Notice imposing conditions on Authorisation to carry on insurance business - Long Grove Insurance Company Limited

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Notice imposing conditions on Authorisation to carry on insurance business

 

Insurance Act 1973

 

 

TO: Long Grove Insurance Company Limited 44 001 151 739  (the general insurer)

GPO Box 82, Sydney NSW 2001

 

SINCE

  1. APRA issued to the general insurer an Authorisation to carry on insurance business in Australia under subsection 12(1) of the Insurance Act 1973 (the Act), on 29 August 2002 (the Authorisation); and
  2. the Authorisation is subject to conditions,

 

I, Brandon Kong Leong Khoo, a delegate of APRA, under paragraph 13(1)(a) of the Act, IMPOSE on the Authorisation the additional conditions specified in the attached Schedule.

 

When this Notice takes effect, the conditions which apply to the Authorisation are set out in the attached Schedule of consolidated conditions.

 

 

 

Dated: 17 July 2013

 

[Signed]

 

 

 

Brandon Kong Leong Khoo Executive General Manager Specialised Institutions Division

Interpretation Document ID: 209820

In this Notice

 

APRA means the Australian Prudential Regulation Authority. insurance business has the meaning given in section 3 of the Act. prudential standard has the meaning given in section 3 of the Act.

Note 1


Under subsection 13(1) of the Act, APRA may, at any time, by written notice to the general insurer

impose conditions or additional conditions or vary or revoke conditions imposed on the insurer's authorisation

under section 12 of the Act. The conditions must relate to prudential matters.

 

Note 2


Under subsection 13(2) of the Act, a condition may be expressed to have effect despite anything in

the prudential standards.

 

Note 3


Under subsection 13(4) of the Act, if APRA imposes conditions on a general insurer's authorisation,

APRA must give written notice to the insurer and ensure that notice that the action has been taken is published

in the Gazette.

 

Note 4


Under subsection 14(1) of the Act, a general insurer commits an offence if:

(a)  the insurer does an act or fails to do an act; and

(b)  doing the act or failing to do the act results in a contravention of a condition of the insurer's authorisation under section 12 of the Act; and

(c)  there is no determination in force under subsection 7(1) of the Act, that subsection 14(1) of the Act does not apply to the insurer.

The penalty is 300 penalty units. Under subsection 14(1A) of the Act, where an individual commits an offence against subsection 14(1) of the Act, because of Part 2.4 of the Criminal Code or commits an offence under Part

2.4  of the Criminal Code in relation to an offence against subsection 14(1) of the Act, the individual is punishable, on conviction, by a penalty not exceeding 60 penalty units. Under subsection 14(2) of the Act, an offence against section 14 of the Act, is an offence of strict liability.

 

Note 5


Under subsection 13(6) of the Act, a decision to impose conditions, or additional conditions, on the

Authorisation is a reviewable decision to which Part VI of the Act applies. If you are dissatisfied with this

decision, you may seek reconsideration of the decision by APRA in accordance with subsection 63(2) of the Act. The request for reconsideration must be in writing, must state the reasons for the request, and must be given to APRA within 21 days after the decision first comes to your notice or within such further period as APRA allows. If dissatisfied with APRA’s reconsidered decision confirming or varying the first decision, you may, subject to the Administrative Appeals Act 1975, apply to the Administrative Appeals Tribunal for review of the reconsidered decision.

The address where written notice may be given to APRA is   Level 26, 400 George Street, Sydney NSW .

Schedule - the additional conditions on the Authorisation

 

Except with the prior approval of APRA, the general insurer must not:

 

a)  Enter into, vary or terminate any contractual agreement or arrangement involving Lumbermens Mutual Casualty Company (Lumbermens) or an associate of Lumbermens;

 

b)   Make any payment to or transfer any assets to Lumbermens or an associate of Lumbermens;

 

c)  Enter into any dealing or transaction at the request of Lumbermens or an associate of Lumbermens; or

 

d)   Give any other form of financial assistance to Lumbermens or an associate of Lumbermens.

An associate has the meaning set out in clause 4 of Schedule 1 to the Financial Sector

(Shareholdings) Act 1998.

Schedule of consolidated conditions

 

 

 

  1. The general insurer may only conduct insurance business in Australia for the sole purpose of discharging liabilities that arose under policies entered into prior to 1 July 2002.

 

2. The general insurer must:

 

a)  seek APRA’s written approval before making a reduction in capital. APRA’s approval may be subject to conditions. A reduction in capital includes, but is not limited to: share buybacks; the redemption, repurchase or early repayment of  any eligible capital instruments issued by the general insurer or a special purpose vehicle; trading in own shares; or where aggregate  interest  and dividend payments on capital exceed the general insurer’s after-tax earnings in the  year to which they relate (i.e. dividend and interest payments on capital wholly or partly funded from retained earnings);

b) where APRA’s approval is sought for a reduction in capital, submit to APRA:

 

(i)  documents clearly setting out and evidencing the general insurer’s current financial position; and

 

(ii)   a capital plan with insurance liabilities valued in accordance with the methodology set out in Prudential Standard GPS 320, except that the valuation must demonstrate that the tangible  assets  of  the  general insurer, after the proposed capital reduction, are sufficient to cover its insurance liabilities to a 99.5 per cent level of sufficiency, plus any other liabilities, as  calculated  by  an  Approved  Actuary  as  defined under GPS 320;

 

c)  ensure that the capital plan referred to above extends for a period of at least three years. The general insurer will need to satisfy APRA, on the basis of the capital plan provided, that the general insurer’s capital base after the proposed reduction will remain adequate for its future needs. In deciding whether or not to  approve a reduction in capital, APRA will have regard to all relevant considerations, including whether the general insurer’s capital plan shows that the general insurer will maintain an adequate level of capital, taking account of factors such as:

 

(i) the immediate capital position;

(ii) commitments to raise capital; and

(iii) core profitability;

 

d)  any reference above to the earnings of the general insurer is a reference to the earnings of the general insurer determined in a manner consistent with the general insurer’s prudential reporting to APRA under the Collection of Data Act rather than in accordance with Australian Accounting Standards issued by the Australian Accounting Standards Board as required for statutory financial reporting under the Corporations Act.

 

3.  The general insurer must invest its funds in deposits with a locally incorporated ADI, Commonwealth or State Government bonds; any investment in other assets must be approved by APRA.

 

4. The general insurer must ensure:

a)  where the general insurer has a share capital, its paid-up share capital shall no at any time be less than $2,000,000;

 

b)  where the general insurer is incorporated in Australia, the value of its asset shall at all times exceed the amount of its liabilities by not less than:

(i) $2,000,000; or

(ii) 20% of its premium income during its last preceding financial year; or

 

(iii)  15% of its outstanding claims provision as at the end of its last preceding financial year;

whichever is the greatest;

 

c)   the value of the assets in Australia of the general insurer shall at all time exceed the amount of its liabilities in Australia by not less than:

(i) $2,000,000; or

 

(ii)  20% of its premium income in Australia during its last preceding financia year; or

 

(iii)   15% of its outstanding claims provision in respect of its liabilities in Australia as at the end of its last preceding financial year;

whichever is the greatest;

 

5.  The general insurer must provide APRA with a Board Declaration, at the same time i lodges its yearly statutory accounts, that, for the last financial year:

a)   the general insurer has systems in place to ensure compliance with the Insurance Act 1973 and Regulations, Prudential Standards, authorisation conditions and directions;

 

b)  the Board have planned for running off the insurance liabilities of the genera insurer, identified the key risks facing the general insurer and have a strategy for selecting and monitoring reinsurance programs and that these matters are incorporated in the general insurer’s run-off plan;

 

c)  the general insurer has substantially complied with its run-off plan and that the plan is operating effectively in practice, having regard to the risks it is designed to control; and

 

d) the copy of the general insurer’s run-off plan provided to APRA is accurate and current.

 

6.   The requirements in conditions 4 and 5 shall apply to the general insurer to the exclusion of the requirements set out in:

a) Prudential Standard GPS 110 Capital Adequacy;

 

b)   paragraphs 12(a), 29-34 and 37-40 of Prudential Standard GPS 220 Risk Management;

c) Prudential Standard GPS 230 Reinsurance Management (GPS 230);

d)  paragraph 34 of Prudential Standard GPS 320 Actuarial and Related Matter

until 1 January 2015, subject to the following conditions:

 

(i)  the Appointed Actuary and Chairman must make an annual attestation in writing to APRA that there has been no material change in the genera insurer’s circumstances since the last valuation;

 

(ii) the Appointed Actuary will provide the general insurer with a methodology for preparing quarterly returns going forward; and

(iii)   should a claim be notified to the general insurer an actuarial report is required to be prepared by the Appointed Actuary and a copy provided to APRA as soon as practical;

 

e)   paragraph 18 of Prudential Standard CPS 510 Governance subject to the following conditions:

(i) the Board must consist of at least four directors; and

(ii) the Board must have two independent directors;

f) paragraphs 19 and 42-79 of Prudential Standard CPS 510 Governance; and

 

g)   paragraph 89 of Prudential Standard CPS 510 Governance until 1 January 2015,

but without prejudice to the general insurer’s obligation to otherwise comply with

the Prudential Standards.

 

7. Notwithstanding the exclusion from GPS 230, the general insurer must comply with the following reinsurance management requirements having regard to the concepts in that Prudential Standards:

 

a)   the general insurer must inform APRA immediately if it anticipates that a problem is likely to arise out of its reinsurance arrangements that  may materially and adversely affect its current or future capacity to meet its obligations. The general insurer must put in place plans to redress any such problem and advise APRA accordingly;

 

b)   the general insurer must have processes in place to achieve legally binding reinsurance arrangements;

 

c)  where the general insurer has in place reinsurance arrangements that pre-date these conditions and that it will not practically be able to document appropriately, it must advise APRA; and

 

d) the general insurer must advise APRA of details of all proposed Limited Risk Transfer Arrangements as defined in Attachment A of GPS 230 and future reinsurance arrangements prior to entering into such arrangements.

8. Except with the prior approval of APRA, the general insurer must not:

 

a)  Enter into, vary or terminate any contractual agreement or arrangement involving Lumbermens Mutual Casualty Company (Lumbermens) or an associate of Lumbermens;

 

b)   Make any payment to or transfer any assets to Lumbermens or an associate of Lumbermens;

 

c)  Enter into any dealing or transaction at the request of Lumbermens or an associate of Lumbermens; or

 

d)   Give any other form of financial assistance to Lumbermens or an associate of Lumbermens.

An associate has the meaning set out in clause 4 of Schedule 1 to the Financial Sector

(Shareholdings) Act 1998.

Overview

The Insurance Act 1973 was enacted by the Commonwealth Parliament to provide a legislative framework for the regulation of the insurance industry in Australia. The Act was introduced to address the need for a comprehensive regulatory scheme that ensures the financial stability of insurance companies, protects policyholders, and promotes fair and efficient insurance markets. The Australian Prudential Regulation Authority (APRA) is the body responsible for enforcing the Act, with the primary policy objective of maintaining the financial soundness of insurance companies and protecting the interests of policyholders. This legislation allows APRA to impose conditions on the authorisation of general insurers to carry on insurance business in Australia, as demonstrated in the notice imposing additional conditions on the authorisation of Long Grove Insurance Company Limited. The notice, dated 17 July 2013, highlights the importance of adhering to the specified conditions to maintain the financial stability and integrity of the insurance industry.

Scope and Application

The Insurance Act 1973 applies to general insurers, like Long Grove Insurance Company Limited, that hold an authorisation to carry on insurance business in Australia. This Act empowers the Australian Prudential Regulation Authority (APRA) to impose conditions on such authorisations to ensure the financial stability and prudential conduct of the insurers. The conditions imposed by APRA must pertain to prudential matters, as outlined in the Act. The authority to impose these conditions stems from subsection 13(1) of the Act, which mandates that any such conditions, variations, or revocations must be communicated in writing to the insurer and published in the Gazette. APRA can impose these conditions to safeguard the insurer's ability to meet its liabilities, which is critical for maintaining consumer confidence and financial stability. The Act also outlines specific offences and penalties for non-compliance, including strict liability offences and potential criminal penalties for both the insurer and individual officers. Notably, this legislation does not exclude any particular class of insurer from its purview, thereby ensuring a uniform regulatory approach across the industry. The scope of this legislation extends to all general insurers operating in Australia, subject to the conditions imposed by APRA under the Act. The conditions imposed can vary widely, but they typically include requirements for capital adequacy, investment restrictions, reporting obligations, and specific restrictions on business practices such as dealings with certain entities. For instance, Long Grove Insurance Company Limited has been specifically restricted from entering into any agreements or transactions with Lumbermens Mutual Casualty Company or its associates, unless approved by APRA. This restriction is aimed at preventing conflicts of interest and ensuring the insurer's financial stability. Furthermore, the Act allows APRA to exempt certain insurers from specific prudential standards if alternative arrangements are deemed sufficient, providing flexibility in regulatory oversight. However, such exemptions do not relieve the insurer from other obligations under the Act or the conditions of their authorisation.

Key Provisions

The Insurance Act 1973, under subsection 12(1), allows the Australian Prudential Regulation Authority (APRA) to grant an authorisation to carry on insurance business in Australia, subject to conditions, to a general insurer. This authorisation for Long Grove Insurance Company Limited was issued on 29 August 2002, with additional conditions imposed on 17 July 2013, as detailed in the attached Schedule. The additional conditions specified in the attached Schedule, such as restrictions on transactions involving Lumbermens Mutual Casualty Company or its associates, must be adhered to without prior approval from APRA. These conditions, as well as the consolidated conditions, are intended to ensure the prudent management of the insurer's business and the protection of policyholders. The Act imposes several obligations on the insurer. Firstly, the insurer must seek APRA's approval before making any reduction in capital, which includes share buybacks, redemption, repurchase or early repayment of capital instruments, trading in own shares, or where dividend and interest payments on capital exceed the insurer's after-tax earnings. The insurer must provide detailed documentation of its financial position and a capital plan, ensuring that its tangible assets are sufficient to cover insurance liabilities. Secondly, the insurer must invest its funds in approved assets such as deposits with a locally incorporated authorised deposit-taking institution (ADI), Commonwealth or State Government bonds, with any other investments requiring APRA's approval. The insurer must also maintain a minimum paid-up share capital of $2,000,000 and ensure that the value of its assets exceeds its liabilities by a specified amount. Additionally, the insurer must submit a Board Declaration to APRA, confirming compliance with various regulatory requirements and the effectiveness of its run-off plan. Breaching the conditions of the authorisation is an offence under the Act. A general insurer that contravenes any condition of its authorisation commits an offence and is liable to a penalty of 300 penalty units. If an individual commits such an offence, they are punishable by a penalty not exceeding 60 penalty units. These offences are of strict liability, meaning the intent of the individual does not need to be proven. The decision to impose conditions on the authorisation is reviewable, and the insurer has the right to seek reconsideration from APRA and, if dissatisfied, to apply to the Administrative Appeals Tribunal for review.

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