Prudential Standard GPS 120 Assets in Australia – An Overview and Summary of Requirements

By Staff Editor Date: September 30, 2013

This Prudential Standard specifies certain assets that are excluded from being treated as ‘assets in Australia’ by a general insurer. There are specific provisions applying to locally incorporated insurers and to Category C insurers.

 
Locally incorporated insurers
The following assets of locally incorporated insurers areexcluded from being treated as ‘assets in Australia’:
  • Intangibles and certain other assets that must be deducted from a locally incorporated insurer’s capital base
  • A chattel or real property located outside Australia
  • Loans and amounts due (including debentures)
    1. Debt assets, not being debt assets held through a depository
    2. Interests held on Australian depositories that is derived from an underlying asset which is in the nature of a debt owed by another person
    3. Interests held on foreign depositories that is derived from an underlying asset which is in the nature of a debt owed by another person.
  • Shares not
    1. being held through a depository
    2. readily transferable in Australia
    3. recorded on a register of members kept in Australia
  • Interest derived from shares held on an Australian or foreign depository
  • Interests in SPV calculated as:
A = B/C * D
where,
B means the fair value of any investments held by the SPV that would not be assets in Australia if held directly by the locally incorporated insurer;
C means the fair value of all the interests in the SPV; and
D means the fair value of the interests in the SPV held by the locally incorporated insurer.
  • Assets held by custodians for a locally incorporated insurer are excluded from being an asset in Australia if:
    1. the custodian does not reside in Australia;
    2. the locally incorporated insurer cannot enforce its rights against the custodian in an Australian court;
    3. the assets of the locally incorporated insurer are not kept distinct and separate from the custodian’s own assets;
    4. the external custody agreement is not subject to the laws of a state or territory of Australia;
    5. the external custody agreement does not provide for liability on the part of the custodian arising from the acts or omissions on the part of the custodian, its agents or sub-custodians;
    6. the external custody agreement does not describe the process by which the locally incorporated insurer provides authorized instructions to the custodian;
    7. the external custody agreement does not describe the process by which the custodian provides periodic reports to the locally incorporated insurer;
    8. the external custody agreement does not provide for flexibility as to the rights and obligations of the parties to enable them to ensure compliance in the event of any changes to APRA’s prudential requirements or other relevant legislation;
    9. the asset held by the custodian would not be an asset in Australia if it were held directly by the locally incorporated insurer;
    10.  the custodian has the right to suspend or delay the transfer or realization of the asset held by the custodian pending sale of any asset outside Australia.
  • Interests in managed investment schemes, if:
    1. the responsible entity does not reside in Australia;
    2. an agent holds the scheme property for the responsible entity and the agent does not reside in Australia;
    3. under the scheme, the responsible entity or agent has the right to suspend or delay the redemption of the unit or investor’s entitlement pending sale of any scheme property outside Australia;
    4. any amounts payable to the locally incorporated insurer under the scheme are payable outside Australia;
    5. the locally incorporated insurer cannot enforce its rights in relation to the managed investment scheme in an Australian court.
  • Certain interests in trusts, if:
    1. the trustee does not reside in Australia;
    2. the trustee has the right to suspend or delay the redemption of a unit or trust property pending sale of any of the trust’s assets outside Australia;
    3. any amounts payable to the locally incorporated insurer under the trust are payable outside Australia;
    4. the locally incorporated insurer cannot enforce its rights against the trustee in an Australian court.
  • An equitable or beneficial interest in a trust, if:
    1. the interest is a proprietary interest in a particular asset;
    2. the asset would not be an asset in Australia if it were held directly by the locally incorporated insurer
  •  Other equitable interests, if:
    1. the legal owner does not reside in Australia;
    2. any amounts payable by the legal owner to the locally incorporated insurer in respect of the arrangement are payable outside Australia;
    3. the asset would not be an asset in Australia if it were held directly by the  locally incorporated insurer;
    4. the locally incorporated insurer cannot enforce its rights in relation to the asset in an Australian court.
Category C Insurers
  • An asset of a Category C insurer is excluded from being an asset in Australia unless it is held for the Category C insurer by either a custodian or agent.
  • The assets of a Category C insurer requiring a co-signatory will not be excluded only if:
    • the agent in Australia maintains control of the assets in Australia by being the only entity with authority to deal with the custodian directly;
    • the requirement for a co-signatory is an arrangement agreed upon between the Category C insurer and the agent in Australia;
    • the external custody agreement recognizes only the authority of the agent in Australia to give directions to the custodian;
    •  the agent in Australia does not delegate to the co-signatory its authority to give directions to the custodian;
    • the co-signatory:
      1. Is appointed by the Category C insurer
      2. Is not a disqualified person
      3. Meets the fitness and propriety criteria for responsible persons
  • The following assets of a Category C insurer are not excluded:
    • real property in Australia
    • premiums receivable outstanding for more than six months
    • cash held in the Category C insurer’s bank account in Australia which requires authorization by the Category C insurer’s agent in Australia for withdrawal
  • Any declared repatriation of net assets in Australia by a Category C insurer out of the current year profits of its branch in Australia is excluded from being an asset in Australia.
  • An asset held under an agreement between a Category C insurer and a corporate agent is excluded from being an asset in Australia if the corporate agent engages in any business or commercial activity other than activities in its capacity as agent in Australia.