Insurance (prudential standard) determination No. 10 of 2012 - Prudential Standard GPS 220 - Risk Management
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Where a regulated institution conducts insurance business outside Australia, it must notify APRA, in writing, if it becomes aware that:
(a) its right to conduct business in that jurisdiction has ceased;
(b) its right to conduct insurance business has been limited by a law of the jurisdiction in which the business is being conducted;
(c) its right to conduct insurance business has been otherwise materially affected under a law of the jurisdiction in which the business is being conducted; or
(d) its right to conduct insurance business has otherwise been withdrawn.
This notification must be provided within 10 business days of the event occurring for an insurer, or within one month of the event occurring for a Level 2 insurance group.
Adjustments and exclusions
APRA may, by notice in writing to a regulated institution, adjust or exclude a specific requirement of this Prudential Standard in relation to that regulated institution.
Determinations made under previous prudential standards
An exercise of APRA’s discretion (such as an approval, waiver or direction) under a previous version of a risk management prudential standard continues to have effect as though exercised pursuant to a corresponding power (if any) exercisable by APRA under this Prudential Standard. For the purposes of this paragraph, ‘a previous version of a risk management prudential standard’ includes:
(a) Prudential Standard GPS 220 Risk Management (GPS 220) made on 23 June 2008;
(b) GPS 220 made on 9 February 2006;
(c) Prudential Standard GPS 221 Risk Management: Level 2 Insurance Groups (GPS 221) made on 9 September 2011; and
(d) GPS 221 made on 17 December 2008.
Attachment A
Matters to be included in a run-off plan
For the purposes of paragraph 28 of this Prudential Standard, the following matters must be included in a run-off plan, where relevant:
Matters to be addressed in a run-off plan (to be prepared by run-off insurer)
Areas to be reviewed and assessed by Appointed Actuary[3]
(a) Business overview, including details of significant changes to the run-off insurer’s liability portfolio, assets, capital position or operating environment
Significant issues or material anomalies
(b) Details of the run-off insurer’s recent experience, including the profitability for the most recent year
Significant variations between actual and expected experience, and the adequacy of past estimates
(c) Assessment of the run-off insurer’s expected future claims run-off experience on a rolling three-year basis
Appropriateness of the insurer’s expected future claims run-off assessment
(d) Details of the run-off insurer’s asset and liability management processes, including the insurer’s investment and liquidity strategies
Appropriateness of the insurer’s asset and liability management processes, and investment and liquidity strategies, in light of the expected future claims run-off
(e) Details of the run-off insurer’s current and projected future capital adequacy and a discussion of the insurer’s approach to capital management
Appropriateness and reasonableness of the assumptions used for the capital projections and for scenario/stress-testing
(f) Assessment of the suitability and adequacy of reinsurance arrangements, including recoverability of reinsurance, documentation of reinsurance arrangements and the existence and impact of any limited risk transfer arrangements
Appropriateness of the insurer’s reinsurance arrangements in light of the expected future claims run-off
(g) Details of the run-off insurer’s risk management framework
Suitability and adequacy of the risk management framework
Attachment B
Risk Management Declaration
The Board must (by the time provided for in paragraph 39 of this Prudential Standard) provide APRA with a Risk Management Declaration stating that, to the best of their knowledge and belief having made appropriate enquiries:
(a) the regulated institution has systems in place for the purpose of ensuring compliance with the Act, the Insurance Regulations 2002 (the Regulations), prudential standards, the Collection of Data Act, reporting standards, conditions imposed under the Act on the insurer’s authorisation, directions issued by APRA pursuant to the Act and any other requirements imposed by APRA, in writing;
(b) the Board and senior management are satisfied with the efficacy of the processes and systems surrounding the production of financial information at the regulated institution;
(c) the regulated institution has in place an RMS, developed in accordance with the requirements of this Prudential Standard, setting out its approach to risk management;
(d) the regulated institution has in place a Reinsurance Management Strategy (ReMS), developed in accordance with Prudential Standard GPS 230 Reinsurance Management, for selecting and monitoring reinsurance programs;
(e) the regulated institution has, over the last financial year, substantially complied with its RMS and ReMS, and that these strategies are operating effectively in practice, having regard to the risks they are designed to control; and
(f) copies of the regulated institution’s current RMS and ReMS have been lodged with APRA.
Attachment C
Financial Information Declaration
The CEO and the CFO must (by the time provided for in paragraph 42 of this Prudential Standard) provide APRA with a Financial Information Declaration, signed by both of them,[4] stating that for the last financial year, to the best of their knowledge and belief having made appropriate enquiries:
(a) the financial information that the regulated institution has lodged with APRA has been prepared in accordance with the Act, Regulations, prudential standards, the Collection of Data Act, accounting standards and other mandatory professional reporting requirements in Australia, to the extent that the accounting standards and professional reporting requirements do not contain any requirements contrary to the aforementioned legislative and prudential requirements;
(b) the information provided to the auditor for the purpose of enabling them to undertake their roles and responsibilities is accurate and complete, consistent with the accounting records of the regulated institution, and a true representation of the transactions for the year and the financial position of the regulated institution;[5] and
(c) the financial information lodged with APRA is accurate and complete, consistent with the accounting records of the regulated institution, and represents a true and fair view of the transactions for the year and the financial position of the regulated institution.
Attachment D
Level 2 insurance groups
This Attachment applies adjustments to the requirements outlined in this Prudential Standard and Attachments A to C for Level 2 insurance groups.
The Board of the parent entity of a Level 2 insurance group must take a whole-of-business[6] approach in ensuring compliance with this Prudential Standard, including taking into account the Australian business and international business of the Level 2 insurance group. Therefore, the risk management framework, RMS, Risk Management Declaration and Financial Information Declaration must cover the Level 2 insurance group’s international business.
In addition to the requirements in this Prudential Standard, the Risk Management Declaration of a Level 2 insurance group must make an attestation as to the compliance of any entity in the group carrying on insurance business in a foreign jurisdiction with the applicable minimum capital requirements, if any, in that jurisdiction. Any instances where an entity of the group does not satisfy the local minimum capital requirements in a foreign jurisdiction must be noted in the attestation. Reasons for not complying with any relevant capital requirements must also be provided.
Where a Level 2 insurance group contains an entity that meets the controlled entity definition over which the parent entity cannot exercise operational or financial control, APRA may adjust or exclude a specific requirement in this Prudential Standard that would otherwise apply in relation to that specific entity within the Level 2 insurance group. The parent entity must apply for such a determination. The application must demonstrate that the parent entity of the Level 2 insurance group does not control the internal operations of an entity and also indicate how it has addressed this situation in its risk management framework.
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