APRA Prudential Standard GPS 310 - Audit and Actuarial Reporting and Valuation – Overview and Summary of Requirements

  • By: Staff Editor
  • Date: April 26, 2013
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The Australian Prudential Regulatory Authority has implemented this standard to ensure that a general insurer’s Board and senior management have neutral and impartial advice on operations, financial conditions and insurance liabilities. The standard came into effect on 1 July 2008.
The standard further aims:
  • To assist the top management of the general insurer in carrying out its duties prudently
  • To define the roles and responsibilities of the general insurer’s appointed auditor (in the case of the insurer having an actuary)
  • To define the obligations of the general insurer towards enabling the appointed auditor and appointed actuary to carry out their responsibilities
  • To establish principles and practices for measurement and reporting of insurance liabilities
1.      Applicability
  • The standard applies to all insurers authorized under the Insurance Act of 1973 with certain sections specified for Category C insurers.
  • Sections related to reports and certificates apply to all auditors and actuaries (unless exempted from) appointed by the insurers covered under the act
  • In specified cases, the standard applies to insurance groups
2.      Key Requirements
  • The insurer must make all arrangements to help the auditor and actuary in carrying out their duties.
  • The auditor must:
    • audit the yearly accounts of the general insurer;
    • review operational aspects annually,
    • prepare a certificate and report on this matter and
    • submit the same to the Board of the insurer
  • The actuary must prepare the Financial Condition Report (FCR) and the Insurance Liability Validation Report (ILVR) and submit these to the Board of the insurer.
  • The insurer must deploy another actuary to review the mentioned certificates and reports and submit the same to the Australian Prudential Review Authority (APRA)
3.      Obligations of an Insurer
  • Appoint an auditor and an actuary as specified by the Act unless exempted by the APRA
  • Make all necessary arrangements to facilitate the auditor and actuary in undertaking their functions as required by the Act.
  • The arrangements include:
    • Informing the auditor and the actuary of all prudential requirements applicable to the insurer
    • Providing the auditor and the actuary with either information requested for by them or information provided by the APRA which will be helpful
  • Ensure the auditor and actuary have access to all relevant and necessary data, information, reports and staff of the insurer and their contractors, including the board and board audit committee of the insurer
  • As mentioned in the requirement section, the insurer must submit all reports prepared by the actuary and peer reviewed by another actuary to the APRA on or before the day the insurer’s yearly statutory accounts are submitted (in accordance with the collection of data act)
4.      Exemption from Requirement to Appoint an Actuary
  • A small insurer is exempt from the requirement to appoint an actuary when he either has provided the APRA with documentary evidence of meeting the criteria for being a small insurer or has attested to the APRA in writing that it will meet the same criteria within the next 12 months.
  • This must be provided by the CEO of the insurer.
  • To maintain the exemption, the small insurer must follow the above mentioned steps on an annual basis
  • The APRA, on finding out that the business of the insurance is inconsistent with the definition of a small insurer, may notify the insurer that the criteria is not met and that the insurer is not exempt
  • In the case of the above event, the APRA may either initiate progressive steps to transition the small insurer to appoint an actuary or exempt the actuary in a special case. This process is done on a case to case basis
  • The insurer may be asked by the APRA to bear the costs of independent actuarial investigations.
5.      Roles and Responsibilities of the Auditor and the Actuary
  • The auditor must:
    • Provide an independent and objective view of the truth and fairness of the insurer’s financial reports and statements
    • Assess the systems, procedures and controls of the insurer, used to produce reliable financial data in compliance with prudential requirements
  • Other than preparing the FCR and the ILVR as mentioned in the requirement sections, the actuary must advice the insurer on any particular requirement related to the general financial condition of the insurer and submit the said two reports in time for peer review and APRA submission
  • In case of a Run-Off Insurer (as defined by the Act), the actuary must prepare a review of the run-off plan of the insurer in addition to the ILVR
  • Both the auditor and the actuary must prepare special purpose review reports on written approvals from the APRA
6.      Audit Certificates and Reports, FCR and ILVR
  • The audit certificate and report must be addressed to the board of the insurer and provide the auditor’s opinion on the insurer’s yearly statutory accounts
  • The report and certificate must be guided by the standards set by the auditors and Assurance Standards Board
  • The auditor’s report must cover existing systems, procedures and controls of the insurer in line with prudential requirements, related to actuarial data integrity, financial reporting risks. Details of non-compliance detection must be provided along with details of risk and reinsurance management strategy
  • The ILVR prepared by the actuary must include the value of the insurance liabilities, assumptions made in the valuation process, availability and appropriateness of data, central estimate details, sensitivity analyses and risk margins
  • The FCR prepared by the actuary must include a business overview, assessment of insurer’s recent profitability, summary of the ILVR, asset and liability assessment, pricing and premium assessment, current and future capital adequacy assessment and finally, an assessment of the suitability of the risk management framework
Additional Resources

Read the APRA Prudential Standard GPS 310 - Audit and Actuarial Reporting and Valuation in full here.

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