APRA General Insurers Authorization Guidelines – An Overview and Summary of Requirements

By Staff Editor Date: September 30, 2013

These guidelines set out the principles which the APRA uses to decide whether to authorize general insurers applying to conduct insurance business in Australia. It covers the – authorization process; minimum criteria to be addressed by applicants; and necessary information and documents to be submitted with an application. The overall licensing process takes 3 to 12 months.

Background
  • Only bodies corporate (or a Lloyd’s underwriter) are allowed to carry on insurance business in Australia.
  • Applications from partnerships or unincorporated entities are not considered by APRA.
  • A foreign-incorporated applicant can establish a locally incorporated subsidiary to carry on insurance business in Australia (foreign-owned subsidiary). Alternatively, a foreign-incorporated insurer can seek an authority to operate in Australia through a branch (foreign insurer).
  • Both foreign-owned subsidiaries and foreign insurers are subject to similar legislative and prudential requirements to Australian-owned and incorporated insurers.
  • A body corporate seeking an authority to carry on insurance business in Australia should apply in writing to APRA.
  • The application should be signed by two directors of the applicant.
Authorization criteria for general insurers
  • Applicants with capacity and commitment to conduct insurance business on a continuing basis, with integrity, prudence and professional skill are authorized by APRA.
  • Additional requirements for authorization can include:
    • conditions which limit the range of business the insurer can conduct;
    • adjusting the insurer’s capital adequacy, risk management or
    • governance requirements; or requiring a foreign insurer to operate through a locally incorporated company, rather than a branch.
 Ownership
  • The interest of an individual shareholder or group of associated shareholders in an insurer is limited to 15 per cent of the insurer’s voting shares.
  • A higher percentage limit should be approved by the Treasurer on national interest grounds.
  • An applicant should obtain approval under the FSSA where the 15 per cent limit exceeds.
  • The substantial shareholders of an applicant should be well-established and financially sound entities or individuals of standing and substance.
Governance
  • An applicant should satisfy the requirements set out in Prudential Standard GPS 510 Governance with regard to the composition and functioning of its Board.
  • The directors and senior management should be fit and proper, in accordance with Prudential Standard GPS 520 Fit and Proper.
  • An applicant should also appoint an auditor and actuary in accordance with the requirements of the Act, unless the criteria for exemption are met.
  • Foreign insurers should also be aware that they are required under the Act to appoint an agent in Australia.
Capital and Assets in Australia
  • Authorized insurers should have in place sufficient capital to meet the minimum capital requirements under Prudential Standard GPS 110 Capital Adequacy, at all times.
  • The adequacy of start-up capital for an applicant will be assessed on a case-by-case basis with regard to the size, business mix, complexity and risk profile of the first three years’ business operations proposed in the business plan.
  • An authorized insurer should meet the requirement to hold assets in Australia of a value that is equal to or greater than the total amount of its liabilities in Australia.
Risk management framework
  • The proposed risk management and control framework of the applicant should be adequate and appropriate to monitor and limit risk exposures in relation to the domestic and offshore operations (if relevant) of the insurer from the commencement of operations
  • The risk management framework should include the development, implementation and maintenance of policies and procedures to effectively monitor, manage and report on:
    1. Balance sheet and market risk
    2. Credit risk
    3. Operational risk
    4. Insurance risk
    5.  Risks arising out of reinsurance arrangements
    6. Concentration risk
    7. Strategic and tactical risks that arise out of the insurer’s business plan
    8. Capital management risks
  • The risk management framework should comply with Prudential Standard GPS 220 Risk Management, and include a documented risk management strategy that describes the key elements of the risk management framework, supporting policies and procedures and clearly defined managerial responsibilities and controls.
  • An applicant should have adequate internal audit arrangements.
Compliance
  • The applicant should have processes and systems that are compliant with:
    1. APRA’s prudential standards
    2. Other Australian regulatory and legal requirements
    3. Foreign regulatory requirements
  • The applicant should ensure that systems are in place to satisfactorily fulfill the Risk Management Declaration requirements in Prudential Standard GPS 220 Risk Management.
  • The size, nature and complexity of applicant’s operations are taken into account in assessing the compliance processes and systems.
Reinsurance management
  • Insurers should have in place a reinsurance management framework in accordance with Prudential Standard GPS 230 Reinsurance Management.
  • The framework should include a reinsurance management strategy (REMS) that describes the key elements of the reinsurance management framework, supporting policies and procedures and clearly defined managerial responsibilities and controls.
  • Insurers should submit to APRA, on an annual basis, a Reinsurance Arrangements Statement that details its reinsurance arrangements.
Information and accounting systems
  • Insurers are required to submit data to APRA in accordance with the reporting standards under the Financial Sector (Collection of Data) Act 1998.
  • Applicant’s information and accounting systems should be adequate for maintaining up-to-date records of all business undertaken.
  • Most statistical data from insurers should be submitted to APRA using D2A, an electronic data submission system.
Supervision by home supervisor
  • A foreign insurer applicant should be an authorized insurer in its home country and should have received any necessary consent from its home supervisor for the establishment of the proposed insurance operation in Australia.
  • he level and scope of prudential supervision of the foreign owner or insurer in its home country will be considered by APRA in assessing applications to establish a foreign owned subsidiary or a foreign insurer.
  • Where a corporate group has multiple businesses, it should have policies addressing how intra-group transactions are to be conducted.
  • Related insurers can share the same premises. In addition, joint functional support services, such as personnel and financial control between the authorized entities, can be permitted, although clear arrangements for accountability and oversight should exist.
APPLICATION PROCEDURES
Preliminary consultation
  • APRA will review and comment on well-developed drafts of an application.
  • Submission of drafts in electronic format is encouraged.
  • The application fee should be paid when the draft application is first lodged with APRA.
  • Applicants have to submit a set of information and supporting documents on application for an authority to carry on an insurance business in Australia.
  • APRA can seek additional information from an applicant if it considers necessary to assess the application. This includes discussions with relevant responsible persons and on-site prudential reviews.
Submission of application
Two copies of the final application, with at least one signed by two directors of the applicant, including all the required information and supporting documents, should be submitted to APRA.
Processing and Notification
  • All applications will be processed within a reasonable time.
  • Approval of the application depends on other relevant approvals being granted.
  • An authority can be granted to take effect when signed or from some nominated date.
  • Applicants granted an authority to carry on an insurance business in Australia will be notified in writing.