Commonwealth Numbered Regulations - Explanatory Statements

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LIFE INSURANCE AMENDMENT REGULATIONS 2002 (NO. 2) 2002 NO. 148

EXPLANATORY STATEMENT

Statutory Rules 2002 No. 148

Issued by the Authority of the Minister for Revenue and Assistant Treasurer

Life Insurance Act 1995

Life Insurance Amendment Regulations 2002 (No. 2)

Section 253 of the Life Insurance Act 1995 (the Act) provides that the Governor-General may make regulations for the purposes of the Act.

The Act and the Life Insurance Regulations 1995 (the Principal Regulations) provide for the regulation of companies conducting life insurance business as defined in the Act.

The purpose of these Regulations is to repeal Regulation 10.03 of the Principal Regulations to remove an exemption provided to friendly societies to meet actuarial standards for life insurance policy surrender values, paid-up policies and non-forfeiture of policies, in order to bring friendly societies under the same actuarial requirements as all other companies conducting life insurance business.

On 1 July 1999, the prudential regulation of friendly societies was transferred from the state-based prudential supervisory regime, undertaken by the Australian Financial Institutions Commission (AFIC), to the Australian Prudential Regulation Authority (APRA). To accommodate this move, the Life Insurance Actuarial Standards Board (the LIASB) released a set of actuarial standards relevant to those transferring friendly societies on 30 June 1999. These standards were acknowledged as being transitional, reinstating the requirements of the pre-existing AFIC regime.

Regulation 10.03 of the Principal Regulations was made to support the implementation of the transitional actuarial standards relevant to friendly societies. Regulation 10.03 exempts friendly societies from Division 4 of Part 10 of the Act, which relates to surrender values, paid-up policies and non-forfeiture of policies. Division 4 Part 10 of the Act does not make provision for the transitional actuarial standards to determine the value of policies.

Following the introduction of the transitional standards, the LIASB undertook to commence the process of developing a set of actuarial standards that could be applied, with broad consistency, to all life insurance companies now covered by the Act.

A harmonised set of actuarial standards, developed in consultation with industry, are to apply to all life companies registered under the Act. They will replace existing standards from 30 June 2002. Among the new actuarial standards, is one on minimum surrender values, paid-up policies and non-forfeiture of policies and, as such, Regulation 10.03 is no longer required.

The new actuarial standard in relation to minimum surrender values, paid-up policies and non-forfeiture of policies provides for the grandfathering of existing friendly society products. This ensures that no requirements for minimum surrender values, paid-up policies and non-forfeiture of policies are imposed retrospectively, other than those already established within the contractual terms of a policy.

The Regulations commence on 30 June 2002 to coincide with the introduction of the new actuarial standards for life insurance companies.

Authority: Section 253 of the Life Insurance Act 1995


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