EXPLANATORY STATEMENT
STATUTORY RULES 1984 NO. 248
LIFE INSURANCE REGULATIONS (AMENDMENT)
Issued by Authority of the Treasurer
The Life Insurance Act 1945 (the Act) establishes an administrative system for the supervision of the conduct of life insurance business in Australia by registered life insurance companies.
The main purpose of the regulation is to update the rules contained in the Fourth Schedule to the Act to make it possible for life offices to provide annuities on more attractive terms than at present.
The provisions of the Fourth Schedule specify, inter alia, the mortality tables and interest rates to be taken into account in calculating the value of liabilities attaching to annuity policies and, in conjunction with other provisions of the Act. govern the level of reserves to be held by life offices to cover these liabilities.
The interest rates specified in rules (2)(a) and (2A)(a) are in need of amendment to bring them more closely into line with the rates a life office might currently expect to be able to earn from investment of the purchase price received for an annuity policy, less expenses. In addition, there are now available more up-to-date mortality tables issued jointly by the (London) Institute of Actuaries and the (Scottish) Faculty of Actuaries that could be specified in rules (1)(c) and (d) of the Fourth Schedule, these tables being known as the “a(90) Tables For Annuitants”.
In essence, the proposed changes will enable life offices to value their liabilities under annuity policies on a more realistic basis. This will overcome the need for inordinately high reserves to be held in respect of such policies and will provide scope for life offices to market annuities on more attractive terms than at present.
Details of the regulation are set out below:-
The regulation inserts a new regulation 28B into the Life Insurance Regulations which makes alterations to the Fourth Schedule of the Act.
Regulation 28B(a) omits paragraphs (1)(c) and (d) of the Fourth Schedule and replaces them with new paragraphs (1)(c) and (d). In doing so, the references to “The a(55) Tables for Annuitants” are replaced by references to the “a(90) Tables For Annuitants” so that these latter mortality tables will be used to determine rates of mortality in calculating the liability under a life policy, being a relevant annuity policy, in respect of the period during which the annuity shall be, or continue to be, payable.
Regulation 28B(b) amends paragraph (2)(a) of the Fourth Schedule by omitting “7 per centum” and inserting “12 per centum” in its stead to specify a more up-to-date rate of interest to be used in calculating the liability under a superannuation policy, being a relevant annuity policy, in respect of the period during which the annuity shall be, or continue to be, payable.
Regulation 28B(c) amends paragraph (2A)(a) of the Fourth Schedule by omitting “5.5 per centum” and inserting “8 per centum” in its stead to specify a more up-to-date rate of interest to be used in calculating the liability under an ordinary policy other than a superannuation policy, being a relevant annuity policy, in respect of the period during which the annuity shall be, or continue to be, payable.
The Treasury
CANBERRA ACT