EXPLANATORY STATEMENT
Issued by the Australian Prudential Regulation Authority
Life Insurance Act 1995
Prudential Rules Number 37
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 Act provides for the prudent management of life companies (including friendly societies) and for their supervision by APRA.
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 Commonwealth prudential regime for financial institutions providing life insurance products. Friendly societies were previously regulated under a State and Territory regime. Due to amendments to the Act, friendly societies are now subject to a Commonwealth regime with regulatory requirements that are largely the same as those which applied under the State and Territory regime.
Section 53 of the Act provides, inter alia, that Prudential Rules may provide for the termination of one or more of the statutory funds (which term, in accordance with section 16G of the Act, includes an approved benefit fund of a friendly society) of life companies. Section 53 and this Prudential Rule do not, however, apply to terminations that may take place as a consequence of a restructure of statutory funds pursuant to section 52 of the Act and Prudential Rules No 36 made for the purposes of that section. Such terminations would only be of statutory funds which no longer contain assets or liabilities and to which policies are no longer referable.
In the case of life companies other than friendly societies, terminations of statutory funds only occur in the context of a restructure of statutory funds occurring under section 52 of the Act. This Prudential Rule, therefore, applies only to friendly societies. For friendly societies, it is relatively common for an approved benefit fund to be terminated outside of a restructure process and for existing benefits to be paid to members.
This Prudential Rule sets out, consistent with subsection 53(2) of the Act, the requirements for termination of an approved benefit fund including:
requirements for making the application (specifically the information to be included with the application to APRA);
how the restructure takes place, including a requirement for member or Board approval of relevant proposed amendments to approved benefit fund rules or the constitution of the society;
the order of distribution of assets of the approved benefit fund;
notification of members; and
information to be lodged with APRA following the restructure.
The requirements are substantially the same as those which applied to friendly societies under the Friendly Societies Code, prior to the transfer date.