Australian Prudential Regulation Authority

Medical Indemnity (Prudential Supervision and Product Standards) Act 2003

INSTRUMENT ISSUING GUIDELINES

No 3 of 2003

MADE UNDER SUBSECTION 13(9)

I, Charles Watts Littrell, a delegate of the Australian Prudential Regulation Authority, under subsection 13(9) of the Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 ISSUE the following guidelines, which are set out in the Schedule:

   Guidelines: Qualifications and Independence of Auditors and Actuaries.

Dated 6 August 2003

Charles Littrell

Executive General Manager

Policy, Research and Consulting Division

GUIDELINES

QUALIFICATIONS AND INDEPENDENCE OF AUDITORS AND ACTUARIES

Background

1. A body corporate, being either:

(a)  a  Medical  Defence  Organisation  (MDO)  within  the  meaning  of  the   Medical

Indemnity (Prudential Supervision and Product Standards) Act 2003 (the Act); or

(b)  a body corporate prescribed in the  Medical Indemnity (Prudential Supervision and

Product Standards) Regulations 2003 (the Regulations); or

(c)  a body corporate related to a body corporate mentioned in (a) or (b);

may  apply  to  APRA,  under  subsection  13(1)  of  the  Act,  for  a  determination  under subsection 13(3) of the Act that the minimum capital requirements1 do not apply to the body corporate during 1 July 2003 to 30 June 2008 (the transition period).

2. APRA can only make a determination under subsection 13(3) of the Act where, at the time of application by the body corporate, the body corporate:

(a)  is not a general insurer under the Insurance Act 1973 (Insurance Act), or is a general insurer and is prescribed by the Regulations; and

(b)  does not, or would not during the transition period, comply with the minimum capital requirements; and

(c)  lodges a funding plan that:

(i) is in the form prescribed by the Regulations;

(ii) is certified by an independent auditor and independent actuary; and

(iii)  complies with guidelines issued by  APRA.

3. APRA can not make any determinations on or after 1 July 2005.

Purpose

4. These guidelines set out:

(a)  the qualifications an auditor or actuary must have; and

1 Minimum capital requirements are those prescribed by  Prudential Standard GPS 110 Capital Adequacy for

General Insurers made under section 32 of the Insurance Act 1973.

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(b)  the  necessary  degree  of  independence  from  a  body  corporate  that  an  auditor  or actuary must have;

to certify a funding plan in accordance with subparagraph 13(3)(d)(ii) of the Act.

Authority

5. These guidelines are made under paragraphs 13(9)(c) and (d) of the Act. Guidelines on the qualifications and independence of the  auditor and the actuary Basic requirements

6. Where the body corporate is not a general insurer, the auditor and the actuary must meet:

(a)  the fitness and propriety criteria in paragraph 6 of Prudential Standard GPS 220 Risk

Management for General Insurers (GPS 220); and

(b)  the eligibility criteria in paragraphs 8(b) and (c) of GPS 220; and

(c)  the additional eligibility criteria in paragraph 10 or 11 of this guideline.

7. Where the body corporate is a general insurer:

(a)  the auditor must be the body corporate’s approved auditor;2 and

(b)  the actuary must be the body corporate’s approved actuary3 (except where paragraph

8 applies).

8. Where the body corporate is a general insurer and has been exempted under section 47 of the Insurance Act from the requirement to have an actuary, the actuary must meet:

(a)  the fitness and propriety criteria in paragraph 6 of GPS 220; and

(b)  the eligibility criteria in paragraphs 8(b) and (c) of GPS 220; and

(c)  the additional eligibility criteria in paragraph 11 of this guideline.4

9. For the purposes of paragraphs 6 and 8:

(a)  a reference to an ‘approved auditor’ or ‘approved actuary’ in GPS 220,  is taken to be a reference to the auditor or actuary; and

(b)  a  reference  to  the  ‘insurer’  in  GPS  220  is  taken  to  be  a  reference  to  the  body corporate.

2 An ‘approved auditor’ is a pers on appointed by a general insurer in accordance with section 39 of the

Insurance Act and approved by APRA in accordance with section 40 of the Insurance Act.

3 An ‘approved actuary’ is a person appointed by a general insurer in accordance with section 39 o f the

Insurance Act and approved by APRA in accordance with section 40 of the Insurance Act.

4 Section 39 of the Insurance Act requires a general insurer to appoint an auditor and an actuary, both of whom must be approved by APRA under section 40.  However, under section 47, APRA may exempt a general insurer from the requirement to appoint an actuary.

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Additional eligibility criteria

10. The additional eligibility criteria that relate to the auditor are that the auditor is:

(a)  under Division 2 of Part 9.2 of the Corporations Act 2001, registered, or taken to be registered, as an auditor; and

(b)  a member or fellow with at least one of the following professional organisations:

(i) CPA Australia; or

(ii) Institute of Chartered Accountants in Australia; or

(iii)  such  other  professional   organisation  as  APRA  considers  appropriate  and approves in writing.

11. The additional eligibility criteria that relate to the actuary are that the actuary is:

(a)  a Fellow or Accredited Member of the Institute of Actuaries of Australia; or

(b)  a member of such other professional organisation as APRA considers appropriate and approves in writing.

Additional requirements where the auditor and actuary belong to the same firm or related companies

12. Where:

(a)  the auditor is a partner, director or employee of  the  actuary’s  firm or of a body corporate related to the actuary’s firm; or

(b)  the actuary is a partner, director or employee of the auditor’s firm or of a body corporate related to the auditor’s firm;

then:

(c)  only one of the m (that is, either the auditor or the actuary)  may certify the funding plan; and

(d)  the funding plan must also be certified:

(i) if the person certifying it  in accordance with  paragraph (c) is the auditor – by a different actuary  who does not belong to the auditor’s firm or a related body corporate   (as   specified   in   paragraph   (b))              and              who   complies   with              the requirements in paragraphs 6 to 8;

(ii) if the person certifying it in accordance with paragraph (c) is the actuary – by a different  auditor  who does not belong to the actuary’s firm or a related body corporate   (as   specified   in   paragraph   (a))   and              who   complies   with              the requirements in paragraphs 6 or 8.

13. For the purpose of paragraph 12:

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(a)  the ‘actuary’s firm’ means:

(i) the partnership in which the actuary is a partner or by which the actuary is employed; or

(ii) the body corporate of which the actuary is a director or by which the actuary is employed; or

(iii)  where the actuary is a sole practitioner – the actuary.

(b)  the ‘auditor’s firm’ means:

(i) the partnership in which the  auditor is a partner or by which the  auditor is employed; or

(ii) the body corporate of which the  auditor is a director or by which the  auditor is employed; or

(iii)  where the auditor is a sole practitioner – the auditor.

(c)  ‘related   body  corporate’   has  the  same  meaning  as  under  section  50  of  the

Corporations Act 2001.

Statement by the auditor and actuary that they comply with these guidelines

14. The auditor and actuary must provide to the body corporate  a written statement that he or she complies with the requirements in these guidelines.

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