Commonwealth Numbered Regulations - Explanatory Statements

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INSURANCE REGULATIONS (AMENDMENT) 1997 NO. 172

EXPLANATORY STATEMENT

STATUTORY RULES 1997 No. 172

Issued by the authority of the Assistant Treasurer

Insurance Act 1973

Insurance Regulations (Amendment)

Section 132 of the Insurance Act 1973 (the Act) provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters that are required or permitted by the Act to be prescribed, or are necessary or convenient to be prescribed, for carrying out or giving effect to the Act.

The legislation

Section 44 of the Act requires a body corporate authorised to carry on insurance business to lodge with the Commissioner specified accounts and statements in respect of each financial year as well as quarterly statements. The Insurance Regulations (the Principal Regulations) prescribe forms of various accounts and statements for these purposes.

The purpose of the legislation

The main purpose of S. 44 and related regulations is to facilitate financial reporting of insurance companies to the Insurance and Superannuation Commission (the Commission) in order to enable the Commission to exercise its financial and supervisory role. Statutory forms prescribed under the Insurance Regulations enable the provision of information necessary to monitor the solvency and overall financial position of authorised insurers. In particular, Form 4 enables the annual reporting on assets and liabilities.

Part A of Form 4 is available for public inspection under the terms of Section 123 of the Act. It sets out the assets and liabilities of the authorised insurer in respect of the financial year to which it relates.

The purpose of the proposed amendments

The regulations amend the Principal Regulations by adding a Section at the end of Form 4 Part A entitled "Minimum Solvency Requirements". In this Section, the authorised insurer will disclose the minimum solvency margin with which it is required to comply. This will increase transparency and accountability within the industry and enable policy holders and prospective policy holders to better assess the financial viability of general insurers.

The regulations are described in detail in the attachment.

Cost, benefits, and consultation

Following similar moves across the financial sector, the Commission consulted extensively with the Insurance Council of Australia, the Institute of Actuaries., and with the industry, to determine an appropriate level of solvency information to be publicly disclosed. Following quite extensive debate, agreement was reached that each insurer should disclose the minimum solvency margin with which it is required to comply.

This initiative is expected to increase transparency and accountability within the industry and to enable policy holders to better assess the financial viability of general insurers. Accordingly, the publicly available Form 4 Part A of the Insurance Regulations has been amended to include a statement of the minimum solvency requirement that the authorised insurer must meet.

The amendment increases the accountability of the industry, while introducing no additional compliance costs or adverse effects on competition.

The Office of Regulation Review has advised that the amending regulations are exempt from the Regulation Impact Statement requirements, because they are of a minor machinery nature and do not substantially alter existing arrangements.

ATTACHMENT

Insurance Regulations (Amendment)

Regulation 1 - Amendment

Regulation 1 explains that the Insurance Regulations are amended as set out in these Regulations. It includes a note that these Regulations commenced on gazettal.

Regulation 2 - Schedule (Forms)

Regulation 2 amends the Principal Regulations by inserting an additional section titled "Minimum Solvency Requirements" between the end of the existing table in Part A of Form 4, and the signature block of the Director, Secretary or Agent of the authorised insurer and date. The new section, when completed by an authorised insurer, discloses the minimum solvency requirement applying to that insurer under the Act in respect of the relevant financial year, and includes a note to the reader discussing the minimum statutory solvency requirement, and the other factors which need to be considered in assessing the overall strength of an authorised insurer, with examples.


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