EXPLANATORY STATEMENT
Issued by the Australian Prudential Regulation Authority
Life Insurance Act 1995
Prudential Rules Number 36
Subsection 252(1) of the Life Insurance Act 1995 (the “Act”) provides that the Australian Prudential Regulation Authority (“APRA”) may, in writing, make rules prescribing all matters required or permitted by the Act to be prescribed by Prudential Rules. Subsection 252(2) of the Act provides that such Prudential Rules are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901.
The scope of the Act has been extended as a result of the Financial Sector Reform (Amendments and Transitional Provisions) Act (No. 1) 1999 to integrate friendly societies into the prudential regime for financial institutions providing life insurance products. Friendly societies were previously regulated under a State and Territory regime. However, due to the amendments to the Act, friendly societies are now subject to largely the same regulatory requirements that applied under the State and Territory regime.
In the case of Part 4, Division 3, certain existing Prudential Rules are no longer relevant and are to be replaced by new Prudential Rules that will apply similarly to both life companies and benefit fund friendly societies. The substance of the new Prudential Rules will be broadly similar to those provisions currently in existence in the respective regimes.
Under section 52 of the Act, a life company may apply to APRA to restructure its statutory funds by making one or more policies that are referable to a statutory fund or funds become referable to another statutory fund or funds of the company. This Prudential Rule sets out the requirements for such a restructure including requirements for making the application (specifically the information to be included with the application to APRA), criteria for APRA to approve or refuse the application, how the restructure takes place, notification of interested persons and information to be lodged with APRA following the restructure.
This Prudential Rule applies to all life companies (including friendly societies). However, due to the different nature of friendly societies compared with life companies other than friendly societies, different requirements apply to friendly societies in a number of areas. For example, the requirements applying to friendly societies recognise the need for members of the benefit fund to approve the restructure (or alternatively the society’s board) and the need to amend the benefit fund rules of any affected benefit fund. The Prudential Rule also recognises that most restructures of friendly society benefit funds involve a total transfer of all the assets and liabilities of one benefit fund into another single benefit fund. As such, a streamlined process is appropriate with reduced requirements in relation to the transfer of assets.
In accordance with rule 4, an application by a life company other than a friendly society must be lodged with APRA at least 30 days before the proposed date of restructure. However, an application by a friendly society must be lodged with APRA at least 90 days before the proposed date of restructure. The purpose of this requirement is to allow sufficient time for APRA to assess an application before a restructure is planned to take place. The requirement for companies to inform APRA of the proposed date for restructure is designed to be indicative only. The longer period for friendly societies takes into account that the restructure takes effect when the benefit fund rules or amendments to benefit fund rules have been approved by APRA and have come into force under sections 16N and 16T of the Act (lodgement with ASIC). Further, if members of a benefit fund are approving the restructure, additional time is required for posting of information to members for approval at a meeting of the members. However, under certain circumstances a shorter timeframe may be appropriate and APRA may determine, in consultation with the friendly society, that a period less than 90 days before the proposed date of restructure is appropriate for lodgement of the application and accompanying documents.
In accordance with rule 11, a life company other than a friendly society must identify the policies to be involved in the restructure, via written determination. This requirement reinstates an obligation on life companies other than friendly societies, which existed prior to the amendments of the Act effected by the Financial Sector Reform (Amendments and Transitional Provisions) Act (No.1) 1999.
The time at which the restructure takes effect for a life company other than a friendly society occurs when the assets and liabilities involved in the restructure become referable to the transferring fund, as prescribed by rule 16. For a friendly society, the restructure takes effect when the benefit fund rules or amendments to benefit fund rules have been approved by APRA and have come into force under sections 16N and 16T of the Act (lodgement with ASIC).
The Prudential Rule prescribes the detail of the information to be lodged with APRA following a restructure for all life companies (including friendly societies). Rules 22 and 23 reinstate those requirements on life companies other than friendly societies which existed prior to the amendments of the Life Act, effected by the Financial Sector Reform (Amendments and Transitional Provisions) Act (No. 1) 1999. The information requirements satisfy APRA that the restructure, as approved, took place. The requirements for friendly societies largely reinstate those provisions which existed under the respective State and Territory regimes. The requirements for friendly societies are different due to the fact that APRA does not need to satisfy itself that the restructure as approved, took place as this has been evidenced by virtue of rule 17.
In relation to a friendly society, APRA may determine, in accordance with rule 21, that notification of the benefit fund members after the restructure has taken effect is not necessary. For example, APRA may grant an exemption from the requirement to notify the members of a particular benefit fund if the members of that fund have already been provided details of the restructure under rule 9 and have approved the restructure under subrule 8(a).
The requirements outlined in Schedule’s 1 and 2 set out the information required to be lodged with an application for a restructure. This information is designed to satisfy APRA that the rights and interests of members and policy owners involved in the restructure are not disadvantaged. It is intended that APRA receive detailed information regarding the appropriate treatment of assets and liabilities involved in the restructure.