EXPLANATORY STATEMENT
STATUTORY RULES 1985 NO. 44
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 Fourth Schedule to the Act provides rules for calculation of the value of life office liabilities on the Minimum Basis. These provisions 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 purpose of the regulation is to complement earlier amendments made by regulations to the Fourth Schedule to the Act to give scope for life offices to provide annuities on more attractive terms than at present. Amendments directed toward this objective were made to the Fourth Schedule in September 1984, but they did not go far enough in that they did not allow for a sufficiently high interest rate to be applied in respect of ordinary annuity policies under which the annuities have become payble.
The amendment redrafts the previous rule (2A)(a) of the Schedule relating to the rates of interest to be used in calculating the liability under ordinary (other than superannuation) annuity policies. The effect of this change is to increase from 8 per centum per annum to 12 per centum per annum the rate of interest specified for a policy under which an annuity has become payable while retaining the rate of 8 per centum per annum for a deferred annuity policy. The rate of 12 per centum per annum is consistent with that which already applies in respect of superannuation annuity policies.
The change will enable life offices to value on a more realistic basis their liabilities in respect of ordinary (other than superannuation) annuity policies under which annuities have become payable and continue to be payable. 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 them on more attractive terms than at present.
Details of the regulation are set out below:-
The regulation inserts after regulation 28B a new regulation 28C into the Life Insurance Regulations which makes alterations to the Fourth Schedule to the Act.
Regulation 28C omits paragraph (2A)(a) of the Fourth Schedule and replaces it with new paragraphs (2A)(a) and (2A)(ab).
New paragraph (2A) (a) retains the rate of 8 per centum per annum as the rate to be used in calculating the liability under an ordinary policy other than a superannuation policy, being a deferred annuity policy, in respect of the period during which an annuity shall be payable.
New paragraph (2A) (ab) specifies a rate of 12 per centum per annum as the rate to be used in calculating the liability under an ordinary policy other than a superannuation policy, being an annuity policy under which an annuity has become payable, in respect of the period during which the annuity shall continue to be payable.
The Treasury
CANBERRA ACT