Insurance - PricewaterhouseCoopers

1.5
Solvency and capital
adequacy requirements
Overview
Under Section 28 of the Insurance Act, authorised insurers are required to hold
eligible assets in Australia that exceed liabilities in Australia, unless otherwise
approved by APRA. Section 116A of the Insurance Act and GPS 120 Assets in
Australia provide further details of excluded assets and liabilities.
GPS 110 Capital Adequacy aims to ensure the security of policyholder obligations
of all insurers is established at an appropriate level by requiring that each insurer
maintains at least a minimum amount of capital.
In 2008 a number of changes were made to GPS 110 and GPS 120. The reason for
these changes was to maintain consistency between the definition of capital base for
the general insurers and ADIs after the introduction of Basel II regime. These changes
also aimed at increasing the security of reinsurance recoverables, especially those
due from non-APRA authorised reinsurers.
The key changes to the solvency and capital adequacy requirements are:
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GPS 110 and the related guidance notes have been split out into separate
standards that cover the distinct elements of capital adequacy.
Clarification of eligibility criteria for capital instruments to be classified in
various tiers;
APRA taking on supervisory discretion to adjust the limits of capital that can be
included in each of the eligible tiers;
Clarification of the inclusions and exclusions under the definition of Assets
in Australia.
Increased investment capital factors for equities and real property with the
intention of better aligning the capital factors with the stated objective of 99.5%
probability of sufficiency;.
Increased capital factors for reinsurance recoverables due from non-APRA
authorised reinsurers, with the intention of improving the security of the balance
sheet amount of these recoverables;
48 | Insurance facts and figures 2009