Prudential Insurance Standard for
Victorian Government insurance
agencies
1 July 2015
The Secretary
Department of Treasury and Finance
1 Treasury Place
Melbourne Victoria 3002
Australia
Telephone: +61 3 9651 5111
Facsimile: +61 3 9651 2062
dtf.vic.gov.au
Authorised by the Victorian Government
1 Treasury Place, Melbourne, 3002
© State of Victoria 2015
You are free to re-use this work under a Creative Commons Attribution 4.0 licence, provided
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ISBN 978-1-922222-64-0 (pdf)
Published July 2015
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Contents
Foreword............................................................................................................ 1
1. Introduction ................................................................................................. 2
2. Coverage and application ............................................................................. 3
3. Accountability .............................................................................................. 4
3.1
3.2
3.3
3.4
Boards ..................................................................................................................................... 4
Attestation of compliance ...................................................................................................... 4
Prompt disclosure of significant events ................................................................................. 4
Roles and responsibilities ....................................................................................................... 4
Board of directors.............................................................................................................. 4
CEO and management....................................................................................................... 5
The Department of Treasury and Finance......................................................................... 5
The Victorian Auditor General’s Office ............................................................................. 5
4. Prudential insurance management .............................................................. 5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Governance ............................................................................................................................ 6
Strategic planning ................................................................................................................... 6
Liability reserving.................................................................................................................... 7
Capital management .............................................................................................................. 7
Pricing ..................................................................................................................................... 7
Investment of assets............................................................................................................... 8
Reinsurance ............................................................................................................................ 8
Actuarial review ...................................................................................................................... 8
Appointment of actuaries ................................................................................................. 9
Liability valuation .............................................................................................................. 9
Additional actuarial roles .................................................................................................. 9
Peer review or second opinion........................................................................................ 10
4.9 Breach reporting ................................................................................................................... 10
4.10 Risk management ................................................................................................................. 10
4.11 Outsourcing .......................................................................................................................... 11
4.12 Fit and proper requirements ................................................................................................ 11
Attachment 1.
Guidance on Breach Reporting ............................................. 12
Significance test.............................................................................................................................. 12
Form of breach notification............................................................................................................ 12
Attachment 2.
Attachment 3.
Guidance on Risk Management ............................................ 13
Guidance on fit and proper policy......................................... 15
General ........................................................................................................................................... 15
Policies and procedures ................................................................................................................. 15
Attachment 4.
Prudential Insurance Standard – Board Attestation .............. 17
Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
i
Foreword
The Victorian Government has significant assets and liabilities in insurance schemes
managed by government agencies.
It is critical that these insurance schemes are managed prudently to ensure the viability of
the schemes, that assets are available to fund liabilities and that the schemes do not
adversely impact on the state government’s finances.
The Prudential Insurance Standard for Victorian Government Insurance Agencies establishes
a policy framework for public sector insurance agencies that integrates with and builds on
existing government wide policies, to provide for the prudential management of the state
insurance schemes.
Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
1
1.
Introduction
The Victorian Government has established a framework of legislation, policy and guidelines
for public sector agencies to prudentially supervise agencies and ensure agencies:

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implement and maintain appropriate financial management practices;
achieve a consistent standard of accountability and financial reporting;
implement appropriate risk management practices; and
maintain appropriate governance frameworks.
Key components of this Prudential Supervision Framework include:

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Audit Act 1994;
Financial Management Act 1994;
Public Administration Act 2004;
Standing Directions of the Minister for Finance;
Victorian Government Risk Management Framework;
Victorian Government Procurement Policy;
Guidelines for the Appointment and Remuneration of Part-time Non-executive Directors;
Government Business Enterprise guidelines; and
State Services Authority Good Practice Guide for Victorian Public Sector Entities.
The Victorian public sector insurance agencies are significant insurance operations with
substantial assets and liabilities and generate substantial premium annually to fund the
liabilities. These liabilities are predominantly claims liabilities to be paid out over many years
into the future. Due to the nature of the liabilities there is significant uncertainty in their
value. It is therefore critical that these insurance agencies are prudentially managed to:
 ensure the assets held are sufficient to fund the liabilities;
 safeguard the interests of policyholders and claimants; and
 minimise the risk of any adverse impact on the state’s financial position and on
consumers.
This Prudential Insurance Standard for insurance agencies establishes clear expectations for
the boards and managements of the agencies, and for the Department of Treasury and
Finance (DTF) in its role as the prudential supervisor. It adds requirements that are specific
to the insurance businesses and makes clear the primary responsibility of the agency board
for complying with the framework.
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Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
2.
Coverage and application
This Prudential Insurance Standard applies to Victorian public sector insurance agencies.
These specifically include:
 WorkSafe;
 Transport Accident Commission; and
 Victorian Managed Insurance Authority.
The Prudential Insurance Standard is structured to complement the existing requirements
and together form a comprehensive Prudential Supervision Framework. The standard
identifies the relevant existing legislation and policies and enhances and extends those
policies to meet the needs of the insurance agencies.
Where a public sector insurance agency believes that the requirements of this Standard are
inappropriate for its particular circumstances, it may propose alternative arrangements to
the Secretary of DTF. Proposals for alternative arrangements must outline the circumstances
that are particular to that agency along with details of, and the rationale underlying, the
proposed arrangements. The Secretary of DTF may approve alternative arrangements for an
agency if satisfied that they achieve the objectives of this Standard.
Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
3
3.
Accountability
3.1
Boards
The board of directors of each public sector insurance agency is accountable for ensuring
the appropriate application of this Prudential Insurance Standard within their agency.
Boards are required to take reasonable steps to satisfy themselves that the policy has been
properly implemented.
3.2
Attestation of compliance
Boards and chief executives of public sector insurance agencies to whom this policy applies,
are required to provide an attestation to DTF that the agencies have appropriate
governance, risk management and prudential management arrangements in place
consistent with this policy and with the board’s expectations.
Compliance with this requirement is documented in Directions of the Minister for Finance
under each agency’s governing legislation. A sample attestation is provided in Attachment 4
to this standard.
The processes and evidence supporting an agency’s attestation of compliance with this
Prudential Insurance Standard should be subject to critical review on a regular basis. It is
anticipated that in most instances this review will be undertaken by an agency’s internal
auditor. However, a board may also choose to outsource this work to a suitably qualified
external party.
The frequency and content of these reviews should be determined having regard to the
nature, scale and complexity of an agency’s operations as well as the findings of past
reviews.
Boards are also required to attest to having satisfied a number of other requirements
including compliance with the Victorian Government Risk Management Framework and the
Standing Directions of the Minister for Finance. Where appropriate, assurance work
undertaken to verify compliance with these other requirements may also be relied upon to
underpin the attestation required under this Standard.
3.3
Prompt disclosure of significant events
The board of directors has an obligation to ensure that significant events relating to the
prudential management of the agency, including events that may materially affect the
application of the Prudential Insurance Standard to the agency, are brought to the attention
of DTF on a timely basis.
3.4
Roles and responsibilities
Board of directors
The board of directors is ultimately accountable for ensuring compliance with this Prudential
Insurance Standard and are required to:
 ensure the establishment of appropriate policies and procedures to give effect to this
Prudential Insurance Standard;
 assign management responsibilities for implementation of the Prudential Insurance
Standard;
 appoint an external actuary. The external actuary is to have access to the board and have
‘whistleblowing’ powers to the board with a reserve power to DTF. These whistleblowing
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Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
powers should be expressly detailed in the engagement letter or contract appointing the
actuary;
 verify compliance with the Prudential Insurance Standard; and
 attest compliance with the Prudential Insurance Standard (including relevant guidance
material attached to this standard), to DTF.
CEO and management
The chief executive and their management team are responsible for implementing the
Prudential Insurance Standard, other Victorian government financial policies and other
relevant board policies.
The Department of Treasury and Finance
In its primary role of managing the Victorian government’s finances, DTF is concerned that
the state’s insurance schemes are prudentially managed and do not adversely impact on the
state’s finances. As such, DTF will liaise with and advise public sector insurance agencies to
assist with an effective and consistent implementation of the Prudential Supervision
Framework. However DTF’s advisory role in no way diminishes or reduces the primary
responsibility of agency boards to ensure effective implementation and ongoing compliance
with the Prudential Supervision Framework.
DTF is responsible for the development and maintenance of this standard but is not
expected to undertake intrusive supervision to ensure compliance with the standard or the
broader framework. However, DTF has the reserve power and authority to undertake or
require such further investigations and enquiries as it considers appropriate. If requested, an
agency is to provide DTF with a copy of any of its policies or other documents referred to in
the Prudential Insurance Standard.
The Victorian Auditor General’s Office
The external audit of each agency by the Victorian Auditor General’s Office (VAGO) under
the Audit Act 1994 is an important element of the prudential supervision framework.
VAGO’s role is limited to that under the Audit Act 1994 and it is not required to supervise
compliance with this framework.
4.
Prudential insurance management
Each agency shall develop and implement policies in accordance with this standard, dealing
with:
 governance;
 strategic planning;
 liability reserving;
 capital management;
 pricing;
 investment of assets;
 reinsurance;
 actuarial review;
 breach reporting;
 risk management; and
 fit and proper requirements.
Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
5
Each agency shall review its financial policies at least once every five years. These policies
should complement existing Victorian whole of government policies (as outlined in
section 1) which together form the Prudential Supervision Framework. These policies should
also be submitted to DTF for formal noting.
4.1
Governance
The board of each agency is ultimately responsible for the sound and prudent operation of
the agency. Where the board delegates authority to management, this must be clearly
specified and well documented. The board must also have processes in place to monitor the
delegated authority and retains responsibility for the delegated authority.
To support a culture of good governance within each agency, the relevant board is required
to:
 maintain a formal charter that specifies the roles and responsibilities of the board;
 assess the board’s performance relative to its objectives at least annually;
 develop and maintain a documented remuneration policy that complies with the
requirements of APRA’s CPS 510 to the extent that it does not conflict with Victorian
Government policy;
 establish a board remuneration committee that operates in accordance with the
requirements of CPS 510 to the extent that this does not conflict with Victorian
Government policy;
 establish a board audit committee that operates in accordance with the requirements of
CPS 510; and
 ensure that its internal policy and contractual arrangements do not restrict or discourage
employers, contractors, auditors or other parties from communication with the Board
and/or DTF.
4.2
Strategic planning
Strategic planning and implementation is a key element of a public sector insurance
agency’s governance framework. Each agency is responsible for the development and
implementation of its own strategies as they relate to the insurance schemes that they
manage.
Each public sector insurance agency is required to:
 develop and implement a strategic plan in accordance with this Prudential Insurance
Standard;
 review its strategic plan at least once every three years; and
 develop and implement annual business plans (including financial targets) for the
implementation of the strategic plan.
The strategic plan and business plans shall contain the elements as set out in the Corporate
planning and performance reporting requirements Government Business Enterprises as
amended from time to time.
Each agency shall provide a copy of its strategic plan, annual business plans and budgets to
DTF on an annual basis once they have been approved by the Board of Directors.
Within three months of the end of each financial year, each agency shall provide a report to
DTF setting out its performance against the objectives set out in the strategic plan and
business plans.
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Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
Please note that these requirements are not intended to be exhaustive and additional
planning and reporting requirements may apply as advised or directed by the Minister from
time to time.
4.3
Liability reserving
Insurance liabilities of statutory insurance agencies are to be established based on actuarial
advice, are to be discounted at a risk-free rate and include a risk margin that provides a 75
per cent probability of sufficiency.
4.4
Capital management
Insurance agencies are required to develop and implement a capital policy approved by the
board of the agency in accordance with this Prudential Insurance Standard and the Risk
Preference Statement issued by the responsible Minister. Each agency shall review its
capital policy at least once every five years. Each insurance agency must act in accordance
with its capital policy.
The capital policy shall specify how the capital of the agency is to be measured and how its
funding ratio is to be expressed. The capital policy shall establish a target funding range,
with a preferred funding level that is unbiased in preference towards the top or bottom of
the range. The policy should clearly state that being outside the range at a particular time is
not of itself significant.
The target funding ratio will be based on the Government’s preferred funding level and the
preferred range shall be determined in accordance with the Risk Preference Statement for
that particular agency as advised by the Minister. This risk preference shall be expressed in
terms of probabilities that the agencies reported funding ratio will move below the lower
bound of the funding ratio range from the mid-point over a one year period.
The capital policy of the agency should discuss at which levels of reported funding ratio the
agency’s board and management would consider taking corrective actions and the possible
nature and timing of those corrective actions. Where the upper or lower bound of the
funding ratio range is breached, the agency is required to submit to the Minister a capital
management plan which proposes a strategy aimed at progressively moving the funding
ratio back to the mid-point of the preferred range over a five year period.
The Capital Policy shall include consideration of the required return on capital or return for
the risk being underwritten and payment of dividends and tax-equivalent payments to the
extent they are relevant to the agency.
4.5
Pricing
Insurance agencies are required to develop, implement and comply with a pricing policy
approved by the board of the agency in accordance with this Prudential Insurance Standard.
Each agency shall review its pricing policy at least once every five years.
The pricing policy shall specify how each agency determines its break-even premium and
how any margin above or below that level is expressed. The investment return to be
assumed in determining the break-even premium should be that expected according to the
agency’s investment objective. The implications of failing to achieve this return are also to
be considered as part of the policy. Each agency’s pricing policy must be consistent with
achieving or maintaining the agency’s target funding ratio level and demonstrate that any
target or projected rate of return on capital or return for the risk being underwritten
adopted by the agency and/or margin in premium is consistent with the target funding ratio.
Financial reports and projections and premium recommendations of each agency shall
include discussion of their relationship to the capital and pricing policies of the agency, and
Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
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DTF shall assess these reports, projections and recommendations in accordance with this
policy framework and the agency’s policy.
4.6
Investment of assets
It is government policy that all the investment assets of the insurance agencies be managed
by the Victorian Funds Management Corporation (VFMC).
Under this arrangement, the board of the insurance agency is not responsible for prudential
management or supervision of the investments. The management responsibility rests with
the board of VFMC and the prudential supervision responsibility rests with DTF.
Each insurance agency has a responsibility to determine investment objectives for the VFMC
and to review the contractual and service level agreements between the agency and VFMC.
An agency’s investment objectives are to be established by the agency’s Board having regard
to the agency’s capital and pricing policies as based on the Government’s risk preferences.
While actual investment outcomes are the responsibility of VFMC, the insurance agencies
have an interest in this as investment performance affects their financial results and
business plans. Therefore, the insurance agencies are responsible for periodically reviewing
investment performance against their investment objectives as well as discussing with
VFMC, on an ongoing basis, the strategic asset allocation and the implications for achieving
their business objectives. If the board of an insurance agency has material reservations in
this respect which it is unable to resolve with VFMC, then it should raise these with DTF.
4.7
Reinsurance
Reinsurance is a key tool to be considered for managing risk in an insurance operation. The
use of reinsurance as risk mitigation should be considered by each agency from time to
time. The board should develop a reinsurance policy having regard to the premium
implications as well as the impact of insurance risk on an agency’s balance sheet risk,
preferred funding range and target ratio. This reinsurance policy should be specifically
included for review in the financial sustainability review detailed below under ‘Additional
actuarial roles’. In considering an approach to reinsurance an agency must consider the
likelihood and potential impact of catastrophic events. An agency’s approach to reinsurance
must be endorsed by the agency’s board.
The nature of the VMIA business is such that reinsurance is an important component of its
prudent financial management and is expected to be a significant component of its
activities. For VMIA the importance of reinsurance is such that the board should consider
the APRA Prudential Standard GPS 230 as a benchmark for its own activities. This does not
imply that it must follow GPS 230 literally, but it should document the nature of, and
reasons for, any differences in its approach.
4.8
Actuarial review
Appropriate use of actuarial skills is an important element of the sound management of an
insurance business. The Prudential Insurance Standard sets out expectations for the ways in
which the insurance agencies will utilise actuarial review, particularly as it relates to
prudential management. It is not the intention to create an inflexible set of rules about
actuarial review, and so the standard is expressed in terms of principles. Each agency is
expected to conduct its affairs in a way that reflects these principles and reflects the
particular needs and circumstances of the agency at the time.
A copy of any, or all, of the actuarial reports completed under this standard must be
provided to DTF upon request.
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Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
Appointment of actuaries
Each agency shall engage an external actuarial firm to undertake valuation of its insurance
liabilities (and other work as considered appropriate and consistent with this standard).
The actuarial consultant must:
 be a firm with proven capacity and capability to undertake the scope of work;
 nominate a designated principal with sufficient experience and reputation to deliver
credible advice and who meets ‘fit and proper’ and independence tests; and
 be appointed from time to time in accordance with the Victorian Government
Procurement Policy.
Liability valuation
A liability valuation must be obtained at least once each year, to coincide with preparation
of the annual report. Each agency should also consider the need for actuarial valuations to
coincide with significant decisions, for example pricing.
These are minimum requirements - agencies are not restricted from employing actuaries inhouse, undertaking other work in-house or completing valuations more frequently than the
minimum specified.
An agency may appoint more than one external actuary for different tasks provided there is
no ‘actuary shopping’ and no gaps in the coverage of the agency’s insurance liabilities.
The relevant actuary should be independent of the agency and the Victorian Government,
applying normal professional standards of independence. The actuary need not be
independent of other contractors or service providers to the agency such as internal audit
providers. The critical test is whether the actuary is in a position to give objective advice.
Additional actuarial roles
In addition to the liability valuation there are important actuarial roles in premium setting,
costing of scheme changes and broader issues of financial sustainability.
The principle of this standard is that the board should obtain and consider actuarial advice
when relevant, although the responsibility for some decisions rest with the board and for
other decisions with the government.
The board of the agency should obtain and consider actuarial advice in the following
situations, if they are regarded as material to the prudential management of the insurance
business:
 premium setting/review - significant decisions about premium rates (which should be no
less frequent than annual);
 scheme changes - major changes to benefits and entitlements, whether by legislative
change or some other force such as legal decisions or changes in other jurisdictions; and
 financial sustainability - every three to five years the board should obtain actuarial
advice on financial sustainability of the scheme having regard to its financial policies,
scheme trends and external forces.
The financial sustainability review is broadly equivalent to the financial condition report
required by APRA for authorised insurers, but is required less frequently and has a
somewhat different focus. It is expected that it will be linked with the agency’s own review
of its financial policies in accordance with this Standard. To the extent that the agency is
reviewing its policies under this Prudential Insurance Standard from time to time it should
also consider the relevance of actuarial advice on those policies.
Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
9
Peer review or second opinion
This Standard does not establish specific requirements for an annual peer review or second
opinion on actuarial liability valuations or other advice. The standards above are considered
sufficient for sound prudential supervision.
Nevertheless, it remains true that (as with any management function) there is benefit in a
fresh look on occasions, and there may be times when the management or board of an
agency would value a second opinion on some issue. In addition such reviews can assist as a
risk mitigation strategy and can be considered as part of an agency’s risk management
policy.
The board of each agency should determine the need, frequency and scope of peer reviews
having regard to the circumstances of the agency. These circumstances may include: funding
levels, current/emerging trends and issues, internal capacity, length of tenure of the current
actuary. Boards should note that some form of peer review of the most important issues
every three to five years reflects good practice.
Each agency should be aware of the needs of VAGO in respect of audit review of critical actuarial
advice. This Standard requests the agencies and VAGO cooperate in considering and engaging
actuarial second opinions to achieve best value for the Government of Victoria.
4.9
Breach reporting
If an insurance agency becomes aware that it has breached (or is likely to breach)
Government legislation, policies, guidelines or this Prudential Insurance Standard and that
breach is ‘significant’, it must give DTF a written report regarding the breach.
If a breach will potentially impact on the reputation of the Minister, the Government or DTF, then
the breach must be notified as soon as the agency becomes aware of it.
In relation to other breaches of the prudential requirements, a significant breach must be
notified within 10 business days after the agency becomes aware a breach has occurred (or
is likely to occur).
Refer to Attachment 1 for guidance on applying the significance test and the form of the
breach notification to DTF.
4.10 Risk management
The Victorian Government Risk Management Framework provides for a minimum risk
management standard across public sector entities. Guidance in relation to the application
of the Victorian Government Risk Management Framework to insurance agencies is set out
in Attachment 2.
This Standard sets out additional risk management requirements for public sector insurance
agencies as follows:
(a) each public sector insurance agency shall provide a copy of its Risk Management Policy
to DTF; and
(b) each agency shall notify DTF when any of the following events occur:
 a material change to the Risk Management Policy (including any new risk or any
risk which has been re-rated with a higher risk rating);
 a material risk event (i.e. one of the risks actually eventuates); or
 a significant breach of the Risk Management Policy.
If a material risk event occurs, then DTF must be notified as soon as the agency
becomes aware of it. If there is a material change to the Risk Management Policy or a
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1 July 2015
significant breach of the Risk Management Policy, then DTF must be notified within 10
business days after the agency makes the change or becomes aware the breach has
occurred.
(c) Each insurance agency must have a designated risk management function in
accordance with APRA’s Prudential Standard CPS 220: Risk Management (CPS 220), as
amended.
(d) The Board of Directors of each agency must have a Board Risk Committee (BRC) that meets
the requirements of APRA’s Prudential Standard CPS 510: Governance, as amended.
4.11 Outsourcing
All outsourcing arrangements involving material business activities must be subject to
appropriate due diligence, approval and ongoing monitoring. In addition to complying with
Victorian Government procurement policy they must comply with APRA’s CPS 231.
Please note that this requirement does not apply to the investment of assets with VFMC
under the Centralised Investment Model.
4.12 Fit and proper requirements
The fitness and propriety of the board of directors and key executive managers to manage
public sector insurance agencies is of critical importance. This fit and proper standard is
designed to ensure that the insurance agencies are managed and overseen competently, by
honest and trustworthy individuals.
The appointment and removal of directors of the boards of each insurance agency is
prescribed by legislation. The board of directors of each agency shall develop processes by
which to assess and monitor fitness and competency of directors and key executive
managers to ensure they have (both collectively and individually) the range of skills and
experience needed for the effective and prudent operation of the insurance agency.
Key ‘executive managers’ of the agency are managers who are central to the ongoing
management of the entity.
The fit and proper framework and mechanisms should include the following elements:
 clearly defined and documented competencies for the board collectively and each
director and each key executive manager position individually, including minimum
technical requirements for education, technical and practical qualifications;
 an ongoing training and development program to ensure that all directors and key
executive managers develop and maintain an appropriate level of knowledge to meet the
competencies relevant to the position held;
 an annual declaration process to confirm that directors and key executive managers are
not ‘disqualified persons’ and that he/she continues to meet this fitness and propriety
standard; and
 regular assessment of the collective competencies of directors.
The board shall report to DTF any inadequacies identified in the collective competencies of
the directors which cannot be managed through additional or ongoing training.
There should be regular internal review of the fit and proper framework and processes.
Additional guidance in relation to the fit and proper standard is set out in Attachment 3.
Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
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Attachment 1. Guidance on Breach Reporting
Significance test
‘Significant’ has several meanings, but the most appropriate to use is ‘fairly large’ – under
this meaning the matter needs to pass some threshold of amount or quantity, something in
excess of a triviality or technicality. This test is designed to bring issues of concern to the
attention of DTF which it would then assess and act upon as it saw fit.
Throughout this Attachment, references to a breach should be taken to include a likely
breach.
A breach is (or will be) significant having regard to any one or more the following factors:
1. the number or frequency of similar previous breaches;
2. the impact the breach has or will have on the agency’s ability to fulfil its obligations;
3. the extent to which the breach indicates that the agency arrangements to ensure
compliance with relevant law or the Prudential Insurance Standard might be inadequate;
4. the actual or potential financial loss associated with the breach; and/or
5. any other relevant factors including the impact the breach may have on the reputation of
the Minister or the Government or DTF.
Each reported breach needs to be assessed against each of the five factors to determine
whether the matter is significant for reporting to DTF. While it may be possible that one of
the five factors may, in itself, be significant it is more likely that a combination of the factors,
in aggregate, renders the breach significant.
Form of breach notification
Any notification of a significant breach under the Prudential Insurance Standard should
include:
 name of the agency to which the breach relates;
 the legislation, policy, guideline or prudential standard which has been breached;
 nature and impact of the breach and how the breach was identified;
 date the breach occurred (or the expected risk period for likely breaches);
 date the agency became aware of the breach;
 estimate of the financial value of the breach; and
 rectification action proposed or undertaken.
The breach notification must be signed by the Chief Executive Officer or his/her delegate.
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1 July 2015
Attachment 2. Guidance on Risk Management
Managing risk is an important component of public sector governance. The Victorian
Government Risk Management Framework provides for a minimum risk management
standard across public sector entities.
Agencies must develop, implement and maintain a sound and prudent risk management
framework that comprises the agencies’ policies and procedures, risk management
processes, internal controls and independent review process.
The risk management framework should reflect the nature, scale and complexity of the
agency and the operations of the agency. As part of the risk management framework, the
board should develop a risk management policy (which could comprise one or more
documents) that states:
 the agency’s risk management culture and approach to ensuring a strong risk
management culture is adopted throughout its operations;
 segregation of duties and clearly defined roles and responsibilities for risk management;
 the process for identifying and assessing all material risks that could adversely affect the
agencies current and future operations and the associated controls. The risks covered
should include (but not be limited to):
– governance (including strategic risks);
– technology (including privacy risks);
– outsourcing;
– resourcing;
– investment;
– operational;
– business continuity management;
– reputation; and
– management of stakeholders (including members, beneficiaries, sponsoring
organisations/bodies and their representatives);
 the process for establishing, implementing and testing mitigation strategies and control
mechanisms for material risks;
 the process for reviewing and updating the policy and risks (including identification of
new risks) and the events which would trigger a review or update;
 the process for monitoring, communicating and reporting risk issues, including escalation
procedures for the reporting of material events and incidents;
 the provision of relevant documents and information to DTF as required under the
Prudential Insurance Standard; and
 the process for identifying and reporting significant compliance failures in relation to the
risk management policy.
Prudential Insurance Standard for Victorian Government insurance agencies
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The risk management policy must be:
 reviewed at least annually and whenever there is a material change to the risk profile of
the agency; and
 audited by an approved auditor annually and the auditor must attest that the framework
adopted by the agency to identify, assess, control, report and review the risks of the
agency has been implemented and is operating effectively.
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Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
Attachment 3. Guidance on fit and proper policy
General
Directors on the board of a public entity are ‘public officials’ under the Public Administration
Act 2004 and are bound by the public sector values of the Act (s7). These values should be
taken into account when any agency develops its policies and procedures regarding the
conduct of the agency and directors. The public sector values are:
 responsiveness;
 integrity;
 impartiality;
 accountability;
 respect;
 leadership; and
 human rights.
The agency must possess relevant attributes that enable it to properly discharge the duties
and responsibilities of the agency in a prudent manner.
In terms of ‘propriety’, each director and key executive manager must meet the standard
individually. It is generally accepted that a disqualified person should not act as a director of
a public sector insurance agency. Grounds for disqualification include conviction of an
offence involving dishonesty and insolvency.
In terms of ‘fitness’, the board and key executive managers may meet the standard on a
collective basis.
Policies and procedures
Each agency should have documented processes to assess whether relevant persons are fit
and proper to act in their position in relation to the insurance agency. The policy and
procedures do not need to be documented separately, but can form part of other
governance related policies.
The policies and procedures should contain:
 a description of the Government and the agency’s requirements in relation to fitness and
propriety (including minimum technical, educational or other qualifications). The
requirements should take into account the operational structure of the agency, its size,
asset level and complexity;
 an assessment process to determine whether an individual is appropriate to act as a
director or key executive manager and whether the agency as a whole meets the
standard;
 a description of the induction and training programs;
 procedures for identifying, declaring and dealing with conflicts of interest;
Prudential Insurance Standard for Victorian Government insurance agencies
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 a process for regular checking that the directors and key executive managers are not
disqualified persons (including annual declarations to this effect);
 a process for dealing with persons who are not fit and proper, including a process for
removal in circumstances where it is necessary to do so; and
 a process for regular review of the processes and procedures.
The agency is not required to be an expert in all matters related to the operation of the
insurance agency. The agency can outsource certain activities under appropriate
arrangements (e.g. investment management, custodian services, and actuarial services). The
agency remains responsible for all decisions; therefore, in circumstances where the agency
receives advice from a third party expert, the agency must be sufficiently skilled to
understand the advice.
The agency’s risk management framework should reflect the key risks as they relate to the
fitness and propriety of the directors and key executive managers.
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Prudential Insurance Standard for Victorian Government insurance agencies
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Attachment 4. Prudential Insurance Standard – Board
Attestation
To the Department of Treasury and Finance
Attestation by the Board of Directors of [agency]
To the Prudential Insurance Standard
[This attestation of compliance with the Prudential Insurance Standard should be completed as
part of the annual reporting cycle and submitted to the Department of Treasury and Finance. It is
to be completed by the Chair of the Board and the CEO for and on behalf of the Board.]
The Board of Directors of [the agency] certify that:
for the year ended 30 June [year], with the exception of matters stated in Schedule 1,
[Name of the agency] has established and maintained appropriate prudential policies consistent
with the Victorian Government’s Prudential Insurance Standard and that the agency has complied
with its policies and the Prudential Insurance Standard. The Board verifies this assurance and that
compliance with the standard has been subject to critical review within the past 12 months.
Schedule 1
[indicate nil where there are no matters to be reported]
Signed for and on behalf of the Board
Chair of the Board
Chief Executive Officer
Date:
Date:
Prudential Insurance Standard for Victorian Government insurance agencies
1 July 2015
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dtf.vic.gov.au
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Prudential Insurance Standard for Victorian Government insurance agencies
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