Financial Sector (Collection of Data) exemption No. 1 of 2010

Financial Sector (Collection of Data) exemption No. 1 of 2010

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority (APRA)

Financial Sector (Collection of Data) Act 2001 (the Act), subsection 16(1)

Under subsection 16(1) of the Act, APRA may, by legislative instrument, exempt a financial sector entity from the requirement to comply with all the requirements or specified requirements contained in applicable reporting standards.

Australian Family Assurance limited  ABN 78 003 044 862 (AustFam) is a “financial sector entity” as defined by subsection 5(2) of the Act.  Financial Sector (Collection of Data) exemption No. 1 of 2010 (the instrument) exempts AustFam from the requirements contained in the reporting standards relating to quarterly returns specified in the Schedule.

1.      Background

AustFam is a local general insurer authorised to carry on insurance business in Australia under subsection 12(1) of the Insurance Act 1973.  AustFam is listed as being in run-off and is restricted by APRA from writing new or renewal insurance business. A notice varying the conditions on Authorisation to carry on insurance business states that from 24 June 2002, AustFam may only conduct insurance business in Australia for the sole purpose of discharging liabilities that arose under policies entered prior to that date.

Prior to entering into runoff, AustFam entered into an assignment of liability with Trans Pacific Insurance Corporation (TPIC), a Caymans Island class B insurer sometime in 2001.  A class B insurance licence allows the insurer to write insurance outside of the Cayman Islands. 

The assignment of liabilities was without novation.  TPIC assumed the liabilities and paid out claims from the date of assignment in 2001 until 23 April 2009 when TPIC entered into liquidation.

Upon TPIC entering into liquidation, liability for the remaining outstanding claims in relation to this assigned business fell back upon AustFam.  Consequently, approximately $2.5 million in liabilities were re-introduced to AustFam’s balance sheet, backed by assets of only $695,000.

On 3 July 2009, the Federal Court appointed Murray Smith of McGrathNicol as judicial manager of AustFam pursuant to section 62K of the Insurance Act 1973 on grounds of unsatisfactory financial position.

The judicial manager’s assessment of AustFam’s assets and liabilities was that AustFam only had approximately $400,000 in assets, with liabilities estimated to be $2.5 million.

On 15 October 2009 the Minister made a declaration under section 62ZZC of the Insurance Act 1973 that Division 3 of Part VC of the Insurance Act 1973 applies to AustFam.  This allowed for the Financial Claim Scheme to be used to settle all remaining claims.

On 30 October 2009 on application of the judicial manager, the Federal Court appointed Murray Smith of McGrathNicol as liquidator to AustFam.

With AustFam now in liquidation and remaining outstanding claims being settled with the assistance of the Financial Claims Scheme, the outstanding claims reserves are at a level that is considered to be immaterial to APRA in terms of supervision and data publication purposes.

2.      Purpose of the instrument

The purpose of the instrument is to exempt AustFam from all of the requirements relating to quarterly and annual reporting in the following reporting standards:

• GRS 110.0 (2008) Minimum Capital Requirement
• GRS 120.0 (2008) Determination of Capital Base
• GRS 130.0 (2008) Off Balance Sheet Business - Credit Substitutes Provided and Risk Charge
• GRS 130.1 (2008) Off Balance Sheet Business - Liquidity Support Facilities Obtained
• GRS 130.2 (2008) Off Balance Sheet Business - Charges Granted and Risk Charge
• GRS 130.3 (2008) Off Balance Sheet Business - Credit Support Received
• GRS 140.0 (2008) Investments - Direct Interest Rate Holdings and Risk Charge
• GRS 140.1 (2008) Investments - Direct Equity Holdings and Risk Charge
• GRS 140.2 (2008) Investments - Direct Property Holdings and Risk Charge
• GRS 140.3 (2008) Investments - Loans and Advances and Risk Charge
• GRS 140.4 (2008) Investments - Indirectly Held by Insurer and Risk Charge
• GRS 150.0 (2008) Asset Exposure Concentrations and Risk Charge
• GRS 160.0 (2008) Derivative Activity and Risk Charge
• GRS 170.0 (2008) Concentration Risk Charge
• GRS 170.1 (2008) Maximum Event Retention and Risk Charge for Lenders Mortgage Insurers
• GRS 210.0 (2008) Outstanding Claims Provision - Insurance Risk Charge
• GRS 210.1 (2008) Premium Liabilities - Insurance Risk Charge
• GRS 300.0 (2008) Statement of Financial Position
• GRS 301.0 (2008) Reinsurance Assets and Risk Charge
• GRS 310.0 (2008) Statement of Financial Performance
• GRS 310.1 (2008) Premium Revenue and Reinsurance Expense
• GRS 310.2 (2008) Claims Expense and Reinsurance Recoveries
• GRS 310.3 (2008) Investment and Operating Income and Expense
• GRS 320.0 (2008) Reconciliation of Annual Disclosure
• GRS 400.0 (2008) Statement of Risk by Country
• GRS 410.0 (2008) Movement in Outstanding Claims Provision
• GRS 420.0 (2008) Premium Revenue by State and Territory of Australia
• GRS 430.0 (2008) Claims Expense by State and Territory of Australia
• GRS 440.0 (2008) Claims Development Tables

3.      Consultation

APRA has been in consultation with AustFam in relation to this issue.