EXPLANATORY STATEMENT

Select Legislative Instrument 2010 No. 24

 

Issued by authority of the Minister for Financial Services, Superannuation and Corporate Law

Life Insurance Act 1995

Life Insurance Amendment Regulations 2010 (No. 1)

Section 253 of the Life Insurance Act 1995 (the Act) provides, in part, that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for carrying out or giving effect to the Act.

 

The Regulations simplify the Life Insurance Regulations 1995 (the Principal Regulations) and allow the Australian Prudential Regulation Authority (APRA) to keep a consistent register of information for life companies and the non‑operating holding companies (NOHCs) of life companies. A NOHC is a body corporate that does not carry on a business other than a business consisting of the ownership or control of other bodies corporate.

The Regulations amend the Principal regulations to remove the formal requirement for APRA to hold a register of life insurers, in order for APRA to keep consistent information on life companies and life NOHCs. This amendment is consequential to the passage of the Financial Sector Legislation Amendment (Enhancing Supervision and Enforcement) Act 2009.

 

The Regulations also facilitate the movement of specific technical content out of the Principal Regulations and into prudential standards. As this content is highly technical in nature and similar technical information has been placed in other prudential standards, this content is more appropriately placed in prudential standards.

 

The Regulations also amend Schedule 5 to the Principal Regulations in relation to friendly societies, to insert a reference to prudential standards and reporting standards so that APRA may determine such instruments in relation to friendly societies. Friendly societies that are registered under the Act are similar to life insurance companies, and are subject to a modified regulatory regime under Part 2A of the Act.

 

Details of the Regulations are included in the Attachment.

 

The Act specifies no conditions that need to be satisfied before the power to make the Regulations may be exercised.

 

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

 

The amendments relating to removing the formal requirement for APRA to hold a register of life insurers, and inserting a reference to prudential standards and reporting standards, commence on the commencement of Schedule 1 to the Financial Sector Legislation Amendment (Enhancing Supervision and Enforcement) Act 2009, which is due to be on 27 February 2010.

 

 

 

The amendment relating to the movement of technical content out of the Principal Regulations and into prudential standards commence six months after registration on the Federal Register of Legislative Instruments.

 

The Government has consulted the Australian Prudential Regulation Authority in making these regulations.

 

 

 

Authority: Section 253 of the Life Insurance Act 1995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATTACHMENT

 

 

 

Details of the Life Insurance Amendment Regulations 2010 (No. 1)

Regulation 1 – Name of the Regulations

This regulation provides that the title of the Regulations is the Life Insurance Amendment Regulations 2010 (No. 1).

Regulation 2 – Commencement

This regulation provides that Schedule 1 to the Regulations commence on the commencement of Schedule 1 to the Financial Sector Legislation Amendment (Enhancing Supervision and Enforcement) Act 2009 (the Amendment Act). The Amendment Act received Royal Assent on 27 August 2009. The relevant provision in Schedule 1 to the Amendment Act will commence on proclamation, or six months and one day after the Act received Royal Assent.

This regulation also provides that Schedule 2 to the Regulations commence six months after registration on the Federal Register of Legislative Instruments.

Regulation 3 – Amendment of the Life Insurance Regulations 1995

This regulation provides that the Life Insurance Regulations 1995 (the Principal Regulations) are amended as set out in Schedule 1 and Schedule 2.

Schedule 1 – Amendments commencing on the commencement of Schedule 1 to the Act

Item [1] - Form and content of Register of Life Companies

Item 1 of Schedule 1 to the Regulations removes regulation 11.00 of the Principal Regulations, which prescribes the form and content of the Register of Life Insurers that APRA is required to keep in accordance with section 240 of the Life Insurance Act.

This item is consequential on the passage of the Amendment Act, which extended APRA’s powers in respect of the NOHCs of life companies.

Section 240 of the Act requires that APRA keep a Register of Life Companies. The Act further specifies that, subject to the Act and the Principal Regulations, the Register is to be kept in such form and manner as APRA determines, and the register is required to contain the prescribed information in relation to each registered life company. Section 240 of the Act does not apply to NOHCs of life companies.

Regulation 11.00 of the Principal Regulations prescribes the details of information that must be kept on the Register of Life Companies. As these requirements do not apply to NOHCs, APRA would be required to keep inconsistent information in relation to life companies and their NOHCs following the proclamation of Schedule 1 of the Amendment Act, if regulation 11.00 remained in force.

 

 

 

It is not necessary to specify the form and content of the Register of Life Companies. APRA does not rely on regulation 11.00 of the Principal Regulations for information gathering, and APRA relies on the Financial Sector (Collection of Data) Act 2001 for financial data collection.

Therefore, it is appropriate that the form and content of the Register of Life Companies be left to APRA’s discretion. As a result, regulation 11.00 of the Principal Regulations was removed.

Item [2] - Inserting a reference to prudential standards and reporting standards

Item 2 of Schedule 1 to the Regulations amends Schedule 5 to the Principal Regulations to insert a reference to prudential standards and reporting standards. This amendment is consequential on the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007 (the Simplifying Regulation and Review Act).

The Simplifying Regulation and Review Act established a process for replacing Prudential Rules with prudential standards under the Act. This gives APRA consistent powers to determine prudential standards in respect of prudentially regulated entities under the Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995 and Superannuation Industry (Supervision) Act 1993. APRA may determine reporting standards under the Financial Sector (Collection of Data) Act 2001 in respect of financial sector entities.

The Simplifying Regulation and Review Act established a transition period that would allow APRA to transfer the contents of the Prudential Rules into prudential standards (or reporting standards, as appropriate) by 2011.

As Schedule 5 to the Principal Regulations contained a reference to the Prudential Rules, it was necessary to amend this reference so that it also referred to prudential standards or reporting standards.

Schedule 2 – Amendment commencing six months after registration

Item [1] - Schedule 2 to the Principle Regulations

Item 1 of Schedule 2 of the Regulations removes certain provisions of Schedule 2 to the Principal Regulations, which would be placed into prudential standards. These provisions are the definition of ‘relevant actuarial standard’ and items 1, 2, 3, 4, 5.1, 5.2, 6 and 7 of the table in Schedule 2, which relate to requirements on calculating minimum surrender values for certain types of life policies.

These items are more appropriately placed in prudential standards, which may be determined by APRA under the Act. These items are of a highly technical nature, and similar technical information has been placed in other prudential standards. Placing these items into prudential standards also assists APRA in amending the actual calculation requirements more responsively in line with industry developments.

APRA has in place arrangements for determining the necessary prudential standards before the Principal Regulations take effect, six months after registration of the Regulations on the Federal Register of Legislative Instruments.

Items 5.3 and 8 of the table, Schedule 2, were not incorporated into prudential standards. These items modify the operation of Division 4 of Part 10 of the Act, which is enabled by section 16ZC of

 

the Act. Prudential standards cannot operate to modify the operation of the Act. Therefore, items 5.3 and 8 were not incorporated into the prudential standards.