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
Overview
The Life Insurance Regulations (Amendment) Statutory Rules 1984 No. 248 were enacted to address the need for updating the rules governing the calculation of liabilities under annuity policies within the Life Insurance Act 1945. This amendment was necessitated by the outdated mortality tables and interest rates that were previously specified in the Fourth Schedule of the Act, which did not reflect the current economic environment. The changes were aimed at enabling life insurance companies to provide more attractive annuity terms by basing their calculations on more realistic and contemporary data. This was achieved by replacing the outdated "a(55) Tables for Annuitants" with the "a(90) Tables For Annuitants" and adjusting the interest rates to better align with current investment expectations.
Issued by authority of the Treasurer, the regulation introduces new regulation 28B into the Life Insurance Regulations, making specific amendments to the Fourth Schedule of the Act. This includes updating the mortality tables to the "a(90) Tables For Annuitants" and increasing the interest rates used in calculating the liabilities under annuity policies, thus allowing life offices to hold more reasonable reserves and offer improved annuity terms. The policy objective behind these amendments is to ensure that the life insurance regulatory framework remains relevant and effective in a changing financial landscape, thereby benefiting both insurers and policyholders.
Scope and Application
The Life Insurance Regulations (Amendment) Statutory Rules 1984 No. 248 are an instrument designed to update the Life Insurance Act 1945, focusing on the administration and regulation of life insurance companies within Australia. The Act applies to registered life insurance companies operating in Australia, providing a framework for the supervision of their conduct, particularly in relation to the issuance and management of annuity policies. The purpose of the amendment is to modernise the rules regarding the valuation of liabilities under annuity policies, ensuring that the interest rates and mortality tables used are reflective of current economic conditions and actuarial data. These regulations extend across the Commonwealth of Australia, impacting all life insurance companies registered under the Act.
The Life Insurance Regulations (Amendment) Statutory Rules 1984 No. 248 introduce specific changes to the Fourth Schedule of the Act by updating the interest rates and mortality tables used in the calculation of liabilities under annuity policies. The new amendments involve replacing outdated mortality tables with the "a(90) Tables For Annuitants" and adjusting the interest rates to more accurately reflect current investment returns. These changes are intended to allow life offices to hold reserves that are more aligned with current financial realities, thereby enabling them to offer annuities on more attractive terms. The amendment does not specify any exclusions or exemptions from these regulations; however, the applicability is restricted to the interest rates and mortality tables as outlined in the Fourth Schedule. The regulation is a direct amendment to existing provisions and does not extend its application through subordinate instruments.
Key Provisions
The Life Insurance Regulations (Amendment) update the rules contained in the Fourth Schedule of the Life Insurance Act 1945, primarily to provide more realistic calculations for the liabilities under annuity policies. This is achieved by amending the interest rates and mortality tables used in these calculations. Regulation 28B(a) replaces the previous mortality tables, the "a(55) Tables for Annuitants", with the more recent "a(90) Tables for Annuitants". These updated tables will be used to determine mortality rates for calculating the liability under annuity policies, thereby providing a more accurate basis for the valuation of these policies (Fourth Schedule, regs. 28B(a)(1)(c) and (d)).
Life insurance companies, or "life offices", will now have to use the new "a(90) Tables for Annuitants" to determine the rates of mortality and the "a(90)" interest rates to calculate the liabilities under annuity policies. This requirement is intended to enable life offices to hold reserves that more closely reflect the actual liabilities of the policies, which should in turn allow for more competitive terms when marketing annuities. Life offices are expected to adhere to these new rules to ensure compliance with the amended regulations.
Failure to comply with the updated regulations may result in significant consequences for life insurance companies. While specific civil or criminal penalties are not detailed in the explanatory statement, non-compliance could potentially lead to regulatory scrutiny, fines, or other sanctions under the Life Insurance Act 1945. The maximum penalties for breaches of the Act or the regulations may include substantial fines and, in severe cases, criminal charges against directors or officers of the company. It is crucial for life offices to update their systems and practices to reflect these changes to avoid any legal repercussions and maintain their compliance with the legislative requirements.