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 Solvency and Capital Adequacy Standards

Review of Solvency and Capital Adequacy Standards

Prudential Standards

PHIAC can establish prudential standards under Division 163 of the PHI Act in relation to prudential matters.  Prudential matters include the conduct by an insurer of any of their affairs in such a way as to keep them in a sound financial position, maintain integrity, prudence and professional skill, and not cause or promote instability in the industry.  Prudential standards do not include matters relating to the solvency or capital adequacy of health benefits funds.

Currently there are three prudential standards, located in the Private Health Insurer (Insurer Obligations) Rules 2009

  • Governance Standard
  • Appointed Actuary Standard
  • Disclosure Standard

Schedule 1: Governance Standard

The Governance Standard came into force on 1 January 2010 and requires:

  • insurers to be managed in a sound and prudent manner by a competent board of directors
  • the directors of each insurer to be capable of making reasonable and impartial business judgments in the best interests of the insurer
  • directors to give due consideration to the impact of decisions on policy holders.

The Governance Standard ensures that as a minimum, the governance requirements applicable to insurers are consistent across like institutions, reflect both domestic and international good practice, and promote sound and prudent management of insurers.

The framework for the Governance Standard was developed in consultation with the Australian Prudential Regulation Agency (APRA), drawing on APRA’s Governance Standard GPS 510 and the Corporate Governance Principles and Recommendations 2007 issued by the Australian Stock Exchange.

The Governance Standard is set out in Schedule 1 of the Private Health Insurance (Insurer Obligations) Rules 2009

Governance Standard - Explanatory Statement

Schedule 2: Appointed Actuary Standard

The Appointed Actuary Standard came into force in April 2007 and requires:

  • insurers to have an Appointed Actuary
  • for that Appointed Actuary to operate subject to the PHI Act and the Appointed Actuary Standard
  • that Appointed Actuaries are involved in or notified of:
    • pricing
    • new product development
    • monitoring and adhering to financial standards
    • applications of certain Australian equivalents to International Financial Reporting Standards
    • preparation of the insurer’s annual financial condition report.

Actuaries taking on the Appointed Actuary role for private health insurers must ensure that they meet the Institute of Actuaries of Australia (IAA) professional requirements and code of conduct.

The role of the Appointed Actuary is important for both the insurer and PHIAC.  In particular, the Appointed Actuary provides additional support and technical advice to insurers while operating as an element of the prudential oversight of the industry by PHIAC.

The Appointed Actuary Standard is set out in Schedule 2 of the  Private Health Insurance (Insurer Obligations) Rules 2009

Appointed Actuary Standard - Explanatory Statement

Schedule 3: Disclosure Standard

The Disclosure Standard came into force on 1 January 2011 and requires:

  • that PHIAC is better informed at an earlier stage about unusual events in an insurer
  • the provision of information to enable PHIAC to intervene, if necessary, on a preventative basis in the activities of an insurer.

The emphasis of the Disclosure Standard is on comprehensive communication with PHIAC. Its application will increase the protection provided to consumers and beneficiaries of private health insurance policies through more timely prudential supervision of private health insurers.

The Disclosure Standard is set out in Schedule 3 of the Private Health Insurance (Insurer Obligations) Rules 2009

Disclosure Standard – Explanatory Statement

 

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