APRA confirms life insurer/super fund profit share deals

Mike Taylor

Managing Editor and Publisher

22 January 2025

Profit-sharing arrangements between group life insurers and superannuation trustees do occur, and more typically with larger superannuation funds, according to the Australian Prudential Regulation Authority (APRA).

APRA has confirmed the profit-sharing arrangements in response to questions posed by NSW Liberal Senator, Andrew Bragg, during Senate Estimates.

It said the most common ay APRA had observed the profit-sharing deals was through premium adjustment mechanisms (PAMs).

“PAMs are profit sharing arrangements that have a framework/policy on how favourable claims experience is applied, for example, to keep member premiums more stable,” APRA said.

In confirming the arrangements, APRA sough to explain that superannuation funds needed to avoid conflicts of interest and act in members’ best interests.

What is more, it said that it would not hesitate to act if it had concerns about the arrangements.

“Under Prudential Standard SPS 250 Insurance in Superannuation (SPS 250), trustees must ensure that the engagement of the insurer (including any profit sharing arrangement) is at arm’s length and in the best financial interests of beneficiaries, and they must consider how they would apply their conflicts management framework to any conflicts that may arise from an insurance arrangement. These matters must be considered on entering into an insurance arrangement and on a regular basis. In addition, SPS 250 requires insurance arrangements to include a right for an RSE licensee to terminate an insurance arrangement if it is considered to not be in the best financial interests of the beneficiaries,” APRA said.

“The Superannuation Industry (Supervision) Act 1993 (SIS Act) captures similar requirements including the requirement for trustees to act in the best financial interests of beneficiaries. The SIS Act also requires trustees to do everything that is reasonable to pursue an insurance claim for the benefit of a beneficiary, where there are reasonable prospects of success.”

“If APRA had concerns that trustees were not meeting regulatory requirements as a result of a profit sharing arrangement, APRA would not hesitate to probe entities in relation to the concerns and, if necessary, take any necessary action using the tools and powers available to us.”