Life Insurance Amendment Regulations 2002 (No. 2) 2002 No. 148
EXPLANATORY STATEMENT
Statutory Rules 2002 No. 148
Issued by the Authority of the Minister for Revenue and Assistant Treasurer
Life Insurance Act 1995
Life Insurance Amendment Regulations 2002 (No. 2)
Section 253 of the Life Insurance Act 1995 (the Act) provides that the Governor-General may make regulations for the purposes of the Act.
The Act and the Life Insurance Regulations 1995 (the Principal Regulations) provide for the regulation of companies conducting life insurance business as defined in the Act.
The purpose of these Regulations is to repeal Regulation 10.03 of the Principal Regulations to remove an exemption provided to friendly societies to meet actuarial standards for life insurance policy surrender values, paid-up policies and non-forfeiture of policies, in order to bring friendly societies under the same actuarial requirements as all other companies conducting life insurance business.
On 1 July 1999, the prudential regulation of friendly societies was transferred from the state-based prudential supervisory regime, undertaken by the Australian Financial Institutions Commission (AFIC), to the Australian Prudential Regulation Authority (APRA). To accommodate this move, the Life Insurance Actuarial Standards Board (the LIASB) released a set of actuarial standards relevant to those transferring friendly societies on 30 June 1999. These standards were acknowledged as being transitional, reinstating the requirements of the pre-existing AFIC regime.
Regulation 10.03 of the Principal Regulations was made to support the implementation of the transitional actuarial standards relevant to friendly societies. Regulation 10.03 exempts friendly societies from Division 4 of Part 10 of the Act, which relates to surrender values, paid-up policies and non-forfeiture of policies. Division 4 Part 10 of the Act does not make provision for the transitional actuarial standards to determine the value of policies.
Following the introduction of the transitional standards, the LIASB undertook to commence the process of developing a set of actuarial standards that could be applied, with broad consistency, to all life insurance companies now covered by the Act.
A harmonised set of actuarial standards, developed in consultation with industry, are to apply to all life companies registered under the Act. They will replace existing standards from 30 June 2002. Among the new actuarial standards, is one on minimum surrender values, paid-up policies and non-forfeiture of policies and, as such, Regulation 10.03 is no longer required.
The new actuarial standard in relation to minimum surrender values, paid-up policies and non-forfeiture of policies provides for the grandfathering of existing friendly society products. This ensures that no requirements for minimum surrender values, paid-up policies and non-forfeiture of policies are imposed retrospectively, other than those already established within the contractual terms of a policy.
The Regulations commence on 30 June 2002 to coincide with the introduction of the new actuarial standards for life insurance companies.
Authority: Section 253 of the Life Insurance Act 1995
Overview
The Life Insurance Amendment Regulations 2002 (No. 2) were enacted to address the transitional phase in the regulation of friendly societies that were previously overseen by state-based prudential supervisory regimes. The problem these regulations were introduced to address was the disparity in actuarial standards between friendly societies and other companies conducting life insurance business, following the transfer of prudential regulation to the Australian Prudential Regulation Authority (APRA). These regulations were issued under the authority of the Minister for Revenue and Assistant Treasurer and aim to harmonise actuarial standards across all life insurance companies, ensuring that friendly societies meet the same requirements as other entities. The policy objective is to bring about uniformity in the application of actuarial standards, thus eliminating the exemption that allowed friendly societies to operate under different standards for surrender values, paid-up policies, and non-forfeiture of policies. The regulations are designed to align with the new set of actuarial standards that apply to all life insurance companies registered under the Life Insurance Act 1995.
Scope and Application
The Life Insurance Amendment Regulations 2002 (No. 2) apply to companies conducting life insurance business as defined in the Life Insurance Act 1995. Specifically, these Regulations target friendly societies that were previously exempt from certain actuarial standards regarding surrender values, paid-up policies, and non-forfeiture of policies. This exemption, established under Regulation 10.03 of the Life Insurance Regulations 1995, is repealed to bring friendly societies under the same regulatory framework as other life insurance companies. The changes take effect from 30 June 2002, aligning with the introduction of new actuarial standards developed by the Life Insurance Actuarial Standards Board. These new standards, designed to be applicable to all life insurance companies, include provisions for grandfathering existing friendly society products to avoid retrospective imposition of new requirements. The Act and its subordinate instruments, therefore, extend their application to the entire Commonwealth of Australia, ensuring uniform regulation across jurisdictions.
Key Provisions
The Life Insurance Amendment Regulations 2002 (No. 2) primarily concern the repeal of Regulation 10.03 of the Life Insurance Regulations 1995 (section 3). Regulation 10.03 had previously exempted friendly societies from the actuarial standards outlined in Division 4 of Part 10 of the Life Insurance Act 1995 (section 2). This exemption was put in place to accommodate the transitional period following the transfer of prudential regulation of friendly societies from the Australian Financial Institutions Commission (AFIC) to the Australian Prudential Regulation Authority (APRA) on 1 July 1999. The new regulations now bring friendly societies under the same actuarial requirements as other companies conducting life insurance business, in line with the newly developed actuarial standards. The changes align with the harmonised actuarial standards set to be introduced from 30 June 2002, which will apply uniformly to all life insurance companies.
The Life Insurance Amendment Regulations 2002 (No. 2) impose obligations on friendly societies to adhere to the new actuarial standards effective from 30 June 2002. These standards govern minimum surrender values, paid-up policies, and non-forfeiture of policies. Friendly societies must now comply with these requirements, which previously exempted them from such standards. The new regulations also ensure that the grandfathering of existing friendly society products remains in place, meaning that no retrospective requirements will be imposed beyond those already specified within the contractual terms of existing policies.
Breaches of the Life Insurance Act 1995 and the Life Insurance Amendment Regulations 2002 (No. 2) can lead to both civil and criminal consequences. While specific penalties are not detailed in the explanatory statement, breaches of the Life Insurance Act can generally result in substantial fines and potential imprisonment for serious offences. Under the Act, penalties can vary depending on the severity and intent behind the breach. The specific provisions regarding penalties are outlined in the Act itself, but non-compliance with the new actuarial standards and regulations can lead to enforcement actions by regulatory authorities, including financial penalties and other administrative measures. It is crucial for companies to ensure compliance to avoid these repercussions.