Private Health Insurance (Health Benefits Fund Administration) Rules 2007 (Cth)
Private Health Insurance (Health Benefits Fund Administration) Rules 2007
as amended
made under section 333‑25 of the
Private Health Insurance Act 2007
Compilation start date: 1 July 2014
Includes amendments up to: Private Health Insurance (Health Benefits Fund Administration) Amendment Rule 2013 (No. 1)
About this compilation
This compilation
This is a compilation of the Private Health Insurance (Health Benefits Fund Administration) Rules 2007 as in force on 1 July 2014. It includes any commenced amendment affecting the legislation to that date.
This compilation was prepared on 1 July 2014.
The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of each amended provision.
Uncommenced amendments
The effect of uncommenced amendments is not reflected in the text of the compiled law but the text of the amendments is included in the endnotes.
Application, saving and transitional provisions for provisions and amendments
If the operation of a provision or amendment is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.
Modifications
If a provision of the compiled law is affected by a modification that is in force, details are included in the endnotes.
Provisions ceasing to have effect
If a provision of the compiled law has expired or otherwise ceased to have effect in accordance with a provision of the law, details are included in the endnotes.
Contents
Part 1—Preliminary 1
1............ Name of Rules............................................................................................................... 1
2............ Commencement............................................................................................................. 1
3............ Definitions..................................................................................................................... 1
3A......... Approved loss absorbing subordinated debt................................................................. 6
Part 2—Expenditure and application of health benefits funds 7
4............ Mortgages and charges.................................................................................................. 7
5............ Borrowings................................................................................................................... 7
Part 3—Restructure of health benefits funds 9
6............ Restructure under section 146‑1 of the Act................................................................... 9
7............ Requirements in relation to a restructure...................................................................... 10
8............ Criteria for approving or refusing a restructure........................................................... 12
9............ How a restructure takes place...................................................................................... 13
10.......... Notification to interested persons of the outcome of an application............................. 13
Part 4—Merger and acquisition of health benefits funds 15
10A....... Interpretation............................................................................................................... 15
11.......... Merger and acquisition under section 146‑5 of the Act............................................... 15
12.......... Requirements in relation to a merger or acquisition..................................................... 17
12A....... Transfer from an incorporated association................................................................... 19
13.......... Criteria for approving or refusing a merger or acquisition........................................... 20
13A....... Additional criteria for approving or refusing a merger or acquisition.......................... 21
14.......... How a merger or acquisition takes effect..................................................................... 21
15.......... Notification to interested persons of outcome of a section 146‑5 application.............. 22
Part 5—Risk equalisation jurisdictions 23
16.......... Areas that are risk equalisation jurisdictions................................................................ 23
17.......... Working out the policy group for a policy that has 2 or more policy holders whose addresses are not in the same risk equalisation jurisdiction............................................................................................... 23
Part 6—Solvency and capital adequacy standards 24
18.......... Solvency standard....................................................................................................... 24
19.......... Capital adequacy standard........................................................................................... 24
Schedule 1—Mergers and acquisitions 25
1............ Trust............................................................................................................................ 25
2............ Actions for transfer of assets and liabilities for purposes of subparagraph 14(b)(ii) of the Rules 25
Schedule 2—Solvency standard 27
Part 1—Preliminary 27
1............ Purpose of solvency standard...................................................................................... 27
Part 2—Complying with the solvency standard 28
2............ Application of Australian Accounting Standards........................................................ 28
3............ Estimates, forecasts and calculations........................................................................... 28
4............ Complying with the solvency standard........................................................................ 28
5............ Cash management amount........................................................................................... 29
6............ Solvency supervisory adjustment amount................................................................... 29
Schedule 3—Capital adequacy standard 31
Part 1—Preliminary 31
1............ Purpose of capital adequacy standard.......................................................................... 31
Part 2—Complying with the capital adequacy standard 32
2............ Application of Australian Accounting Standards........................................................ 32
3............ Estimates, forecasts and calculations........................................................................... 32
4............ Complying with the capital adequacy standard............................................................ 32
5............ Prudent liabilities amount............................................................................................ 32
6............ Outstanding claims liability amount............................................................................. 33
7............ Future claims liability amount...................................................................................... 33
8............ Risk equalisation trust fund accrued liability amount................................................... 33
9............ Other liabilities amount................................................................................................ 33
10.......... Stress test amount........................................................................................................ 33
11.......... Operational risk amount.............................................................................................. 34
12.......... Capital adequacy supervisory adjustment amount....................................................... 34
13.......... Capital adequacy maximum default loss amount......................................................... 36
14.......... Transitional provisions................................................................................................ 36
Part 3—Capital management policy 37
15.......... Capital management policy.......................................................................................... 37
Endnotes39
Endnote 1—About the endnotes 39
Endnote 2—Abbreviation key 40
Endnote 3—Legislation history 41
Endnote 4—Amendment history 42
Endnote 5—Uncommenced amendments [none] 43
Endnote 6—Modifications [none] 43
Endnote 7—Misdescribed amendments 44
Private Health Insurance (Health Benefits Fund Administration) Amendment Rule 2013 (No. 1) 44
Endnote 8—Miscellaneous [none] 45
Part 1—Preliminary
1 Name of Rules
These Rules are the Private Health Insurance (Health Benefits Fund Administration) Rules 2007.
2 Commencement
These Rules commence:
(a) if the Rules are registered before the Act commences—at the same time as the Act commences; or
(b) if the Rules are registered on or after the day on which the Act commences—on the date on which the Rules are registered,
whichever occurs first.
3 Definitions
Note: Terms used in these Rules have the same meaning as in the Act—see section 13 of the Legislative Instruments Act 2003. These terms include:
appointed actuary
approved form
assets
capital adequacy direction
capital adequacy standard
Council
cover
for profit insurer
health care provider
health benefits fund
health‑related business
net asset position
policy group
policy holder
private health insurer
officer [of a private health insurer]
referable
risk equalisation levy
Risk Equalisation Trust Fund
rules [of an insurer]
solvency direction
solvency standard
terminating management
In these Rules:
Act means the Private Health Insurance Act 2007.
approved loss absorbing subordinated debt of a health benefits fund, means a security or other debt instrument, which has been approved by the Council under rule 3A.
Australian Accounting Standards means the accounting standards issued by the Australian Accounting Standards Board.
authorised deposit‑taking institution means a body corporate in relation to which an authority under subsection 9(3) of the Banking Act 1959 is in force.
billed risk equalisation trust fund liability means the amount of risk equalisation trust fund payments, on the relevant day, for which an invoice from the Council has been received by the insurer but that have not yet been paid by the insurer.
borrowings of a health benefits fund are borrowings which would be permitted under Rule 5 of these Rules.
capital adequacy maximum default loss amount of a health benefits fund, has the meaning given by clause 13 of Schedule 3.
capital adequacy standard means the capital adequacy standard, referred to in Part 6, and as set out in Schedule 3 of these Rules.
capital adequacy supervisory adjustment amount of a health benefits fund, has the meaning given by clause 12 of Schedule 3.
cash has the meaning given in Australian Accounting Standards Standard 107.6.
cash management amount of a health benefits fund, has the meaning given by clause 5 of Schedule 2.
central estimate means an estimate of the mean of the range of possible outcomes of any calculation required under either the solvency standard or the capital adequacy standard.
constructive obligation has the meaning given in the liability adequacy test in Australian Accounting Standard Board Standard 137.
financial interdependency in relation to a group of related counterparties, means a circumstance in which the financial soundness of one counterparty in the group may affect the financial soundness of another counterparty in the group.
future claims liability of a health benefits fund, is the amount calculated, at a 75% probability of adequacy, in accordance with the following calculation:
(a) the sum of:
(i) future cash flows from future claims under current policies; and
(ii) the additional risk margin; and
(iii) the sum of related intangible assets and related deferred acquisition costs;
where all elements of the future claims liability calculation are defined in a manner consistent with the definitions contained in the liability adequacy test set out in the Australian Accounting Standard Board Standard 1023, except that discounting is not applied and the constructive obligation component is not included.
future claims liability amount of a health benefits fund, has the meaning given in clause 7 of Schedule 3.
group of related counterparties means two or more counterparties which are related parties, or are linked by either of the following:
(a) financial interdependency; or
(b) any other connection or relationship that might expose the counterparties in the group to a single risk.
health business revenue estimate of a health benefits fund, is its premium income estimate plus a central estimate of the gross revenue that it will earn in relation to its health related business in the 12 months after the relevant day, less any premium ceded to reinsurers in relation to health‑related business within that 12 month period.
liquidity management plan of a health benefits fund, has the meaning given in subclause 4(3) of Schedule 2.
maximum default loss means the largest uncompensated loss of the health benefits fund arising from any loss, other than losses arising from assets held with an Australian Government counterparty or deposits held with an authorised deposit‑taking institution, in relation to:
(a) any asset or any group of related assets of the health benefits fund; and
(b) any individual counterparty or group of related counterparties.
operational risk amount of a health benefits fund, has the meaning given by clause 11 of Schedule 3.
other liabilities amount of a health benefits fund, has the meaning given in clause 9 of Schedule 3.
outstanding claims liability has the meaning given by the Australian Accounting Standard Board Standard 1023, where:
(a) the risk margin applied produces a 75% probability of adequacy; and
(b) discounting is not applied; and
(c) any outstanding claims liabilities from health related business are incorporated; and
(d) receipts from the risk equalisation trust fund are incorporated.
outstanding claims liability amount of a health benefits fund, has the meaning given in clause 6 of Schedule 3.
premium income estimate of a health benefits fund, is the central estimate of the amount of health insurance business premium income that it will earn in the 12 months after the relevant day, where the premium increase assumption is the lesser of:
(a) the central estimate of the amount of revenue the private health insurer’s health benefits fund will earn in the 12 months after the relevant day; and
(b) the amount determined in accordance with the methodology published by the Council, as amended from time to time.
previously approved subordinated debt of a health benefits fund, means debt of a kind previously approved by the Council, as subordinated debt, for the purposes of the solvency standard or the capital adequacy standard established by these rules, as in force as immediately prior to 31 March 2014.
probability of adequacy means the percentile required to meet individual elements of either the solvency standard or the capital adequacy standard.
prudent liabilities amount, of a health benefits fund, has the meaning given by clause 5 of Schedule 3.
Regulations means any regulations made under the Act.
related party has the meaning given by the Australian Accounting Standards Board Standard 124.
relevant day means the day on which the calculation is based for the purposes of assessing compliance with the solvency standard or the capital adequacy standard, as the case may be.
risk equalisation trust fund accrued liability amount of a health benefits fund, has the meaning given in clause 8 of Schedule 3.
Rules means the Rules made under the Act including these Rules.
single equivalent units (SEUs) has the meaning given in Part 1, Rule 4 of the Private Health Insurance (Risk Equalisation Policy) Rules 2007.
size margin of a health benefits fund, is the lesser of:
(a) the margin based on the number of SEUs of the health benefits fund as calculated by the following formula:
0.75 × (SEUs) ^ ‑0.16; and
(b) 0.25.
solvency standard means a solvency standard, as referred to in Part 6, and set out in Schedule 2 of these Rules.
solvency supervisory adjustment amount of a health benefits fund, has the meaning given by subclause 6(2) of Schedule 2.
stress test amount of a health benefits fund, has the meaning given by subclause 10(1) of Schedule 3.
stressed net cash outflow amount of a health benefits fund means the
98th percentile estimate of the net cash outflows for a 30 day period from the relevant day, where:
(a) net cash outflow means the cash outflows from the health benefits fund less cash inflows to the health benefits fund; and
(b) cash outflows are limited to cash payments required to meet all liabilities that are, or might become, referable to the health benefits fund; and
(c) cash inflows represent cash receipts arising from:
(i) premiums payable under policies of insurance that are referable to the fund; and
(ii) income from the investment of assets of the fund held on the relevant day including amounts receivable on maturity and excluding revenues from the sale of assets, except where a binding agreement for the sale has been entered into prior to the relevant day; and
(iii) any other money due to be received by the insurer in connection with its conduct of the business of the fund.
stressed investment income estimate of a health benefits fund, has the meaning given by subclause 10(3) of Schedule 3.
stressed net margin estimate of a health benefits fund, has the meaning given by subclause 10(2) of Schedule 3.
stressed other income estimate of a health benefits fund, has the meaning given by subclause 10(4) of Schedule 3.
subordinated debt means the sum of any previously approved subordinated debt and any approved loss absorbing subordinated debt.
unbilled calculated deficit means the central estimate of the sum of all the amounts calculated for each risk equalisation jurisdiction, and under the following conditions:
(a) in accordance with Part 2, Rule 11(1)(e) of the Private Health Insurance (Risk Equalisation Policy) Rules 2007;
(b) over the period up to the relevant day;
(c) where the risk equalisation trust fund payments or receipts have accrued but have not yet been paid; and
(d) where an invoice, notice or receipt from the Council has not yet been received by the private health insurer, for that period.
unbilled gross deficit means the central estimate of the sum of the eligible benefits notionally allocated to the aged‑based pool and the high cost claimants pool, calculated for each risk equalisation jurisdiction, and under the following conditions:
(a) in accordance with Part 2, Rule 11(1)(a) of the Private Health Insurance (Risk Equalisation Policy) Rules 2007;
(b)over the period up to the relevant day;
(c) where the risk equalisation trust fund payments or receipts have accrued but have not yet been paid; and
(d) where an invoice, notice or receipt from the Council has not yet been received by the private health insurer, for that period.
uncompensated loss means the likely net loss after insurance, derivative, recoveries, and compensation.
unexpired risk liability has the meaning given in the liability adequacy test in the relevant Australian Accounting Standards Board Standard 1023.
xth percentile means the percentile with which the:
(a) net margin for the health insurance business; and
(b) investment income; and
(c) health related business income and all other income, less associated expenses;
must be measured at, in order to achieve a second percentile profit margin, incorporating allowance for correlation between (a), (b) and (c).
3A Approved loss absorbing subordinated debt
(1) An instrument or agreement of issue of approved loss absorbing subordinated debt must be approved by the Council prior to the time of issue.
(2) The Council must consider the requirements in subclause (3) and have regard to the quantum of the proposed issue and the timing for draw down, in making its decision on approval.
(3) Approved loss absorbing subordinated debt must be created by a debt instrument or agreement which meets and continues to meet the following terms and conditions:
(a) it must comprise a mechanism which specifies the conditions and process for loss absorption, through diminution of value, conversion or other means, of the instrument or agreement on a going concern basis, such that prior to non‑compliance with the capital adequacy standard the value of the debt would be reduced to the relevant extent, and if necessary exhausted; and
(b) it must have a minimum term of 10 years from the commencement of the loan; and
(c) there must be no circumstances where repayment may be accelerated or called at the lender’s or any third party’s option; and
(d) interest payments must not be payable where the payment of these would cause the fund to breach the capital adequacy standard; and
(e) interest payment obligations may be capitalised and interest may be charged on capitalised interest; and
(f) capital repayments must not be made where repayment would cause the fund to breach the capital adequacy standard; and
(g) delayed capital repayments may be subject to continuing interest charges, on the interest charge and repayment conditions specified in this paragraph.
Part 2—Expenditure and application of health benefits funds
4 Mortgages and charges
(1) For the purposes of paragraph 137‑10(3)(b) of the Act, the purpose for which a private health insurer may mortgage or charge an asset of a health benefits fund, or funds, conducted by the insurer is that the mortgage or charge is for the sole purpose of the benefit of the business of the fund or funds.
(2) A mortgage or charge referred to in subrule (1) is subject to the conditions that it:
(a) only secures a borrowing that is permitted under these Rules; and
(b) does not secure a liability that is not a liability incurred, or to be incurred, by the fund, or funds, for the business of the fund or funds; and
(c) will not adversely impact on the insurer’s ability to:
(i) maintain the capital adequacy of the fund in accordance with the capital adequacy standard; or
(ii) comply with a capital adequacy direction given to the insurer; or
(iii) maintain the standards of solvency in accordance with the solvency standard; or
(iv) comply with a solvency direction given to the insurer.
(3) A mortgage or charge is subject to the condition that:
(a) the mortgage or charge complies with the insurer’s risk management statements or policies that have been developed with the advice of the insurer’s appointed actuary and approved by the board of the insurer; or
(b) before entering into the transaction for the mortgage or charge, the insurer obtains and considers advice from its appointed actuary on the matters referred to in subrule (2) in respect of that mortgage or charge.
Note: Section 137‑15 of the Act provides that a transaction entered into in contravention of section 137‑10 is of no effect unless the Federal Court makes an order in respect of the transaction, or the transaction is included in a class of transactions specified in these Rules to be transactions to which section 137‑15 of the Act applies.
5 Borrowings
(1) For subsection 137‑10(4) of the Act, a private health insurer must not borrow money for the purposes of the business of a health benefits fund conducted by the insurer unless the borrowing is:
(a) by way of a subordinated debt; or
Note: Subordinated debt is defined in rule 3.
(b) by means of a bank overdraft; or
(c) to cover settlement of a transaction for the acquisition of an asset that is to be an asset of the fund, but only where the period of the borrowing does not exceed 90 days and the amount borrowed does not exceed 10% of the value of the assets of the fund following the acquisition; or
(d) otherwise, for the sole purpose of the benefit of the business of the fund, but only where the borrowing would not result in the total amount of principal outstanding under all borrowings, excluding the amount of a subordinate debt, exceeding the greater of 10% of the assets of the fund or 50% of the amount of free assets of the fund.
(2) In this rule, free assets of the fund means assets in excess of the capital adequacy and solvency requirements in accordance with the capital adequacy standard and solvency standard.
Note: Section 137‑15 of the Act provides that a transaction entered into in contravention of section 137‑10 is of no effect unless the Federal Court makes an order in respect of the transaction, or the transaction is included in a class of transactions specified in these Rules to be transactions to which section 137‑15 of the Act applies.
Part 3—Restructure of health benefits funds
Restructure under section 146‑1 of the Act
(1) A private health insurer may apply to the Council in the approved form for approval under section 146‑1 of the Act of a restructure of its health benefits fund or funds.
(2) In the application, the insurer must set out the restructure proposal (the restructure proposal) by:
(a) identifying the date on which, subject to the Council’s approval and compliance with the requirements of the Act, the Regulations and the Rules, the restructure proposal is to take effect (the restructure date); and
(b) identifying which funds of the insurer are to be restructured under the restructure proposal (the restructuring funds); and
(c) identifying the transferring fund (the transferring fund), being the fund whose policies are to become referable to another fund or other funds of the insurer (the receiving fund(s)) on the restructure date; and
(d) identifying which policy group or groups of the transferring fund are to become referable to the receiving fund(s) on the restructure date; and
(e) stating the risk equalisation jurisdiction or jurisdictions for each receiving fund and other funds of the insurer; and
(f) stating for each receiving fund whether the fund is existing or proposed; and
(g) if the restructure involves more than one receiving fund, specifying which policy group or groups are to become referable to which of the receiving funds on the restructure date; and
(h) if the restructure would result in the insurer having more than one health benefits fund in respect of a particular risk equalisation jurisdiction, explaining how that result would be consistent with section 134‑1 of the Act; and
(i) specifying which of the liabilities incurred for the purposes of the transferring fund, including policy liabilities, are to become treated as incurred for the purposes of a receiving fund on the restructure date; and
Note: The specification which is sufficient for this rule is stated in subrule (3).
(j) specifying which of the assets of the transferring fund are to become assets of a receiving fund on the restructure date; and
Note: The specification which is sufficient for this rule is stated in subrule (3).
(k) explaining why the assets and liabilities which are to be transferred under the restructure represent a reasonable estimate within the meaning of paragraph 146‑1(2)(a) of the Act of what would, immediately before the restructure, be the net asset position of the transferring fund; and
(l) if there is more than one receiving fund, explaining why the distribution of assets and liabilities between the restructuring funds is fairly distributed within the meaning of paragraph 146‑1(2)(aa) of the Act; and
(m) if it is proposed that some assets of the transferring fund will not become assets of a receiving fund, identifying the assets and stating why those assets are not to become assets of a receiving fund; and
(n) if it is proposed that some liabilities incurred for the purposes of the transferring fund are not to become treated as incurred for the purposes of a receiving fund, identifying the liabilities and stating why those liabilities are not to become treated as incurred for the purposes of a receiving fund; and
(o) explaining how the restructure will be consistent with
(i) the solvency standard; and
(ii) the capital adequacy standard.
(3) The specifications required by subrule (2) may be:
(a) by listing particular assets or liabilities; or
(b) by reference to categories of assets or liabilities; or
(c) by a combination of (a) and (b).
7 Requirements in relation to a restructure
(1) A private health insurer must submit to the Council with an application for approval of a restructure proposal:
(a) a business plan (the Business Plan) for each receiving fund covering the period of the first 36 months of operation from the restructure date including the following:
(i) a statement of the liabilities to become treated as incurred for the purposes of the fund and the assets of the fund at the restructure date; and
(ii) a budget statement for the fund for each month of the period of the Business Plan, setting out in detail:
(A) the projected income and expenditure for the fund; and;
(B) the projected assets and liabilities at the end of each month; and
(C) the projected solvency and capital adequacy position of the fund at the end of each month; and
(iii) the ratio that the projected amount of the management and administrative expenses in respect of the conduct of the fund bears to the estimated amount of premiums paid to that fund; and
(iv) a summary of proposed changes, if any, to the insurer’s marketing plan, including strategies and costs associated with the restructuring and promotion of the fund; and
(v) the estimated number of policy holders of the fund at the end of each month; and
(vi) a summary of any proposed changes to the insurer’s contractual procedures and arrangements with health service providers and other service providers; and
(vii) a summary of any proposed changes to benefits or premiums; and
(viii) particulars of any arrangements or processes necessary for the restructure to take place, including:
(A) any proposed amendments to the insurer’s constitution or rules required for the restructure to take place; and
(B) any steps required under any other law of the Commonwealth, or State or Territory required for the restructure to take place; and
(b) a statement by an officer (the certification of compliance) confirming that:
(i) the insurer is not being wound up; and
(ii) the board, or other governing body, of the insurer has considered the restructure proposal and is of the view it meets, and the operation of the restructuring funds from the restructure date in accordance with the restructure will meet, the requirements of:
(A) the Act; and
(B) any Regulations; and
(C) the Rules; and
(c) a report from the insurer’s appointed actuary (the actuary’s report) which provides the opinion of the actuary:
(i) that the aspects of the Business Plan which provide the information required in paragraph (1)(a) are well‑founded; and
(ii) that the assets and liabilities that would be transferred to the receiving fund or funds represent a reasonable estimate of what would be, immediately before the restructure, the net asset position of the transferring funds; and
(iii) about how the restructure will affect the ability of the insurer to comply with:
(A) the solvency standard; and
(B) any solvency direction to which the insurer is subject; and
(C) the capital adequacy standard; and
(D) any capital adequacy direction to which the insurer is subject,
in relation to each of the restructuring funds of the insurer at each of the following times:
(E) the restructure date; and
(F) any time over the first 36 months after the restructure date; and
(G) any time within the foreseeable future of operation of the funds beyond 36 months after the restructure date; and
(iv) about what effects the restructure is likely to have on the premiums for and benefits under:
(A) each policy group of policies which are referable to the transferring fund immediately before the restructure; and
(B) each policy group of policies which are not referable to a receiving fund immediately before the restructure; and
at each of the following times:
(C) the restructure date; and
(D) any time over the first 36 months after the restructure date; and
(E) any time within the foreseeable future of operation of the funds beyond 36 months after the restructure date; and
(d) a copy of the statement, if any, issued by the insurer in accordance with subsection 93‑20(2) of the Act about any proposed change of the rules of the insurer associated with the proposed restructure; and
(e) a copy of any statement issued in accordance with subsection 93‑20(4) about the aspect of the proposed restructure which involves the proposed change in funds to which policies are referable; and
(f) a summary of any submissions in writing (including email or other electronic form) to the insurer from a policy holder of a fund conducted by the insurer in relation to any aspect of the restructure proposal regardless of whether the submission was made in response to a statement issued under subsection 93‑20(2) or subsection 93‑20(4) of the Act or otherwise.
(2) Prior to the restructure date, the insurer must, except to the extent provided for in the Act, procure any amendment of its constitution and any of its rules required for the restructure proposal to take place.
Note: The Act contains relevant provisions in section 146‑10 and section 146‑15.
(3) Prior to the restructure date, the insurer must take all steps required under any other law of the Commonwealth, a State or a Territory required for the restructure to take place.
Note: The Act contains relevant provisions in section 146‑15.
8 Criteria for approving or refusing a restructure
(1) For the purposes of paragraph 146‑1(2)(aa) of the Act, a proposed distribution of assets and liabilities between receiving funds under a proposed restructure of a health benefits fund conducted by a private health insurer is not fairly distributed if the proposed distribution will cause, or may contribute to causing, the insurer to be in breach of:
(a) the Act; or
(b) any Regulations; or
(c) any of the Rules; or
(d) a solvency direction that applies to the private health insurer; or
(e) a capital adequacy direction that applies to the private health insurer,
at one or more of the following times:
(f) the restructure date; or
(g) any time within the first 36 months after the restructure date; or
(h) any time within the foreseeable future of operation of the restructuring funds beyond 36 months after the restructure date.
(2) Subrule (1) is not an exhaustive statement of criteria for refusing an application under section 146‑1 of the Act and does not prevent the Council from taking into account considerations other than those referred to in subrule (1) to form a view that a proposed distribution between receiving funds of assets and liabilities is not fairly distributed for the purposes of paragraph 146‑1(2)(aa) of the Act.
(3) When considering whether a restructure will result in unfairness for the purposes of paragraphs 146‑1(3)(a) or (b) of the Act, the matters the Council may take into account include, but are not limited to, the matters referred to in subrule (1).
(4) In considering an application under subsection 146‑1(1) of the Act, the Council must take into account statements made in:
(a) the application; and
(b) the restructure proposal; and
(c) the certification of compliance; and
(d) the actuary’s report,
but is not bound by those statements and may make its own inquiries which may include, without limitation, obtaining other actuarial advice.
9 How a restructure takes place
If on the restructure date:
(a) the Council has approved a restructure proposal of a health benefits fund conducted by a private health insurer; and
(b) the insurer complies with the requirements of the Rules in relation to the restructure including, without limitation, the requirements under subrule 7(2) and 7(3); and
(c) the insurer takes the steps required for establishment of any new fund(s) required for the restructure to come into effect;
then:
(d) the restructure takes place; and
(e) the relevant policies of the transferring fund become referable to the receiving fund or funds in accordance with the restructure proposal; and
(f) the liabilities incurred for the purposes of the transferring fund, including without limitation the policy liabilities, become treated as liabilities incurred for the purposes of the receiving fund or funds in accordance with the restructure proposal; and
(g) the assets of the transferring fund become assets of the receiving fund or funds in accordance with the restructure proposal.
10 Notification to interested persons of the outcome of an application
(1) If the Council or the Administrative Appeals Tribunal approves an application for approval of a restructure of a health benefits fund conducted by a private health insurer, then within 20 days of the restructure taking place, the insurer must provide to at least one adult insured under each policy, or, for a policy covering no adults, the person who pays the premium, which is being made, or has been made, referable to a receiving fund, a statement of the outcome of the application.
(2) The notification of outcome referred to in subrule (1) may be combined with the statement provided for the purposes of subsection 93‑20(4) of the Act.
(3) If the application for approval of the restructure is refused by the Council, then no later than 10 days after the time for the lodging of an application for review of the Council’s decision by the Administrative Appeals Tribunal, the insurer must provide to at least one adult insured under each policy, or, for a policy covering no adults, the person who pays the premium, which was proposed for transfer, a statement of:
(a) the outcome of the application; and
(b) whether the insurer has lodged or intends to lodge an application for review with the Administrative Appeals Tribunal.
(4) If the application for approval of the restructure is refused on application to the Administrative Appeals Tribunal, then no later than 10 days after the Tribunal’s decision being delivered, the insurer must provide to at least one adult insured under each policy, or, for a policy covering no adults, the person who pays the premium, which was proposed for transfer, a statement of the outcome of the application.
Part 4—Merger and acquisition of health benefits funds
10A Interpretation
In this Part:
financial benefit includes any consideration or payment of any kind in respect of the transfer, but does not include any benefit to a policy holder, or other insured person, arising under the policy that insures the person.
market value means the value of the business concerned if it were disposed of to an unrelated purchaser bidding in a market on an ordinary commercial basis for business of the kind disposed of, without any sort of discount or incentive for the business being offered.
not‑for‑profit insurer means an insurer which is not registered as a for profit insurer.
Merger and acquisition under section 146‑5 of the Act
(1) If a private health insurer (the transferee insurer) and one or more other private health insurers (the transferor insurers) enter into an arrangement (the arrangement) under which some or all of the policies that are referable to a health benefits fund or funds (transferring funds) of the transferor private health insurer or transferor private health insurers, are to become referable to a health benefits fund or funds (receiving funds) of the transferee insurer, in accordance with section 146‑5 of the Act, the following rules apply.
(2) The transferor insurer(s) and the transferee insurer must make a written and dated record of the arrangement which is signed on behalf of each party to the arrangement.
(3) The arrangement must do the following:
(a) identify the transferring fund or funds; and
(b) identify the receiving fund or funds; and
(c) identify the date, or means of determining the date, on which the arrangement is to take effect, which must not be before the Council approves the arrangement in writing (the transfer date); and
(d) state, for each transferring fund:
(i) whether all of the policies are to become referable to a receiving fund; and
(ii) if not all of the policies are to become referable to a receiving fund, specify the policy group or groups for the policies which are to become referable to a receiving fund on the transfer date; and
(e) if there is more than one receiving fund, specify for each receiving fund which policy group’s or groups’ policies are to become referable to the receiving fund on the transfer date;
(f) for each receiving fund, specify the assets of, and liabilities incurred for the purposes of, a transferring fund which are to become assets of, and become treated as liabilities incurred for the purposes of, the receiving fund on the transfer date; and
(g) provide for carrying out the requirements under the general law for the transfer of the assets and liabilities which are to be transferred under the arrangement, including obtaining relevant third‑party consents, novations of agreement and execution and lodgement of documents for execution; and
(h) without limiting the generality of paragraph (g), in relation to each asset the transfer of which to a transferee insurer at law requires registration and the transfer of which will not be complete in law on the transfer date, impose on the transferor insurer obligations to:
(i) transferee may reasonably require whether before or after the transfer date, including, without limitation, provide assistance in responding to requisitions from a registrar of titles; and
(ii) from the transfer date until registration of the transferee’s title, hold the asset on trust for the transferee on the terms set out in Schedule 1; and
(i) in relation to an asset which cannot be transferred under the general law, impose on the transferor insurer obligations to hold the asset on trust for the transferee insurer on the terms set out in Schedule 1; and
(j) without limiting the generality of paragraph (g) in relation to each liability, the transfer of which will not be completed on the transfer date, impose on each transferee insurer obligations to:
(i) take all such steps as the transferor insurer may reasonably require, whether before or after the transfer date, to achieve transfer of the liability if such transfer is possible under the general law; and
(ii) indemnify the transferor insurer against any claims made on or after the transfer date which are allegedly based on the liability with the obligation to indemnify being conditional on the transferor insurer responding to the claim in such manner as the transferee insurer may reasonably require, including, without limitation, allowing the transferee insurer at its own expense to settle the claim, take over any litigation to defend the claim, or both; and
(k) without limiting the generality of paragraph (g), provide for access for each transferee insurer to such of the business records of the transferring fund as the transferee insurer may require to act as private health insurer for the transferred policies.
(4) The specifications required by subrule (3) may be:
(a) by listing particular assets or liabilities; or
(b) by reference to categories of assets or liabilities; or
(c) by a combination of (a) and (b).
(5) If the proposed transfer of policies involves any form of financial benefit to any person, the arrangement must state the details of the financial benefit, whether or not the person to benefit is a party to the arrangement.
(6) If the proposed transfer of policies involves the transfer of policies referable to the health benefits fund of a not‑for‑profit insurer to the health benefits fund of a for profit insurer, and the transferor insurer has, or will have if the application is approved, any interest in the transferee insurer, the application for approval must provide a statement by an appropriately qualified person, independent of the insurers involved, certifying as to what would be the market value if the transfer involved the sale of the transferor insurer's health insurance business.
(7) In subrule (6), health insurance business means the assets and liabilities proposed to be transferred under the arrangement referred to in subrule (2).
12 Requirements in relation to a merger or acquisition
(1) The parties to an arrangement must submit to the Council with an application for approval of the arrangement:
(a) a copy of the arrangement;
(b) a business plan (the Business Plan) for each receiving fund covering the period of the first 36 months of operation from the transfer date including the following:
(i) a statement of the liabilities incurred for the purposes of, and assets of, the fund at the transfer date; and
(ii) a budget statement for the fund for each month of the period of the Business Plan, setting out in detail:
(A) the projected income and expenditure for the fund; and;
(B) the projected assets and liabilities at the end of each month; and
(C) the projected solvency and capital adequacy position of the fund at the end of each month; and
(iii) the ratio that the projected amount of the management and administrative expenses in respect of the conduct of the fund bears to the estimated amount of premiums paid to that fund; and
(iv) summary of proposed changes, if any, to the insurer’s marketing plan including strategies and costs associated with the implementation of the arrangement and promotion of the fund; and
(v) the estimated number of policy holders of the fund at the end of each month; and
(vi) summary of any proposed changes to the insurer’s contractual procedures and arrangements with health service providers and other service providers; and
(vii) summary of any proposed changes to benefits and premiums; and
(c) for each receiving fund, a statement by an officer for the transferee insurer (the certification of compliance) confirming that the board, or other governing body, of the insurer has considered the arrangement and is of the view that the arrangement meets, and the operation of the receiving fund from the transfer date in accordance with the arrangement will meet, the requirements of:
(i) the Act; and
(ii) any Regulations; and
(iii) the Rules; and
(d) for each receiving fund, a report from the transferee insurer’s appointed actuary (the actuary’s report) which provides the opinion of the actuary:
(i) that the aspects of the Business Plan which provide the information required in paragraph (b) are well‑founded; and
(ii) that the assets and liabilities that would be transferred to the receiving fund or funds represent a reasonable estimate of what would be, immediately before the arrangement takes effect:
(A) if there is one transferring fund—the net asset position of the transferring funds; and
(B) if there is more than one transferring fund—the sum of the net asset positions of each of the funds;
(iii) about how the arrangement will affect the ability of the insurer to comply with:
(A) the solvency standard; and
(B) the capital adequacy standard,
in relation to each of the relevant funds of the insurer at each of the following times:
(C) the transfer date; and
(D) any time over the first 36 months after the transfer date; and
(E) any time within the foreseeable future of operation of the funds beyond 36 months after the transfer date; and
(iv) about what effects the arrangement is likely to have on the premiums for, and benefits under:
(A) each policy group of the policies which are referable to the transferring fund immediately before the restructure; and
(B) each policy group of the policies which are referable to a receiving fund immediately before the restructure,
at each of the following times:
(C) the transfer date; and
(D) any time over the first 36 months after the transfer date; and
(E) any time within the foreseeable future of operation of the funds beyond 36 months after the transfer date; and
(e) for each transferring fund, a statement by an officer for the transferor insurer (the certification of compliance) confirming that the board, or other governing body, of the insurer has considered the arrangement and is of the view that the arrangement meets, and the operation of the receiving fund from the transfer date in accordance with the arrangement will meet, the requirements of:
(i) the Act; and
(ii) any Regulations; and
(iii) the Rules; and
(f) a report from the transferor insurer’s appointed actuary (the actuary’s report) which provides the opinion of the actuary:
(i) that the assets and liabilities that would be transferred to the receiving fund or funds represent a reasonable estimate of what would be, immediately before the arrangement takes effect:
(A) if there is one transferring fund—the net asset position of the transferring fund; and
(B) if there is more than one transferring fund—the sum of the net asset positions of each of the funds; and
(ii) that for each transferring fund to which subparagraph 146‑5(1)(b)(i) of the Act applies, the net asset position of the fund immediately after the arrangement takes effect will not be greater than zero; and
(iii) about how the arrangement will affect the ability of the insurer to comply with:
(A) the solvency standard; and
(B) the capital adequacy standard,
at each of the following times:
(C) the transfer date; and
(D) any time over the first 36 months after the transfer date; and
(g) a copy of the statement, if any, issued by a party to the arrangement in accordance with subsection 93‑20(2) of the Act about any proposed change of the rules of the transferor private health insurer associated with the arrangement; and
(h) a copy of any statement issued by a party to the arrangement in accordance with subsection 93‑20(4) about the aspect of the arrangement which involves the proposed change in funds to which policies are referable; and
(i) a summary of any submissions in writing (including email or other electronic form) to a private health insurer party to the arrangement from a policy holder of a policy of a fund conducted by the insurer in relation to any aspect of the arrangement regardless of whether the submission was made in response to a statement issued under subsection 93‑20(2) or subsection 93‑20(4) of the Act or otherwise.
(2) Prior to the transfer date, each party to the arrangement must, except to the extent provided for in the Act, procure any amendment of its constitution and any of its rules required for the arrangement to take place.
Note: The Act contains relevant provisions in s146‑10 and s146‑15.
(3) Prior to the transfer date, each party to the arrangement must take all steps required under any other law of the Commonwealth, a State or a Territory required for the arrangement to take place.
Note: The Act contains relevant provisions in s146‑15.
12A Transfer from an incorporated association
(1) This rule applies to an application under section 146‑5 made before 1 January 2010 where:
(a) the arrangement is between:
(i)a transferor insurer that is an incorporated association under a law of a State or Territory; and
(ii)a transferee insurer that is incorporated by or under the Corporations Act 2001; and
(b) under the arrangement:
(i)all of the assets and liabilities of the transferor insurer are being transferred to the transferee insurer; and
(ii)the transferee insurer has only one health benefits fund and that fund is the receiving fund; and
(iii)the assets and liabilities of the transferor insurer, other than any transferred by operation of the Act, are being transferred by an order made under a law of a State or Territory that deals with the transfer of assets and liabilities from an incorporated association to another corporation.
(2) If this rule applies to an arrangement, the parties to the arrangement are not required to comply with:
(a) each of paragraphs 11(3)(g) to (k) and 12(1)(b) to (i), including for the purposes of rule 14; or
(b) subrule 15(1).
13 Criteria for approving or refusing a merger or acquisition
(1) For the purposes of paragraph 146‑5(3)(b) of the Act, a proposed distribution of assets and liabilities between receiving funds under a proposed arrangement is not fairly distributed if the proposed distribution will cause, or may contribute to causing, a transferee insurer to be in breach of:
(a) the Act; or
(b) any Regulations; or
(c) any of the Rules; or
(d) a solvency direction that applies to the private health insurer; or
(e) a capital adequacy direction that applies to the private health insurer,
at one or more of the following times:
(f) the transfer date; or
(g) any time within the first 36 months after the transfer date; or
(h) any time within the foreseeable future of operation of the restructuring funds beyond 36 months after the transfer date.
(2) Subrule (1) is not an exhaustive statement of criteria for refusing an application under section 146‑5 of the Act and does not prevent the Council from taking into account considerations other than those referred to in subrule (1) to form a view that a proposed distribution between receiving funds of assets and liabilities is fairly distributed for the purposes of paragraph 146‑5(3)(b) of the Act.
(3) When considering whether a distribution between receiving funds pursuant to a restructure is fairly distributed for the purposes of paragraph 146‑5(3)(b) of the Act, the relevant matters the Council may take into account include, but are not limited to, the matters referred to in subrule (1).
(4) In considering an application under subsection 146‑5(1) of the Act, the Council must take into account statements made in:
(a) the application; and
(b) the arrangement; and
(c) the certifications of compliance; and
(d) the actuaries’ reports,
but is not bound by those statements and may make its own inquiries which may include, without limitation, obtaining other actuarial advice.
13A Additional criteria for approving or refusing a merger or acquisition
(1) For the purposes of subsection 146‑5(5), additional criteria for refusing to approve applications under section 146‑5 are specified in this rule.
(2) If the application is in respect of an arrangement which involves the transfer of policies referable to the health benefits fund of a not‑for‑profit insurer and there is any financial benefit to any person, the criteria for refusal are that the arrangement would result in a financial benefit:
(a) to any person who is not a policy holder of, or another person insured through, the health benefits fund conducted by the transferor insurer; or
(b) being distributed inequitably between policy holders, or another person insured through, the health benefits fund conducted by the transferor insurer; or
(c) not being distributed at all to policy holders of the health benefits fund conducted by the transferor insurer.
(3) If the application is in respect of an arrangement of a kind referred to in subrule 11(6), the criteria for refusal are that:
(a) the transferee insurer has not paid the market value for the transferor insurer's health insurance business; or
(b) if subrule (2) also applies to the transfer, the financial benefit in respect of the transfer does not represent the market value for the transferor insurer's health insurance business.
(4) In considering the market value of the transferor private health insurer’s health insurance business, the Council may have regard to the statement referred to in subrule 11(6) and any other information it thinks fit.
(5) If the Council requests the applicants to amend in a particular way the arrangement that is the subject of the application, it is a criterion for refusal that the applicants fail to amend the arrangement within a time specified by the Council in writing to the applicants.
14 How a merger or acquisition takes effect
If, on the transfer date:
(a) the Council has approved an arrangement; and
(b) the transferor and transferee insurer(s) have:
(i) complied with rules 11 and 12 including, without limitation, subrules 12(2) and 12(3); and
(ii) taken the actions referred to in Schedule 1,
then:
(c) each transferee insurer is substituted for the transferor insurer as the private health insurer for each policy identified in the arrangement as a policy which is to become referable to a receiving fund of the transferee insurer; and
(d) the policy operates on and from the transfer date as if all references in the policy to the transferor insurer were references to the transferee insurer; and
(e) policies referable to the transferring fund(s) become referable to the receiving fund(s) in accordance with the arrangement; and
(f) the liabilities incurred for the purposes of the transferring fund(s), including without limitation the policy liabilities, become treated as incurred for the purposes of the receiving fund(s) in accordance with the arrangement; and
(g) the assets of the transferring fund(s) become assets of the receiving fund(s) in accordance with the arrangements.
Note: Subsection 146‑5(7) of the Act provides that, for the purposes of the Act, an insurance policy that becomes referable to a health benefits fund of the transferee insurer as a result of the arrangement is treated, after the arrangement takes effect, as if it were an insurance policy issued by the transferee insurer.
Notification to interested persons of outcome of a section 146‑5 application
(1) If the Council or the Administrative Appeals Tribunal approves an application for approval of an arrangement for a merger or acquisition, then within 20 days of the arrangement taking effect, the private health insurers who made the application must provide to at least one adult insured under each policy, or, for a policy covering no adults, the person who pays the premium, which is being made, or has been made, referable to a receiving fund, a statement of the outcome of the application.
(2) The notification of outcome referred to in subrule (1) may be combined with the statement provided for the purposes of subsection 93‑20(4) of the Act.
(3) If the application for approval of an arrangement is refused by the Council, then no later than 10 days after the time for the lodging of an application for review of the Council’s decision by the Administrative Appeals Tribunal, the insurers must provide to at least one adult insured under each policy, or, or, for a policy covering no adults, the person who pays the premium, which was proposed for transfer, a statement of:
(a) the outcome of the application; and
(b) whether either of the insurers has lodged or intends to lodge an application for review with the Administrative Appeals Tribunal.
(4) If the application for approval of an arrangement is refused on application to the Administrative Appeals Tribunal, then no later than 10 days after the Tribunal’s decision being delivered, the appellant must provide to at least one adult insured under each policy, or, or, for a policy covering no adults, the person who pays the premium, which was proposed for transfer, a statement of the outcome of the application.
Part 5—Risk equalisation jurisdictions
16 Areas that are risk equalisation jurisdictions
For subsection 146‑1(6) of the Act, the areas specified in the following paragraphs are each a risk equalisation jurisdiction:
(a) Australian Capital Territory and New South Wales;
(b) Northern Territory;
(c) Queensland;
(d) South Australia;
(e) Tasmania;
(f) Victoria;
(g) Western Australia and the Territory of Christmas Island and the Territory of Cocos (Keeling) Islands.
17 Working out the policy group for a policy that has 2 or more policy holders whose addresses are not in the same risk equalisation jurisdiction
(1) Within 20 days of a private health insurer first being notified that a policy holder of a policy has an address which is not in the same risk equalisation jurisdiction as is the address of one or more other policy holders of the same policy, the insurer may by a written and dated determination allocate the policy to a risk equalisation jurisdiction in which one or more of the policy holders has their address.
(2) If the insurer makes a determination in accordance with subrule (1), then the policy is allocated to the risk equalisation jurisdiction in accordance with the determination and is taken to have been so allocated from the date that the insurer was notified of the difference in addresses.
(3) If the insurer relies on an allocation under subrule (1), the insurer must on written request from the Council to do so, provide access to the record of determination referred to in subrule (1).
(4) If the insurer fails:
(a) to allocate the policy to a risk equalisation jurisdiction, in accordance with subrule (1); or
(b) to provide the access referred to in subrule (3) in response to a written request from the Council,
then the policy is allocated to the risk equalisation jurisdiction which corresponds to the address of the first person named in the policy records of the insurer and is taken to have been so allocated from the date that the insurer was notified of the difference in addresses.
Part 6—Solvency and capital adequacy standards
18 Solvency standard
For subsection 140‑5(1) of the Act, a solvency standard, as set out in Schedule 2 of these Rules, is established for the purposes of Division 140 of the Act.
19 Capital adequacy standard
For subsection 143‑5(1) of the Act, a capital adequacy standard, as set out in Schedule 3 of these Rules, is established for the purposes of Division 143 of the Act.
Schedule 1—Mergers and acquisitions
1. Trust
The trust referred to in subrule 11(2) is to include the following terms:
(a) [the transferor insurer] must, at [the transferee insurer’s] expense (including [the transferor insurer’s] internal costs and any legal fees), enforce or exercise any rights relating to those assets against any third party in the manner that [the transferee insurer] reasonably directs.
(b) [the transferor insurer] must, if [the transferee insurer] cannot lawfully perform an obligation or exercise a right of [the transferor insurer] in relation to those assets, at the request and expense of [the transferee insurer], perform that obligation or exercise that right.
(c) [the transferor insurer] must pay all benefits arising from those assets (or the affected part of the business) to [the transferee insurer].
(d) [the transferee insurer] must duly perform any obligations in relation to those assets on behalf of [the transferor insurer] at its own expense.
Actions for transfer of assets and liabilities for purposes of subparagraph 14(b)(ii) of the Rules
For each transferring fund, the transferor insurer must give to the relevant transferee insurer for the assets and liabilities of the transferring fund which are being transferred to the transferee insurer:
(a) possession of assets which are physical assets; and
(b) certificates of title, registration certificates and other documents or instruments which evidence ownership of assets of the fund; and
(c) duly executed assignments or novations of relevant contracts and evidence of the written consent of relevant third parties to the assignments or novations of the contracts; and
(d) duly executed assignments or novations of leases and evidence of the written consent of the landlord to the assignments or novations of the leases; and
(e) occupation of any leasehold properties which are assets of the transferee fund; and
(f) duly executed assignments or change of ownership forms to transfer intellectual property assets of the fund to the Transferee; and
(g) an irrevocable notice of cancellation of all signatories for each bank account containing fund assets (fund bank account) addressed to the relevant bank and a notice of consent to the appointment of the transferee’s nominees as signatories on the account; and
(h) an irrevocable written direction addressed to each relevant bank on and from the transfer date to act in relation to a fund bank account with the bank only on the directions of the transferee; and
(i) all notices, executed transfers in registrable form, certificates and other instruments or documents required under any applicable law in connection with the transfer of the assets of the fund required to transfer title to the transferee; and
(j) all other notices, executed transfers in registrable form, certificates and other instruments or documents required under any applicable law to enable the transferee to conduct the business of the fund and to use any business names and websites of the fund.
Schedule 2—Solvency standard
(rule 18)
Part 1—Preliminary
1 Purpose of solvency standard
(1) The purpose of this solvency standard, established for Division 140 of the Act, is to ensure as far as practicable that at any time the financial position of a health benefits fund conducted by a private health insurer is such that the private health insurer will be able to meet, out of the fund’s assets, all liabilities that are referrable to the fund, as those liabilities become due.
(2) This standard requires the private health insurer to demonstrate that it will be able to meet the liabilities of its health benefits fund, allowing for adverse circumstances.
(3) A central pillar of a private health insurer’s financial strength is that the assets of a health benefits fund are sufficiently liquid to meet its cash demands and unanticipated losses from its activities.
(4) The health benefits fund’s compliance with this solvency standard, is an indication of its financial strength into the future, on a going concern basis.
(5) The board of a private health insurer must ensure that the private health insurer is compliant with the solvency standard.
Part 2—Complying with the solvency standard
2 Application of Australian Accounting Standards
(1) Any amount or value that is required to be calculated for the purposes of this Schedule must be calculated in accordance with Australian Accounting Standards, unless otherwise indicated.
3 Estimates, forecasts and calculations
(1) All estimates, forecasts and calculations in this Schedule must:
(a) be made having regard to reasonably available statistics and other relevant information; and
(b) not be deliberately or carelessly overstated or understated.
4 Complying with the solvency standard
(1) A private health insurer must, at all times, comply with this Schedule in relation to each health benefits fund conducted by the private health insurer.
(2) The private health insurer must ensure that, at all times, the value of the cash of its health benefits fund is not less than the sum of the cash management amount, plus any solvency supervisory adjustment amount determined in accordance with clause 6 of this Schedule.
(3) A private health insurer must have, and comply with, a board endorsed, liquidity management plan for each health benefits fund it conducts. The liquidity management plan must be designed to enable the health benefits fund to continue to comply with the solvency requirements set out in subclause (2), including by setting minimum liquidity requirements and management action triggers, to ensure compliance.
(4) When a board of a private health insurer endorses a liquidity management plan it must ensure that the plan has been designed with regard to:
(a) the extent to which the assets of the health benefits fund could be readily converted to cash under stressed market conditions; and
(b) the concentration of exposures to related counterparties for the assets which may be required to be converted to cash under stressed market conditions; and
(c) the seasonality and variability in cash flows; and
(d) the potential size of cash outflows under stressed business conditions; and
(e) the potential that the health benefits fund may have to draw down its cash to repay borrowings; and
(f) any other matter the board of the private health insurer considers relevant.
(5) The board must review the liquidity management plan at least every two years and either:
(a) re-endorse the existing liquidity management plan; or
(b) endorse a new liquidity management plan.
(6) The private health insurer must provide a report to the Council, in the approved form, within 28 days of the end of each financial quarter, or as otherwise required by the Council, for the purposes of the Council assessing the compliance of the private health insurer with the solvency standard.
(7) A private health insurer must notify the Council immediately, in writing, if the private health insurer becomes aware that it does not comply with this Schedule.
5 Cash management amount
(1) The cash management amount of a health benefits fund is the greater of:
(a) the stressed net cash outflow amount plus 1% of the health business revenue estimate; and
(b) 1% of the health business revenue estimate.
6 Solvency supervisory adjustment amount
(1) The solvency supervisory adjustment amount of a health benefits fund, on the relevant day, is:
(a) an amount expressed in dollars; or
(b) a percentage figure; or
(c) a factor; or
(d) an amount, or a description of an amount, derived through another basis for calculating the solvency supervisory adjustment amount; or
(e) a methodology to be applied that will result in an amount;
which is not less than 0, and would not result in a negative amount, determined by the Council, upon reasonable grounds.
(2) In making a determination about a solvency supervisory adjustment amount, the Council may consider the following examples as being examples of reasonable grounds for the determination of the solvency supervisory adjustment but the Council is not limited in its considerations to those examples:
(a) the health benefits fund’s cash management amount does not make adequate allowance for inherent uncertainty; and/or
(b) the health benefits fund’s cash has not been classified appropriately; and/or
(c) the private health insurer conducting the health benefits fund does not have adequate data to assess the risks of the fund; and/or
(d) the health benefits fund is exposed to contagion risks from a related party, and the private health insurer has not appropriately considered these risks for the purpose of its obligation under this Schedule.
(3) If:
(a) the Council is satisfied that there are reasonable grounds under subclause (1); and
(b) the Council makes a determination under subclause (1) in relation to the health benefits fund;
the Council must, as soon as practicable after making the determination, notify the private health insurer, in writing, of:
(c) the amount, factor, figure or methodology determined under subclause (1); and
(d) the reasons for the decision to make a determination under subclause (1); and
(e) the private health insurer’s right to apply for review of the decision under subclause (4).
(4) The private health insurer may apply to the Administrative Appeals Tribunal for review of a decision by the Council under subclause (1).
Schedule 3—Capital adequacy standard
(rule 19)
Part 1—Preliminary
1 Purpose of capital adequacy standard
(1) The purpose of this capital adequacy standard, established for Division 143 of the Act is to ensure, as far as practicable, that there are sufficient assets in a health benefits fund conducted by a private health insurer to provide adequate capital for the conduct of the health benefits fund in accordance with the Act and in the interests of the policy holders of the fund.
(2) This standard requires the private health insurer to demonstrate that the assets of its health benefits fund will be able to meet the liabilities of the fund after a 12 month period, allowing for the future business plans of the fund and adverse circumstances.
(3) The health benefits fund’s compliance with this capital adequacy standard, is an indication of its future financial strength, on a going concern basis.
(4) The board of a private health insurer must ensure that the private health insurer is compliant with the capital adequacy standard.
Part 2—Complying with the capital adequacy standard
2 Application of Australian Accounting Standards
(1) Any amount or value that is required to be calculated for the purposes of this Schedule must be calculated in accordance with Australian Accounting Standards, unless otherwise indicated.
3 Estimates, forecasts and calculations
(1) All estimates, forecasts and calculations in this Schedule must:
(a) be made having regard to reasonably available statistics and other relevant information; and
(b) not be deliberately or carelessly overstated or understated.
4 Complying with the capital adequacy standard
(1) A private health insurer must comply with this Schedule in relation to each health benefits fund conducted by the private health insurer.
(2) The private health insurer must ensure that, at all times, the value of the assets of its health benefits fund is not less than the amount calculated under paragraph (a) and also not less than the second amount calculated under paragraph (b), where:
(a) the amount is the sum of that fund’s:
(i) prudent liabilities amount; and
(ii) stress test amount; and
(iii) operational risk amount; and
(iv) any capital adequacy supervisory adjustment amount, determined in accordance with clause 12 of this Schedule; and
(v) less any subordinated debt; and
(b) the second amount is the sum of that fund’s:
(i) prudent liabilities amount; and
(ii) capital adequacy maximum default loss amount; and
(iii) any capital adequacy supervisory adjustment amount, determined in accordance with clause 12 of this Schedule; and
(iv) less any subordinated debt.
(3) The private health insurer must provide a report to the Council, in the approved form, within 28 days of the end of each financial quarter, or as otherwise required by the Council, for the purposes of the Council assessing the compliance of the private health insurer with the capital adequacy standard.
(4) A private health insurer must notify the Council immediately, in writing, if the private health insurer becomes aware that it does not comply with this Schedule.
5 Prudent liabilities amount
(1) The prudent liabilities amount of a health benefits fund on the relevant day is the sum of its:
(a) outstanding claims liability amount; and
(b) future claims liability amount; and
(c) risk equalisation trust fund accrued liability amount; and
(d) other liabilities amount.
6 Outstanding claims liability amount
(1) The outstanding claims liability amount of the health benefits fund is calculated in accordance with the following formula:
outstanding claims liability × (1 + size margin)
7 Future claims liability amount
(1) The future claims liability amount of the health benefits fund is calculated in accordance with the following formula:
future claims liability × (1+ size margin)
8 Risk equalisation trust fund accrued liability amount
(1) The risk equalisation trust fund accrued liability amount is the greater of:
(a) 0.1 × unbilled calculated deficit; and
(b) (1.1 × unbilled calculated deficit) – unbilled gross deficit + billed risk equalisation trust fund liability.
9 Other liabilities amount
(1) The value of any other liabilities amount of the health benefits fund is the sum of all other liabilities not included in clauses 5, 6, 7 and 8 of this Schedule, valued as follows:
(a) individually, at a 98% probability of adequacy, where the balance sheet value of the liability is not less than 2% of the total value of balance sheet liabilities; and
(b) collectively, at least at a 98% probability of adequacy, where the balance sheet value of the liability is less than 2% of the total value of balance sheet liabilities.
10 Stress test amount
(1) The stress test amount of a health benefits fund on the relevant day is the greater of:
(a) $0; and
(b) the amount calculated using the following formula:
‑N ‑I ‑O +T
Where:
N is the health benefits fund’s stressed net margin estimate, calculated in accordance with subclause (2).
I is the health benefits fund’s stressed investment income estimate, on the relevant day, calculated in accordance with subclause (3).
O is the health benefits fund’s stressed other income estimate, on the relevant day, calculated in accordance with subclause (4).
T is the amount of tax that may be attributable to the health benefits fund (which may be a negative amount to reflect future income tax credits), if it achieved its:
(i) stressed net margin estimate; and
(ii) stressed investment income estimate; and
(iii) stressed other income estimate; and
for the 12 months after the relevant day.
(2) The stressed net margin estimate (N) of the health benefits fund is calculated in accordance with the following formula:
P × NM%
Where :
P is the premium income estimate of the health benefits fund on the relevant day.
NM% is the private health insurer’s estimate of its health benefits fund’s xth percentile net margin percentage for the health insurance business for 12 months after the relevant day calculated:
(a) applying the same premium increases as those assumed in calculating the premium income estimate; and
(b) excluding any possible changes in the unexpired risk liability or constructive obligation during that period.
In calculating NM% the following must be taken into account:
(a) historical variability in net margins; and
(b) changes in the fund’s policy holder growth rate; and
(c) expansion into new complying health insurance product(s); and
(d) expansion into new markets.
(3) The stressed investment income estimate (I) of the health benefits fund is the private health insurer’s estimate of its health benefits fund’s xth percentile investment income for the 12 months after the relevant day, taking into account all significant risks including:
(a) market risk; and
(b) credit risk; and
(c) the risk of incorrect asset valuation on the balance sheet.
(4) The stressed other income estimate (O) of the health benefits fund is the private health insurer’s estimate of its health benefits fund’s xth percentile of its health related business and all other income, less associated expenses for the 12 months after the relevant day.
11 Operational risk amount
(1) The operational risk amount of a health benefits fund is calculated in accordance with the sum of:
(a) 0.5% of its health business revenue estimate, on the relevant day; and
(b) $1,000,000 × 1.025 ^ (the calendar year of the relevant day minus 2014).
12 Capital adequacy supervisory adjustment amount
(1) The capital adequacy supervisory adjustment amount of a health benefits fund, on the relevant day, is:
(a) an amount expressed in dollars; or
(b) a percentage figure; or
(c) a factor; or
(d) an amount, or a description of an amount, derived through another basis for calculating the capital adequacy supervisory adjustment amount;
which is not less than 0, and would not result in a negative amount, determined by the Council (including by the application of specified methodology), upon reasonable grounds.
(2) In making a determination about a capital adequacy supervisory adjustment amount, the Council may consider the following examples as being examples of reasonable grounds for the determination of the capital adequacy supervisory adjustment but the Council is not limited in its considerations to those examples:
(a) there is a less than 98% probability that the health benefits fund will meet its prudent liabilities in 12 months’ time; and/or
(b) the health benefits fund’s stress test amount does not make adequate allowance for:
(i) growth in policy holders, including in new markets; and/or
(ii) changes to the fund’s products, including the launch of new products; and/or
(iii) a lack of asset diversification; and/or
(iv) market risk; and/or
(v) mismeasurement of asset values; and/or
(vi) credit risk; and/or
(c) the health benefits fund’s prudent liabilities amount does not make adequate allowance for inherent uncertainty; and/or
(d) the health benefits fund’s operational risk amount does not make adequate allowance for inherent uncertainty; and/or
(e) the health benefits fund’s assets are not valued appropriately; and/or
(f) the private health insurer conducting the health benefits fund does not have adequate data to assess its risks; and/or
(g) the health benefits fund is exposed to contagion risks from a related entity, and the private health insurer conducting it has not properly considered these risks for the purpose of its obligations under this Schedule; and/or
(h) the health benefits fund’s capital adequacy maximum default loss has not been appropriately calculated.
(3) The Council may determine the same or different capital adequacy supervisory adjustment amounts for the purposes of paragraphs 4(2)(a) and 4(2)(b).
(4) If:
(a) the Council is satisfied that there are reasonable grounds under subclause (1); and
(b) the Council makes a determination under subclause (1) in relation to the health benefits fund;
the Council must, as soon as practicable after making the determination, notify the private health insurer, in writing, of:
(c) the amount, factor or figure determined under subclause (1) and the calculation methodology used to determine this amount; and
(d) the reasons for the decision to make a determination under subclause (2), including which of paragraphs 4(2)(a) and 4(2)(b) of Schedule 3 the capital adequacy supervisory adjustment amount applies to; and
(e) the private health insurer’s right to apply for review of the decision under subclause (6).
(5) The private health insurer may apply to the Administrative Appeals Tribunal for review of a decision by the Council under subclause (1).
13 Capital adequacy maximum default loss amount
(1) The capital adequacy maximum default loss amount of a health benefits fund on the relevant day is a prudent estimate of the maximum default loss.
(2) For the purpose of calculating the capital adequacy maximum default loss amount of a health benefits fund under subclause (1):
(a) the capital adequacy maximum default loss amount must be:
(i) at least as large as the maximum default loss; and
(ii) less than the maximum default loss plus 10% × (value of assets in the fund – prudent liabilities amount).
14 Transitional provisions
(1) On the commencement of this Schedule, a private health insurer that has any previously approved subordinated debt may treat it as having its full value for the purposes of the capital adequacy standard, subject to subclause (2).
(2) From the earlier of:
(a) five years after the commencement of this Schedule; and
(b) four years before the maturity date of the subordinated debt;
the value of previously approved subordinated debt, for the purposes of the capital adequacy standard, linearly decreases to zero over 48 months.
Part 3—Capital management policy
15 Capital management policy
(1) A private health insurer must have, and comply with, a written, board endorsed, capital management policy for each health benefits fund it conducts.
(2) The capital management policy must include, but is not limited to:
(a) a capital management plan that must contain:
(i) a description of the board’s risk appetite as it relates to capital needs and the process used to determine that appetite; and
(ii) capital target levels which have regard to subclause (5), and details of how they are calculated; and
(iii) clearly defined capital trigger points, which have regard to subclause (5); and
(iv) corrective action options, for each trigger point identified specifying actions and timeframes, for those actions, which a private health insurer may utilise to return capital to capital target levels (identified in subparagraph (2)(a)(ii));
(b) a pricing philosophy, which must include:
(i) profitability targets; and
(ii) direct and explicit consideration of the capital implications of particular profitability levels; and
(iii) guidelines on the speed of correction of deviations from these profitability targets;
(c) investment rules, which must include:
(i) clear objectives; and
(ii) asset allocation limits; and
(iii) asset concentration limits; and
(iv) a consideration of capital strength;
(d) rules stipulating circumstances under which the capital management policy is to be reviewed, which must include changes in:
(i) policy holder growth rates; and
(ii) registration status; and
(iii) net margin; and
(iv) broader economic conditions.
(3) The private health insurer must provide the Council with a copy of the capital management policy as soon as practicable after it has been endorsed.
(4) The board must review the capital management policy at least every two years and either:
(a) re-endorse the existing capital management policy; or
(b) endorse a new capital management policy.
(5) In meeting the requirements in subparagraphs (2)(a)(ii) and (2)(a)(iii) a private health insurer must use methods designed to protect the health benefits fund and which consider:
(a) access to internal and external capital; and
(b) the impact on premiums of holding more or less capital than the amount determined.
Endnotes
Endnote 1—About the endnotes
The endnotes provide details of the history of this legislation and its provisions. The following endnotes are included in each compilation:
Endnote 1—About the endnotes
Endnote 2—Abbreviation key
Endnote 3—Legislation history
Endnote 4—Amendment history
Endnote 5—Uncommenced amendments
Endnote 6—Modifications
Endnote 7—Misdescribed amendments
Endnote 8—Miscellaneous
If there is no information under a particular endnote, the word “none” will appear in square brackets after the endnote heading.
Abbreviation key—Endnote 2
The abbreviation key in this endnote sets out abbreviations that may be used in the endnotes.
Legislation history and amendment history—Endnotes 3 and 4
Amending laws are annotated in the legislation history and amendment history.
The legislation history in endnote 3 provides information about each law that has amended the compiled law. The information includes commencement information for amending laws and details of application, saving or transitional provisions that are not included in this compilation.
The amendment history in endnote 4 provides information about amendments at the provision level. It also includes information about any provisions that have expired or otherwise ceased to have effect in accordance with a provision of the compiled law.
Uncommenced amendments—Endnote 5
The effect of uncommenced amendments is not reflected in the text of the compiled law but the text of the amendments is included in endnote 5.
Modifications—Endnote 6
If the compiled law is affected by a modification that is in force, details of the modification are included in endnote 6.
Misdescribed amendments—Endnote 7
An amendment is a misdescribed amendment if the effect of the amendment cannot be incorporated into the text of the compilation. Any misdescribed amendment is included in endnote 7.
Miscellaneous—Endnote 8
Endnote 8 includes any additional information that may be helpful for a reader of the compilation.
Endnote 2—Abbreviation key
| ad = added or inserted | pres = present |
| am = amended | prev = previous |
| c = clause(s) | (prev) = previously |
| Ch = Chapter(s) | Pt = Part(s) |
| def = definition(s) | r = regulation(s)/rule(s) |
| Dict = Dictionary | Reg = Regulation/Regulations |
| disallowed = disallowed by Parliament | reloc = relocated |
| Div = Division(s) | renum = renumbered |
| exp = expired or ceased to have effect | rep = repealed |
| hdg = heading(s) | rs = repealed and substituted |
| LI = Legislative Instrument | s = section(s) |
| LIA = Legislative Instruments Act 2003 | Sch = Schedule(s) |
| mod = modified/modification | Sdiv = Subdivision(s) |
| No = Number(s) | SLI = Select Legislative Instrument |
| o = order(s) | SR = Statutory Rules |
| Ord = Ordinance | Sub‑Ch = Sub‑Chapter(s) |
| orig = original | SubPt = Subpart(s) |
| par = paragraph(s)/subparagraph(s) /sub‑subparagraph(s) |
Endnote 3—Legislation history
| Name | FRLI registration | Commencement | Application, saving and transitional provisions |
| Private Health Insurance (Health Benefits Fund Administration) Rules 2007 | 31 Mar 2007 (see F2007L00885) | 1 Apr 2007 (see r. 2(a)) | |
| Private Health Insurance (Health Benefits Fund Administration) Amendment Rules 2007 (No. 1) | 18 Dec 2007 (see F2007L04875) | 19 Dec 2007 | — |
| Private Health Insurance (Health Benefits Fund Administration) Amendment Rules 2008 (No. 1) | 5 May 2008 (see F2008L01319) | 6 May 2008 | — |
| Private Health Insurance (Health Benefits Fund Administration) Amendment Rules 2008 (No. 2) | 14 Nov 2008 (see F2008L04308) | 15 Nov 2008 | — |
| Private Health Insurance (Health Benefits Fund Administration) Amendment Rule 2013 (No. 1) | 11 Sept 2013 (see F2013L01684) | Sch 1 (items 1–19, 21): 31 Mar 2014 Sch 1 (items 20, 22): 1 July 2014 | — |
Endnote 4—Amendment history
| Provision affected | How affected |
| Pt 1 | |
| r 3........................................ | am 2013 No 1 |
| Note to r 3............................ | am. 2008 No. 1 |
| r 3A...................................... | ad 2013 No 1 |
| Pt 2 | |
| r 4........................................ | am 2013 No 1 |
| r 5........................................ | am 2013 No 1 |
| Pt 3 | |
| r 6........................................ | am 2013 No 1 |
| r 7........................................ | am 2013 No 1 |
| r 8........................................ | am 2013 No 1 |
| r 9........................................ | am 2013 No 1 |
| r 10...................................... | am 2013 No 1 |
| Pt 4 | |
| r. 10A................................... | ad. 2008 No. 1 |
| r 11...................................... ............................................. | am 2008 No 1; 2013 No 1 |
| r 12...................................... | am 2013 No 1 |
| r. 12A................................... | ad. 2007 No. 1 |
| am. 2008 No. 2 | |
| r 13...................................... | am 2013 No 1 |
| r. 13A................................... | ad. 2008 No. 1 |
| am 2013 No 1 | |
| r 14...................................... | am 2013 No 1 |
| r 15...................................... | am 2013 No 1 |
| Pt 5 | |
| r 17...................................... | am 2013 No 1 |
| Sch 2 | |
| Sch 2.................................... | rs 2013 No 1 |
| Sch 3 | |
| Sch 3.................................... | rs 2013 No 1 |
Endnote 5—Uncommenced amendments [none]
Endnote 6—Modifications [none]
Endnote 7—Misdescribed amendments
Private Health Insurance (Health Benefits Fund Administration) Amendment Rule 2013 (No. 1)
Schedule 1
[19] Further amendments
Provision Omit each mention of Insert rule 10A, definition of not‑for profit insurer an insurer a private health insurer subrule 11(6) Insurers private health insurers
Endnote 8—Miscellaneous [none]
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