Commonwealth Numbered Regulations - Explanatory Statements

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INSURANCE AMENDMENT REGULATIONS 2002 (NO. 1) 2002 NO. 127

Statutory Rule 2002 No. 127

Issued by the Authority of the Parliamentary Secretary to the Treasurer

General Insurance Reform Act 2001

Insurance Amendment Regulations 2002 (No. 1)

Under the provisions of Item 11, Schedule 2 of the General Insurance Reform Act 2001 (the Reform Act), the Governor-General may make regulations providing for matters of a transitional nature arising from the amendments made by Schedule 1, which amends the Insurance Act 1973 (the Act).

The Act and the Insurance Regulations 2002 (the Regulations) provide for the regulation of general insurers by the Australian Prudential Regulation Authority (APRA).

The Act, as amended by the Reform Act, includes a two-year transitional period to allow certain companies time to meet the new requirements, including the capital adequacy requirements as set by the general insurance prudential standards. The new capital adequacy standards that come in force on 1 July 2002 require all authorised insurers to:

•       meet new risk-based capital requirements and a minimum new entry capital requirement of $5 million (raised from $2 million prior to amendment by the Reform Act); and

•       introduce a risk-based approach to capital adequacy for general insurers, similar to current banking regulation.

Section 37 of the Act, prior to its amendment by the Reform Act, provided that APRA may determine that insurance business carried on for the benefit of a limited class of persons (such as members of a body corporate) may be exempt from the application of the Act. Section 37 has been repealed by the Reform Act.

The purpose of the Regulations is to allow APRA to provide those general insurers previously granted exemptions under section 37 of the Act as well as general insurers in run-off prior to 1 July 2002, exemptions from particular requirements in prudential standards and exemptions from complying with a prudential standard, during the transitional period, where APRA is satisfied that the consequences of it applying would be unreasonable in the circumstances.

The Regulations commence from 1 July 2002.

Authority: Item 11, Schedule 2 of the General Insurance Reform Act 2001