Financial Condition Report

43. An Approved Actuary must prepare an FCR.[32] The FCR must provide the Approved Actuary’s objective assessment of the overall financial condition of the insurer and should form an important input into decision-making by the Board and senior management in respect of the operations of the insurer.

44. The FCR must be prepared on an annual basis and provided to the insurer within the time required by paragraph 28 (unless APRA requires more regular or less frequent reporting under paragraph 27). The FCR must be addressed to the Board of the insurer and provide the Approved Actuary’s objective assessment of the overall financial condition of the insurer. In preparing an FCR, an Approved Actuary must have regard to relevant professional standards issued by the Institute of Actuaries of Australia, to the extent that they are not inconsistent with the requirements of this Prudential Standard.

45. Subject to relevance, an FCR must include (but need not be limited to) the matters listed below:

(a) business overview;

(b) assessment of the insurer’s recent experience and profitability, including at least the experience during the year ending on the valuation date;

(c) summary of the key results of the ILVR (prepared in accordance with this Prudential Standard);

(d) assessment of the adequacy of past estimates for insurance liabilities (where appropriate, this may include references to the ILVR or past ILVRs);

(e) assessment of asset and liability management, including the insurer’s investment strategy;

(f) assessment of current and future capital adequacy and a discussion of the insurer’s approach to capital management;

(g) assessment of pricing, including adequacy of premiums;

(h) assessment of the suitability and adequacy of reinsurance arrangements, including the Maximum Event Retention, documentation of reinsurance arrangements and the existence and impact of any limited risk transfer arrangements; and

(i) assessment of the suitability and adequacy of the risk management framework.

46. The Approved Actuary must consider the future implications and outlook for each of the matters listed immediately above. Where these implications are adverse, the Approved Actuary must propose recommendations designed to address the issues.

47. As a general rule, an FCR must be completed in respect of each insurer. An insurance group may submit to APRA an FCR in respect of the insurance group where the Approved Actuary completing the FCR is the Approved Actuary for each insurer included in the insurance group FCR or it is practical to produce a single over-arching FCR. This insurance group FCR must adequately consider and address the operations of each insurer within that insurance group. Where APRA is of the view that the insurance group FCR does not adequately address the operations of each insurer and that a separate FCR is desirable to ensure that the requirements of this Prudential Standard are met, APRA may, in writing, do either or both of the following: