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Life Insurance (prudential standard) determination
No. 4 of 2023

Prudential Standard LPS 370 Cost of Investment Performance Guarantees

Life Insurance Act 1995

I, Clare Gibney, a delegate of APRA:

    (a)          under subsection 230A(5) of the Life Insurance Act (the Act) revoke Life Insurance (prudential standard) determination No. 14 of 2012, including Prudential Standard LPS 370 Cost of Investment Performance Guarantees made under that Determination; and

    (b)          under subsection 230A(1) of the Act, determine Prudential Standard LPS 370 Cost of Investment Performance Guarantees, in the form set out in the Schedule, which applies to all life companies, including friendly societies.

This instrument commences on 29 March 2023.

Dated: 7 March 2023

Clare Gibney
Executive Director
Policy and Advice Division

Interpretation

In this instrument:

APRA means the Australian Prudential Regulation Authority.
friendly society has the meaning given in section 16C of the Act.
life company has the meaning given in the Schedule to the Act.

Schedule

Prudential Standard LPS 370 Cost of Investment Performance Guarantees comprises the document commencing on the following page.

Prudential Standard LPS 370

Cost of Investment Performance Guarantees

Objective and key requirements of this Prudential Standard

This Prudential Standard sets out the requirements for calculating the cost of investment performance guarantees provided in association with investment-linked contracts for the purpose of section 42 of the Life Insurance Act 1995.

The ultimate responsibility for the calculation and compliance with the requirements of the Act in relation to investment performance guarantees lies with the Board of the life company.

The key requirements of this Prudential Standard are that a life company must:

     * calculate the cost of any investment performance guarantees associated with its investment-linked business in accordance with this Prudential Standard; and
     * be able to demonstrate that at all times the cost of any investment performance guarantees represents less than 5 per cent of the total policy liabilities of each statutory fund to which this Prudential Standard applies.

Authority
     1. This Prudential Standard is made under paragraph 230A(1)(a) of the Life Insurance Act 1995 (the Act).

Application
    2.             This Prudential Standard applies to all life companies including friendly societies (together referred to as life companies) registered under the Act[1], except where expressly noted otherwise.
    3.             A life company must apply this Prudential Standard separately to each statutory fund where:
       (a)          the business of the fund consists of the provision of investment-linked benefits; and
       (b)          any of the policies referable to the fund includes an investment performance guarantee.
    4.             This Prudential Standard only applies to the business of an Eligible Foreign Life Insurance Company which is carried on through its Australian statutory funds but not otherwise.[2]
    5.             This Prudential Standard applies to life companies from 1 January 2013.

Interpretation