Commonwealth Numbered Regulations - Explanatory Statements

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LIFE INSURANCE REGULATIONS (AMENDMENT) 1995 NO. 431

Statutory Rules 1995 No. 431

Minute No. 20/95 of 1995 - Treasurer

Subject - Life Insurance Act 1995

Life Insurance Regulations (Amendment)

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 provides for the prudent management of life companies and for their supervision by the Insurance and Superannuation Commissioner.

The amendment comprises the third round of regulations made under the Act. It supplements the first round of regulations (identified as the core regulations required from the commencement of the Act), which commenced operation coincident with the Act on 1 July 1995, and the second round (which supplement the core regulations), which commenced operation on 26 October 1995.

In accordance with the object of the Act, that life companies treat the protection of the interests of the owners of life insurance policies as paramount. the Act imposts certain restrictions upon investments of the assets of the statutory funds of the companies.

Regulation 4.01A prescribes the circumstances in which an investment, or the retention of an investment, of assets of a statutory fund in a subsidiary of the life company is prohibited.

The regulation prohibits any investment in a subsidiary of the life company where the statutory funds of the company (considered in aggregate) do not hold the majority interest in the subsidiary.

The purpose of the provision is to ensure the 'control' of the asset being included as an asset of the statutory fund is, in fact, held by the statutory fund. Where the 'control' of the subsidiary is effectively hold by the 'shareholders funds' (that is, the assets of the company other than assets of a statutory fund) - then the instrument is prohibited as an investment of the statutory fund.

Further, to facilitate that same purpose, the provision prevents reinvestment of the assets of the subsidiary, either directly or indirectly, in another related (non-subsidiary) company.

The test of majority interest for the purpose of this regulation, is measured relative to the total interest of the life company in the subsidiary. In other words, the interest of the life company in the subsidiary to the extent it is held in the shareholders' funds, must exceed the interest of the life company in the subsidiary to the extent it is held in the statutory funds (in aggregate).

The Commencement date of the amendment is 1 January 1996.

Authority: Section 253 of the Life Insurance Act 1995