APRA Strategy for Insurance Businesses: How to Choose the Right Prudential Structure12 min read

Introduction

An insurance business entering the Australian market must decide more than whether it should obtain an Australian Prudential Regulation Authority (APRA) licence. The key strategic question is which prudential structure properly reflects the insurance risk it intends to assume and the products it will write.

Australia has no single licensing regime for all insurers: general insurers are authorised under the Insurance Act 1973 (Cth) (‘Insurance Act‘), while life insurers and private health insurers operate under separate registration regimes. This article explains how to choose the right APRA structure and build the capability to support it.

Determining if Your Insurance Business Needs APRA Authorisation

General Insurance Businesses

A business carrying on general insurance or reinsurance business may require authorisation under the Insurance Act. Under Section 3 of the Insurance Act, “insurance business” includes undertaking liability by way of insurance or reinsurance for loss or damage, including liability to pay damages or compensation following a specified event.

The authorisation framework operates as follows:

• Under Section 10 of the Insurance Act, a body corporate must not carry on insurance business in Australia unless it is a general insurer, subject to statutory exceptions;
• A body corporate may apply to APRA for authorisation under Section 12 of the Insurance Act; and
• Once authorised, it becomes a general insurer under Section 11 of the Insurance Act.

Life Insurance Businesses

Life insurance businesses operate under the Life Insurance Act 1995 (Cth) (‘Life Insurance Act‘), which uses a registration regime rather than the general insurance authorisation model. Under Section 17 of the Life Insurance Act, a person other than a company registered under Section 21 must not intentionally issue a life policy or undertake liability under a life policy, subject to statutory qualifications.

A company seeking to become a life insurer applies under Section 20 of the Life Insurance Act, with APRA deciding the application under Section 21 of the Life Insurance Act. In addition, Sections 29–48 of the Life Insurance Act establish the statutory-fund framework, which affects how life insurance business, assets and liabilities are managed. Actuarial capability is also needed to support business plans, product terms and reinsurance arrangements.

Private Health Insurers

Private health insurers operate under the Private Health Insurance (Prudential Supervision) Act 2015 (Cth) (‘Private Health Insurance (Prudential Supervision) Act‘), alongside the definition of health insurance business in Section 121-1 of the Private Health Insurance Act 2007 (Cth) (‘Private Health Insurance Act‘). Section 10 of the Private Health Insurance (Prudential Supervision) Act prohibits a person from carrying on health insurance business unless the person is a private health insurer.

The application and operational requirements include:

• Under Section 12 of the Private Health Insurance (Prudential Supervision) Act, an applicant must be a company within the meaning of the Corporations Act 2001 (Cth) (‘Corporations Act‘) and a constitutional corporation;
• APRA decides the application under Section 15 of the Private Health Insurance (Prudential Supervision) Act; and
• Section 23 of the same statute requires a private health insurer to have at least one health benefits fund for its health insurance business.

Brokers, MGAs and Other Intermediaries

A broker, managing general agent, underwriting agency, distributor, or claims manager does not necessarily require APRA insurer authorisation merely because it performs functions within the insurance value chain. The key issue is whether the entity itself undertakes the contractual insurance liability when an insured event occurs.

Where another authorised or registered insurer remains liable under the policy, the intermediary may fall outside the APRA insurer regimes. It may instead need to consider an Australian Financial Services Licence (AFSL) and other permissions administered by the Australian Securities & Investments Commission (ASIC). A business providing technology, distribution, or administration services should therefore distinguish its own activities from the insurance risk carried by the insurer.

Structuring an APRA-Regulated Insurance Business

Locally Incorporated Insurers

A locally incorporated insurer is a common structure for an Australian insurance business. The entity should be aligned with the relevant regime:

• general insurers apply for authorisation under Section 12 of the Insurance Act;
• life insurers apply for registration under Section 20 of the Life Insurance Act; and
• private health insurers apply under Section 12 of the Private Health Insurance (Prudential Supervision) Act.

The Australian entity must meet its own prudential obligations under CPS 510 Governance (‘CPS 510‘), even where it is controlled by an overseas parent. Parent-company policies and group services may be used only where they address the Australian insurer’s own business and prudential requirements.

Foreign Insurers

A foreign general insurer does not always need to establish an Australian subsidiary. It may operate through an Australian branch as a Category C insurer, subject to the requirements of the Insurance Act and applicable prudential standards. Section 118 of the Insurance Act requires the foreign general insurer to appoint an Australian agent.

Branch structures also involve distinct capital and governance arrangements. Under GPS 110 Capital Adequacy (‘GPS 110‘), a Category C insurer must:

• maintain adjusted net assets in Australia above its Australian liabilities by the applicable prudential amount; and
• ensure that 120% of its net assets in Australia is greater than its Prudential Capital Requirement.

Foreign life insurers have a separate pathway. Part 2B of the Life Insurance Act, including Sections 16ZD–16ZG, provides for an Eligible Foreign Life Insurance Company structure. Eligibility depends on statutory conditions and the requirements in Regulation 6 of the Life Insurance Regulations 2024 (Cth) (‘Life Insurance Regulations‘).

Insurance Groups and NOHCs

A wider corporate group may require a non-operating holding company (NOHC) structure where the regulated insurer sits alongside other entities. The relevant legislative provisions include:

• Sections 18–23A of the Insurance Act, which address authorised NOHCs for general insurance; and
• Sections 28A–28E and Section 28AA of the Life Insurance Act, which address life-company NOHCs.

APRA may require an appropriate holding-company structure where the statutory conditions are met. The group should assess where the following are held, as these arrangements can affect the prudential position of the insurer:

• debt;
• capital;
• technology;
• intellectual property; and
• important services.

Ownership also requires separate consideration. The Financial Sector (Shareholdings) Act 1998 (Cth) (‘Financial Sector (Shareholdings) Act‘) generally limits an individual shareholder to 20% of voting shares unless a higher percentage is approved. That issue should be assessed when designing the group structure.

Reinsurers and Captive Structures

Reinsurance is included in the definition of insurance business under Section 3 of the Insurance Act. A business assuming general reinsurance liabilities may therefore require APRA authorisation, subject to any applicable exclusion or exemption.

Captive insurers can fall within the general insurance prudential framework. APRA refers to association captives as Category D insurers and corporate or partnership captives as Category E insurers. GPS 110 ordinarily sets a minimum prescribed capital amount of $2 million for Category D and Category E insurers, compared with $5 million for other regulated institutions.

Those amounts are regulatory floors, not a prediction of the capital an insurer will actually need. The following must also be assessed:

• the underwriting portfolio;
• concentration exposures;
• reinsurance arrangements;
• the operating model; and
• the support available from the parent or members.

Building Prudential Capability Before Applying for Insurance Business

Capital & Financial Resilience

Capital planning should reflect the insurer’s risk profile, expected products, claims exposure, reinsurance arrangements and growth assumptions.

General insurers must maintain capital above their Prudential Capital Requirement under the GPS 110 standard. Life insurers and private health insurers apply separate standards, as follows:

• LPS 110 Capital Adequacy (‘LPS 110‘); and
• HPS 110 Capital Adequacy (‘HPS 110‘).

Each insurer should also develop an Internal Capital Adequacy Assessment Process (ICAAP). The ICAAP should address:

• capital targets;
• stress testing;
• monitoring triggers; and
• how additional funding would be obtained if financial conditions worsen.

Governance and Fit & Proper Requirements

A proposed insurer needs a board and senior management team with suitable insurance, financial and risk experience. CPS 510 addresses:

• board structure;
• independence;
• board committees;
• internal audit; and
• governance arrangements within an insurance group.

CPS 520 Fit and Proper (‘CPS 520‘) requires the insurer to assess whether people in responsible positions meet applicable fitness and propriety requirements. The board should be able to oversee:

• underwriting;
• claims;
• capital;
• risk management; and
• outsourced services,

while maintaining sufficient independence and access to reliable information.

Risk & Operational Resilience

CPS 220 Risk Management (‘CPS 220‘) requires an insurer to maintain a risk management framework covering material risks, including:

• insurance risk;
• liquidity risk;
• operational risk;
• investment risk; and
• strategic risk.

CPS 234 Information Security (‘CPS 234‘) requires information-security capability suited to the insurer’s vulnerabilities and threats, including risks involving third-party providers.

The current CPS 230 Operational Risk Management (‘CPS 230‘) commenced on 1 July 2026. It requires insurers to maintain critical operations during severe disruptions and manage material service providers. Claims processing will generally be treated as a critical operation unless the insurer can justify a different approach.

Actuarial & Insurance Risk Capability

The current CPS 320 Actuarial and Related Matters (‘CPS 320‘) commenced on 1 July 2026 and applies to general insurers, life insurers and private health insurers. It requires an insurer to:

• support its Appointed Actuary;
• maintain an actuarial advice framework; and
• obtain suitable actuarial advice for sound management.

The proposed insurer should connect actuarial work with:

• liability valuation;
• pricing;
• underwriting limits;
• claims experience;
• catastrophe exposure;
• capital planning; and
• reinsurance.

A general insurer must also have an auditor and actuary under Section 39 of the Insurance Act.

Approaching the APRA Licensing Process for Prospective Insurers

Engaging With APRA Early

APRA’s pre-application process allows a prospective insurer to discuss its proposed business and likely regulatory challenges before lodging a formal application. The process may include:

• an initial inquiry meeting;
• a review meeting after the business plan is developed; and
• a challenge meeting before lodgement.

Early contact with APRA can help identify issues involving the proposed ownership, corporate structure, capital model, governance, outsourcing and risk management arrangements and, where needed, obtain advice from financial services lawyers for regulated businesses. Resolving those issues early may prevent the business from building its operations around an unsuitable APRA licensing structure.

Developing a Credible Business Plan

A business plan should explain how the proposed insurer will operate prudently while conducting its intended insurance business. It should address:

• the business model, products and target market;
• ownership, Board and senior management;
• financial forecasts and funding;
• risk management, technology and outsourcing; and
• contingency arrangements.

The financial forecasts should connect with the proposed capital requirements, claims assumptions, actuarial work and reinsurance arrangements. Growth plans should also match the insurer’s available people, systems and funding. APRA will assess whether the plan presents a credible basis for the proposed insurer’s operations.

Aligning Policies With the Actual Business Model

APRA cautions against relying on generic policies that do not reflect the organisation’s size, structure or proposed activities. Policies and procedures should describe controls that the insurer can operate from the beginning of its regulated business.

The Board and management should be able to explain why each policy has been adopted and how it will work in practice. A policy covering outsourcing, claims, incident reporting, capital monitoring or risk management will be less useful if the proposed insurer lacks the people, systems or approval processes needed to apply it.

Demonstrating Operational Readiness

APRA expects formal application material to be sufficiently developed for assessment. Documents should be Board-approved where required and supported by arrangements covering systems, people, capital, controls, governance and reporting.

Operational readiness also involves:

• identifying material service providers;
• preparing business continuity arrangements; and
• establishing processes for regulatory reporting and prudential monitoring.

A prospective insurer should be able to show that its proposed policies can operate from the commencement of its insurance business, rather than presenting an unfinished plan for later development.

Adding New Products or Insurance Activities

Adding New Products or Insurance Activities

An insurer should review its APRA strategy before launching a materially different product or insurance activity. The first question is whether the activity remains within the insurer’s existing authorisation, registration and prudential framework.

The proposed change should also be assessed against the insurer’s risk profile. Two key prudential standards are relevant:

• CPS 230 requires an APRA-regulated entity to assess the effect of new products, services, geographies and technologies on operational risk.
• CPS 220 requires the risk-management framework to remain consistent with the insurer’s business plan and material risks.

Changes to Ownership or Group Structure

Ownership changes, acquisitions and internal restructures should be tested against the insurer’s existing APRA structure. A transaction may affect whether a NOHC structure is required or remains suitable, and should be reconsidered against the NOHC provisions and the 20% voting-share limit in the Financial Sector (Shareholdings) Act described above.

Transfers, Mergers and Business Restructures

Insurance liabilities cannot always be transferred between entities through an ordinary commercial assignment. Under Section 17B of the Insurance Act, general insurance business generally cannot be transferred to another general insurer, or amalgamated with another general insurer’s business, except under a scheme confirmed by the Federal Court. Sections 17C–17I of the Insurance Act provide further requirements for these schemes.

Private health insurance restructures involve the health benefits fund regime. Sections 31–33 of the Private Health Insurance (Prudential Supervision) Act address changes, restructures, mergers, and acquisitions involving health benefits funds.

Material Changes to Capital, Risk or Outsourcing

A material change to an insurer’s operating model may require APRA notification, approval or other prudential action even where the insurer’s legal entity and formal authorisation remain unchanged. GPS 110, LPS 110 and HPS 110 contain requirements concerning capital positions and certain capital transactions, including planned capital reductions.

CPS 230 requires notification in two key circumstances:

• when an insurer enters into or materially changes an agreement supporting a critical operation; and
• before a material offshoring arrangement is entered into or significantly changed.

The insurer should assess changes to outsourcing, capital, reinsurance, systems and risk controls before implementing them.

Conclusion

Choosing an APRA structure starts with identifying whether the business itself carries insurance risk and whether it is conducting general insurance, life insurance or private health insurance. The selected structure must then be supported by suitable capital, governance, risk management, actuarial and operational capability, and reviewed when products, ownership or group arrangements change.

With that framework in place, contact AFSL House to discuss your proposed insurance structure with our financial law specialists. To assess the relevant APRA authorisation or registration, corporate structure and prudential requirements, contact the financial services insurance lawyers at AFSL House so your business can approach its next stage with a clear plan.

Frequently Asked Questions