacy for General Insurers; GPS 120 - Assets in Australia for General Insurers; GPS 210 - Liability Valuation for General Insurers; GPS 220 - Risk Management for General Insurers; GSP 230 - Reinsurance Arrangements for General Insurers; GPS 410 - Transfer and Amalgamation of Insurance Business for General Insurers and Transitional Prudential Standard GPS 900- Early Approvals of Auditors and Actuaries (07/02/2002).
Guidance Note GGN 220.4
Credit Quality
- The Board and senior management of an insurer must develop, implement and maintain a risk management and control system to address credit quality risks.
Credit Exposures
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Credit exposures can increase the risk profile of an insurer and adversely affect financial viability. A credit exposure for the purpose of GPS 220 Risk Management and this Guidance Note includes both on-balance sheet and off-balance sheet exposures (including guarantees, derivative financial instruments and performance related obligations) to single and related counterparties.
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At a minimum the risk management system for credit exposures must consist of policies and procedures including:
(a) limits for credit exposures to:
(i) single counterparties and groups of related counterparties;
(ii) intra-group asset exposures (to subsidiaries and related entities);
(iii) single industries; and
(iv) single geographical locations;
at both an individual and consolidated level;
(b) a process for approving requests for temporary increases in limits and a process to ensure excesses are brought within the pre-approved limits within a set timeframe;
(c) processes for reducing or cancelling limits to a particular counterparty where the counterparty is known to be experiencing problems;
(d) a process in place to monitor and control credit exposures against pre-approved limits;
(e) a process to review credit exposures (at least annually but more frequently in cases where there is evidence of a deterioration in credit quality);
(f) a management information system that is capable of aggregating exposures to any one counterparty (or group of related counterparties), asset class, industry or region in a timely manner; and
(g) a process of reporting to the Board and senior management:
(i) any breaches of limits; and
(ii) large exposures and other credit risk concentrations.
- For these purposes, APRA would normally regard a large exposure as an exposure to an asset or counterparty (including related entities) of greater than 10% of the insurer’s capital base.