Commonwealth Numbered Regulations - Explanatory Statements

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LIFE INSURANCE REGULATIONS (AMENDMENT) 1996 NO. 305

STATUTORY RULES 1996 No. 305

Issued by the Authority of the Assistant Treasurer

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.

Four rounds of regulations have been released since the commencement of the Act on 1 July 1995. The amendments comprise the fifth round of regulations.

The purpose of the Regulations is twofold: one is to establish the manner in which income and outgoings of a statutory fund are determined; the second is to provide for the publication of unclaimed money information.

Section 47 of the Act provides that regulations may declare what constitutes income of a statutory fund, and what constitutes outgoings of a statutory fund.

Income and outgoings are critical in the determination of the operating profit of the statutory fund. Section 58 of the Act establishes the operating profit of a category of business, as Income less Outgoings. The 'category' is a sub-categorisation of the business of the statutory fund into participating business and non-participating business. Where this amount is negative, the category has an Operating Loss for the period.

Operating Profit, once determined for a category of business for a period, is allocated between the potential owners of that profit - the policy owners of the statutory fund and the shareholders.

Operating profit is allocated to a number of 'accounts', identified as follows:

* Australian policy owners' retained profits

* Overseas policy owners' retained profits

* Shareholder's retained pro Fits (Australian participating)

* Shareholder's retained pro Fits (Overseas and non-participating)

All operating profit must be allocated. Various rules and relationships control that process of allocation.

Once operating profit is allocated to the above retained profit 'accounts', it is available for distribution to the potential owners, again in accordance with rules and relationships controlling that distribution process.

In summary, the determination of income and outgoings, as defined by the proposed Regulation, is the first critical step in the determination of the operating profit, and the resulting distribution of profit to policy owners and shareholders. These provisions are vital to the effective protection of the interests of the policy owner.

The Regulation provides that 'income' and 'outgoings' should be determined in a manner consistent with the Commissioner's rules No 21, made pursuant to subsection 82(5) of the Act. (These rules provide the financial reporting requirements for life companies, and rely in part on methodologies detailed in Corporations Law, Actuarial Standards and Statements of Accounting Standards).

Regulation 4.01B has been developed in consultation with representatives of the life insurance industry.

Section 106 of the Life Insurance Act 1945 (the 1945 Act) established a scheme for the refund of unclaimed money and specifically required and authorised the Treasurer to publish particulars of sums over a certain amount in the Gazette.

Section 216 of the Act establishes a similar scheme for refund of unclaimed money under the Act, substantially reflecting the requirements of the 1945 Act. However it was decided to remove from the Act the mandatory requirement for publication in the Gazette, with the intention of providing these details on an irregular basis in the form of a booklet, or, in the future, over the internet.

As the Act does not include a gazetting requirement and there appears to be no legislative basis for 'publishing' or disclosing such information, any disclosure of personal information in response to a request may breach Information Privacy Principle 11 contained in section 14 of the Privacy Act 1988, which establishes the limits on disclosure of 'personal information'.

The general regulation making power in section 253 permits prescription of matters for publication in relation to unclaimed money, on the basis that such prescription is necessary and convenient for the carrying out and giving effect to the scheme for refund of unclaimed money under the Act.

Regulation 10.05B will provide the Commissioner with the discretion to publish any of the particulars which are specified in statements given to the Commissioner for the purpose of subsection 216(1).

The commencement date of the proposed Regulation is the date of gazettal.