Division Materiality - Life insurance (prudential standard) determination No. 3 of 2006 - Prudential Standard LPS 231 - Outsourcing - Materiality

A material business activity is one that has the potential, if disrupted, to have a significant impact on the life company’s business operations or its ability to manage risks effectively, having regard to such factors as:

(a) the financial and operational impact and impact on reputation of a failure of the service provider to perform over a given period of time;

(b) the cost of the outsourcing arrangement as a share of total costs;

(c) the degree of difficulty, including the time taken, in finding an alternative service provider or bringing the business activity “in-house”;

(d) the ability of the life company to meet regulatory requirements if there are problems with the service provider;

(e) potential losses to the life company’s customers and other affected parties in the event of a service provider failure; and

(f) affiliation or other relationship between the life company and the service provider.

For the purposes of this Prudential Standard the internal audit function must be treated as a material business activity.

MaterialityMateriality