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Life Insurance Bill 1994
House: House of Representatives
Commencement: On a day to be fixed by Proclamation or, if no such day is Proclaimed within six months of Royal Assent, on the first day following that period.
The purpose of the Bill is to substantially replace the Life Insurance Act 1945, which has remained largely unchanged since its introduction by the Chifley Government. The new regime will strengthen prudential supervision and improve consumer protection.
Among other things, the Bill will:
streamline the regulation of life insurance and set new solvency, capital adequacy and financial reporting requirements;
increase the responsibilities of directors, auditors and actuaries;
increase the powers of the Insurance and Superannuation Commissioner (ISC);
remove duplicate regulation under the Corporations Law; and
establishment the Life Insurance Actuarial Standards Board.
The Bill does not contain any provisions dealing with product disclosure requirements or the Life Insurance Code of Practice. 1 Nor does it contain any provisions dealing with assignments and unclaimed moneys etc. These outstanding matters are expected to be dealt with by way of Government amendments during debate.
Life Insurance companies offer Australians savings products and insurance cover against the risk of death or disability. They also play a major role in the superannuation industry, offering personal superannuation products and managing the assets and administration of superannuation funds.
The life insurance industry plays a major role in marshalling and investing savings in Australia. Their investment products compete with unit trust and other collective investments in the managed funds sector.
Historically, the life insurance industry in Australia has been dominated by large mutual life offices selling products through tied agency networks. Today, the three largest mutual companies account for 50% the industry's assets.
Over the past decade, banking groups have emerged as an important segment of the industry. They have formed life company subsidiaries which have gained 10% of the market, chiefly by selling single premium products through their branch networks. In addition, a number of banks have entered into strategic alliances with life companies to market life company products through bank branches.
The remaining 40% of the industry comprises mainly smaller foreign owned and listed Australian companies, many of whom distribute products through multi-agents. State Government involvement in the life insurance sector has declined over recent years with the privatisation of GIO Australia (NSW), the privatisation of the life business of SGIO (WA) and the sale of the life business of SIO (Vic) to GIO Australia.
There are approximately 50 registered life companies in Australia, excluding friendly societies and State government insurers, both regulated by the States. There has been a decline in the number of registered life insurance companies since 1990: this trend is expected to continue as some foreign insurers exit the Australian market and mergers occur between small and medium sized life companies seeking to achieve better economies of scale.
Total assets of the life insurance industry are in the order of $115b (including $78b in superannuation). Annual premium income is in the order of $21b in respect of 10m policies with an aggregate sum insured of $568b. Over $2b is paid out each year in death and disability claims and policy maturities.
The Federal Cabinet ratified the new proposed regulatory regime for the industry in July 1993. The new regime follows a comprehensive review by the Insurance and Superannuation Commission and takes account of technological changes, deregulation of financial markets, advances in actuarial methods and innovations in life company products. In developing the new regime, Deputy Commissioner (Life Insurance) Bob Glading consulted widely with Government agencies and industry, professional and consumer groups.
Part 1 - Preliminary
The Act, which may be cited as the Life Insurance Act 1994, commences on a day to be fixed by Proclamation or, if no such day is Proclaimed within six months of Royal Assent, on the first day following that period.
The object of the Act is to protect the interests of the owners and prospective owners of life insurance policies in a manner consistent with the continued development of a viable, competitive and innovative life insurance industry. The principal means adopted to achieve this are by restricting life insurance business to companies that meet certain requirements, including the solvency and capital adequacy of statutory funds, by providing for supervision by the ISC and where necessary, judicial management, by protecting policy owners' interests in the event of winding up and by providing supervision of transfers and amalgamations.
The Act does not apply to State insurance conducted within the State, but does apply to State insurance with interstate residents. The Act applies to Norfolk Island, and general administration rests with the ISC.
Part 2 - Explanation of Key Concepts
A life policy is defined, and includes contracts involving the payment of money, premiums or an annuity dependent on the continuance of human life, an annuity not so dependent but exceeding a term to be prescribed by regulations, a continuous disability policy and certain investment contracts. A contract for less than one year for the payment of money on death is not a life policy if payment is only made in the event of death by accident or a specified sickness.
A life company issues a policy when the company enters into the contract. The owner of a policy is the person to whom the policy is issued or, if the rights have been assigned or transferred, the person who has those rights. Life insurance business is defined as the issue or undertaking of liabilities of life or sinking fund policies. Life insurance business does not include benefits provided by friendly societies, trade unions and organisations within the meaning of the Industrial Relations Act 1988 for members or dependants, life, superannuation or pension benefits issued by employers solely for employees or dependants, or the provision of funeral, burial, cremation or incidental benefits.
Life insurance business may be classified as "ordinary" or "superannuation". At the request of the life company, the ISC may declare one class to be treated as the other. The declaration must be in writing and a copy must be provided to the life company. An "investment account contract" provides benefits on death or a specified date or dates, calculated by a running account or units guaranteed not to be reduced, otherwise than by withdrawals or charges. An "investment-linked contract" provides benefits on death or a specified date or dates, calculated by units related to market value.
A "non-participating" policy confers no entitlement to share in company profits and where all benefits are set out in the policy document. A "participating" policy is any policy other than a non-participating policy. At the request of the life company, the ISC may declare one policy type to be treated as the other. The declaration must be in writing and a copy must be provided to the life company. Subsidiary and related company questions are determined as per the Corporations Law, except for the purposes of Part 7.
Part 3 - Registration of Life Companies
Only companies registered under this Act may carry on life business - penalty 2 years. This does not prohibit a person from acting as an agent. A person is not carrying on life business if they collect premiums or make payments under a policy issued outside Australia to a non-resident at that time. A person is carrying on life business if they publish or distribute (or procure such publication or distribution) willingness to do so, or if they act in Australia as agent for a person outside Australia carrying on life business. 3
Any company may apply to the ISC for registration as a life insurer providing it is made in accordance with the regulations, and must include written notification of the period of the financial year and the person who is to be the principal executive officer. The regulations may require, among other things, specified information and documents.
The ISC may refuse registration only if the Treasurer agrees and, in the case of a company limited only by shares, the company's paid-up share capital and share premium account credit is less than $10,000,000 (or such greater amount fixed by regulations) or the company's eligible assets (excluding statutory fund assets) do not exceed its total liabilities (other than liabilities in respect of share capital or liabilities that may be met by the statutory fund) by at least $5,000,000 (or such greater amount fixed by regulations), in the case of a company limited by both shares and guarantee or a company having no share capital, the company's eligible assets (excluding statutory fund assets) is less than $10,000,000 (or such greater amount fixed by regulations), or, in any case, the company is unable (or likely to be unable) to meet its obligations (including non-life business obligations), is unlikely to be able to comply with the Act, has a name so close to a registered life company so as to be likely to deceive or that carries on (or proposes to carry on) some other business that in addition to life business would not be in the public interest.
When the ISC registers a company he must issue a certificate. A life company must continue to meet these capital requirements at all times, unless the Treasurer makes a written declaration substituting some lesser amount, which he may only do if, in the particular circumstances of the case, the provision is unnecessary, likely to adversely affect te company's ability to act in the best interest of policy owners or shareholders and the declaration itself is not likely to adversely affect policy owners or shareholders.
The ISC may at any time, in writing, impose, vary or revoke conditions. A life company may, in writing, request the ISC to vary or revoke a condition. The ISC must give written notice of its decision. If, following registration, a life company's circumstances change, the company must notify the ISC within the time prescribed by regulations.
If a life company has been registered for 12 months but does not appear to be carrying on life business, the ISC may give written notice requiring the life company to provide, within one month, evidence that it is. If the ISC is not satisfied, he may cancel the registration by written notice which takes effect at the end of seven days. If a life company makes a written request for cancellation of registration, and the ISC is satisfied that no policies or liabilities remain, the ISC may give written notice of cancellation which takes effect immediately. A life company must return its certificate of registration within seven days of cancellation - penalty 10 penalty units.
Part 4 - Statutory Funds of Life Companies
Division 1 - General requirements
A statutory fund is a fund established in the records of a life company and relates solely to the life insurance business of the life company or a particular part of that business. There must be at least one statutory fund. There must be a separate statutory fund for Australian investment-linked contracts. There must be a separate statutory fund for overseas life business, unless the fund was established before the commencement of this Act, or the ISC approves.
All income, assets and liabilities in respect of the business of a fund must be allocated to the fund. Statutory funds must not be divided or amalgamated without ISC approval. Assets of a statutory fund must be kept separate from other assets, including other statutory funds. When a statutory fund is established, the ISC must be notified.
Neither a life company nor directors are trustees of a statutory fund, but see Division 2 following.
A policy must specify the statutory fund to which it refers, but can be endorsed so as to make a policy referrable to a different statutory fund or to a further statutory fund. A life company is allowed 15 months from the commencement of this Act to comply with this requirement in relation to policies issued before its commencement.
If a policy refers to two or more statutory funds it must specify the relevant premium and benefit proportions. Nothing prevents a life company from making a capital payment to a statutory fund. The assets of a statutory fund may only be applied for investment, to meet liabilities or expenses of the fund or for distribution under Division 6.
A life company must not mortgage or charge any of the assets of a statutory fund except to secure a bank overdraft or with ISC's written approval, which may be subject to conditions and which requires the Treasurer's consent. A life company must not borrow money by means of unsecured borrowing for the purpose of the business of the statutory fund, if the total unsecured borrowings exceeds an amount to be prescribed by regulation. Unsecured borrowing does not include a bank overdraft. Statutory fund assets are not available to meet a contract of guarantee liability unless the contract was entered into in connection with an investment in accordance with this part.
A life company may not reinsure between statutory funds. Where a life company enters into a borrowing transaction in contravention of these requirements, that transaction is of no effect. A Court declaration may be applied for, ordering that the transaction be taken to have effect. Such an order will be granted by the Court if the transaction was entered into in good faith without the knowledge of the contravention, hardship has been caused to the applicant or any other matters to which the Court has regard.
A life company must ensure that the proportion that the liability for investment performance guarantees attaching to policies bears to total policy liabilities of an investment-linked fund does not exceed 5%.
Assets of statutory funds may be invested in any way likely to promote the business of the fund, providing they are not otherwise prohibited, or in a related company that is not a subsidiary of the life company unless the total value so invested does not exceed 2.5% of the total assets of the fund, or in contravention of the regulations. Nothing prevents investing money by way of deposit with a bank or requires ISC approval for such an investment. Investment in a related company, including a subsidiary, is a restricted investment, unless it is a deposit with a bank. Restricted investments must be reported six-monthly in accordance with regulations to be prescribed.
Division 2 - Duties and liabilities of directors etc.
The directors of a life company are subject to a fiduciary duty to the policy owners which is the same as trustees to beneficiaries under a trust. A director is not liable in respect of a breach if the director proves that the breach occurred without his knowledge and that he used due diligence to prevent the occurrence of such a breach.
The ISC may give a life company who has contravened this Part written notice requiring the life company to take some specified action to remedy the contravention within a specified period of at least one month, which may be further extended as the ISC sees fit. A life company must comply with this notice. Where the ISC has given such a notice, the contravention has resulted in a loss and the company has failed to comply with the notice within the specified period, the directors are jointly and severally liable to pay the company an amount equal to the loss. A director is not liable in respect of a breach if the director proves that the breach occurred without his knowledge and that he used due diligence to prevent the occurrence of such a breach.
The ISC may bring an action against a director in the name of a life company if he thinks it in the interest of policy owners.
Division 3 - Division and amalgamation of statutory funds
If a life company wishes to establish a statutory fund in respect of part of the business of an existing fund, the company may apply to the ISC in accordance with ISC rules, which may require specified documents. If the ISC is satisfied that the new fund will satisfy the solvency and capital adequacy requirements, he may approve the new statutory fund.
On the transfer of assets to the new fund, the life company must make a written determination identifying those policies to be transferred, specifying the benefits and premiums relevant to each fund. Within 6 weeks of the establishment of the new fund, the life company must give the ISC written notice in accordance with the regulations.
If a life company wishes to amalgamate two or more statutory funds, the company may apply to the ISC in accordance with ISC rules, which may require specified documents. If the ISC is satisfied that the new fund will satisfy the solvency and capital adequacy requirements and that the amalgamation will not be unfair to any policy owners, he may approve the amalgamated statutory fund.
A life company that establishes anew fund or amalgamates two or more funds must give written notice to each of the policy owners affected.
Division 4 - Transfer of policies between statutory funds
If there has been a transfer of a policy from a statutory fund to one or more other statutory funds, the life company must transfer to each fund to which the policy has become referable, assets of a value equivalent to such part of the liabilities of the company as is specified in the ISC's rules. The life company must also give notice to the policy owner's in accordance with the ISC's rules.
Division 5 - Allocation of profits and losses and capital payments
Where a statutory fund has disclosed an operating profit or incurred an operating loss, the life company must allocate the profit or loss to Australian policy owners' retained profits, overseas policy owners' retained profits, shareholder's retained profits (Australian participating) or shareholders retained profits (overseas and non-participating).
At least 80% of operating profits (or such higher percentage as specified in the articles of association) which are derived from Australian participating business must be allocated to Australian policy owners retained profits - the remaining percentage must be allocated to shareholders' retained profits (Australian participating).
Profits derived from overseas participating business must be allocated to overseas policy owners' retained profits in accordance with the articles of association. Any balance must be allocated to shareholders' retained profits (overseas and non-participating). Similar provisions apply in the event of losses.
A life company must allocate to shareholders' capital all capital payments made.
Division 6 - Distribution of retained profits and shareholders' capital
Australian policy owners' retained profits may only be distributed to owners of Australian participating policies, overseas policy owners' retained profits may only be distributed to owners of overseas participating policies, shareholders' retained profits (Australian participating) and shareholders' retained profits (overseas and non-participating) may be transferred t shareholders' funds or transferred to another statutory fund of the company or distributed to owners of participating policies.
The appointed actuary's written advice must be received before retained profits are distributed. The distribution must not occur if it would breach the solvency standard or the ISC's directions or rules.
Part 5 - Solvency and Capital Adequacy Requirements 4
Division 1 - Solvency standard applicable to statutory funds
With the agreement of the ISC, the Life Insurance Actuarial Standards Board (the Board) may set a compulsory solvency standard to ensure that assets are sufficient to meet liabilities. The standard may vary for different classes of statutory funds and different companies. The ISC may issue a 12 month, written, compulsory direction to a life company to ensure solvency if he thinks this necessary. The ISC may vary or revoke the direction at any time, and must provide written notice of his decision if asked to vary or revoke a direction by the life company. A direction ceases on a winding-up order.
Division 2 - Capital adequacy standard applicable to statutory funds
With the agreement of the ISC, the Board may set a compulsory capital adequacy standard to ensure that assets are sufficient for the conduct of the business in the interests of policy owners. The standard may vary for different classes of statutory funds and different companies. The ISC may issue a 12 month, written, compulsory direction to a life company to ensure capital adequacy if he thinks this necessary. The ISC may vary or revoke the direction at any time, and must provide written notice of his decision if asked to vary or revoke a direction by the life company. A direction ceases on a winding-up order.
Part 6 - Financial Management of Life Companies
Division 1 - Preliminary
An "Australian fund" (Australian assets only), an "overseas fund" (overseas assets only) and an "Australian/overseas fund" are distinguished.
Division 2 - Financial Records and Statements
Records of income and outgoings of each statutory fund must be kept distinguishing classes, categories and sub-categories, depending on the Division 1 nature of the fund.
Financial years for existing life companies remain as they are, while new life companies may elect a financial year (see Part 3). Upon written request, the ISC may approve a change in financial years, but no financial year must ever exceed 15 months.
If a life company receives income or incurs an outgoing in relation to different businesses, statutory funds, classes, categories or sub-categories, that income or outgoing must be apportioned on an equitable basis in accordance with accepted accounting principles on the appointed actuary's written advice and confirmed by the appointed auditor's report.
A change in an asset's value is to be treated as income or an outgoing, as appropriate.
Signed and audited financial statements, consistent with actuarial advice (see Division 5), must be provided to the ISC within 3 months of preparation in an approved form. The auditor may accept the actuary's valuation of liabilities.
Only suitably experienced, individual company auditors approved by the ISC in writing may audit life companies, which may be revoked if the auditor performs inadequately. The life company must notify the ISC in writing within 14 days of the appointment or termination of an approved auditor.
The approved auditor must notify the life company of matters that require action to avoid contravention of the Act or that may prejudice policy owner's interests. If the life company fails to act within a reasonable time, or if the contraventions significantly prejudicing policy owners' interests must be notified to the ISC in writing, notwithstanding termination of appointment. The approved auditor has qualified privilege in addition to that provided by the Corporations Law.
There must be an audit committee of directors or ISC approved directors of related companies, the majority of whom must not be executive officers, and meetings must not occur without at least two of these present. The chair must not be the chair of the board of directors. The audit committee must be empowered to assist the directors to comply with this Division, and may be given other consistent functions. Approved auditors and appointed actuaries must be given sufficient opportunity to attend audit committee meetings in order to perform their functions.
Division 3 - Appointed actuaries
There must be appointed one qualified actuary of at least five years standing approved by the ISC. The ISC must be notified in writing of details of appointments and terminations within 14 days. Terminated appointments actuaries must be replaced within six weeks.
The appointed actuary must comply with the Board's actuarial standards. The appointed actuary must have access to all necessary information and documents and may require officers or employees to provide same. The appointed actuary is entitled to attend board meetings concerning solvency, capital adequacy or matters concerning his advice, as well as annual general meetings and meetings concerning accounts and financial statements.
The appointed actuary must notify the life company of matters that require action to avoid contravention of the Act or that may prejudice policy owner's interests. If the life company fails to act within a reasonable time, or if the contraventions significantly prejudicing policy owners' interests must be notified to the ISC in writing, notwithstanding termination of appointment. The approved auditor has qualified privilege in addition to that provided by any other law. 5
Division 4 - Life Insurance Actuarial Standards Board
The Life Insurance Actuarial Standards Board is established to make actuarial standards for the purpose of this Act, which are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901. The Board has the power to do whatever is necessary for the performance of its function.
The Board consists of a Chair, a government member and not more than five other members appointed by the Treasurer on a part-time basis. All but one must be members of the Institute of Actuaries of Australia with experience in life insurance. Appointments may not exceed three years, except for the government member who is appointed at the Treasurer's pleasure, but members may be re-appointed. Remuneration, except for the government member, is to be determined by the Remuneration Tribunal, or may be prescribed if no determination is in operation.
The powers of the Board are not affected by vacancies and the Treasurer may appoint an acting Chair and approve the Chair's leave of absence. The Chair may approve the other members leave of absence. A member may resign or the Treasurer may end the appointment for misbehaviour or physical or mental incapacity. If the member becomes bankrupt etc. or takes unauthorised absence during three consecutive meetings the Treasurer must end the appointment.
The Board must meet at least twice a year, four members constituting a quorum. The Chair may, and on written request of three or more members must, convene a meeting. Questions are determined by a majority present. The Chair or presiding member has a deliberative vote and, if there is an equality of votes, a casting vote. The Board may regulate its meetings as it sees fit. Resolutions may be made without formal meetings by documentation signed by at least four members, including the Chair. The Board must provide the ISC with an annual report within three months of the end of the financial year.
Division 5 - Actuarial investigations and advice
The appointed actuary must investigate the life company each year and provide a written financial condition report, including a valuation of liabilities and an assessment of compliance with the solvency and capital adequacy standards, and any Part 5 directions. The ISC may also require such an investigation at any time.
No policies may be issued or reinsurance arrangements entered into without the actuary's written advice.
Division 6 - Annual returns etc.
Statistical returns must be prepared each year for each statutory fund in accordance with the ISC's rules. Such returns, in addition to Part 6 Division 2 Financial Statements and Part 6 Division 5 Financial Condition Reports, must be lodged in triplicate within three months of the end of the financial year, although the ISC may extend this by no more than a further three months. Financial Statements must be accompanied by a copy of any report given to shareholders or policy owners. A Financial Condition Report must be accompanied by a statement of the actuary's pecuniary interests in accordance with the regulations. The actuary must provide the life company with the required information.
If the ISC is not satisfied with returns, he may require the life company to provide a written explanation, providing at least 14 days for reply. If the life company fails to provide any or sufficient explanation, the ISC may issue any direction he thinks necessary, providing at least 14 days for compliance. The ISC may vary or revoke such a direction at any time. The life company may apply to have such a direction varied or revoked and if the ISC agrees, he must do so and provide written notice.
A Reinsurance Report must be provided each year in accordance with ISC rules. Policy owners are entitled each year to one free copy, on request, of the Part 6 Division 2 Financial Statements.
Division 7 - Miscellaneous
ISC rules may declare contracts to be reinsurance contracts. Such contracts may not be entered into without receipt of ISC written approval. Applications must be made in accordance with ISC rules. Copies of any such approved contracts entered into must be provided to the ISC within 14 days.
Part 7 - Monitoring and Investigation of Life Companies
Division 1 - Preliminary
The ISC may appoint, in writing, a member of his staff or a consultant (both as defined in section 13 of the Insurance and Superannuation Commissioner Act 1987) as an authorised person to exercise any of his powers or perform any of his functions.
An "officer" of a company is defined as a person who is or has been a director, secretary, employee, actuary, auditor, shareholder or agent (but not a broker) of the company.
A "relevant person" is defined as a director, secretary, employee, actuary or auditor of the company.
"Relevant business" of a company is defined as the business giving rise to a "show cause notice", in turn defined as a notice given under Division 3.
A company is "associated" with another company if the companies are "related" and one of them carries on life insurance and either is (or has directors) accustomed or under an obligation (formal or informal) to act under the directions, instructions or wishes of the other.
A company is "related" to another company if it is in a position to cast (or control the casting of) more than one-quarter of the votes of that other company's annual general meeting or if it holds more than one-quarter of that other company's issued share capital, in a similar manner to which "related" companies are determined under section 46 of the Corporations Law, notwithstanding that law imposes the tests at one-half.
Division 2 - Monitoring life companies
The ISC may give written notice requiring any information or document relating to the life company's or a subsidiary's business to be provided between seven days and one month. The ISC is required to pay reasonable compensation.
The ISC may give written notice requiring any record to be provided at a reasonable time and place, and may inspect, take extracts from and make copies. If the records are stored electronically, the company must produce it in documentary form.
The ISC may enter, at any reasonable time and with the consent of the occupier, any premises where life insurance records are believed to be kept. He may inspect, take extracts from or make copies of such records.
Division 3 - Investigation by Commissioner
If the ISC believes a life company is or may be unable to meet its obligations, he may give written direction not to dispose or otherwise deal with, or remove from Australia, any asset for a period not exceeding six months. However, a contravention of the direction does not affect the validity of the transaction. The direction ceases upon an order for winding-up or upon his issue of a "summary of conclusions" (see following).
The ISC may give a written show cause notice inviting a written statement of reasons why he should not investigate a life company's life insurance business (or part thereof). His show cause notice must specify his grounds and the period for reply, which must be at least 14 days.
His grounds must be that the life company is or is unlikely to be able to meet its obligations, has contravened this Act, the 1945 Act, a direction under this Act, a registration obligation, a Division 2 notice, that the expense:premium ratio for the most recent year is unduly high, that the unpaid premium:premium ratio for the most recent year is unduly high, that apportionment is inequitable or that he is in possession of information that calls for an investigation.
The ISC may investigate if he has given a show cause notice and the life company consents or if no or an unsatisfactory reply is provided within the specified period, and he believes it is in the interests of policy owners to do so.
If the ISC investigates a life company, he may also investigate any associated company. Before investigating a company, the ISC must give written notice and an authorised person must produce an identity card.
If the ISC has reasonable grounds for believing he needs to enter premises for an investigation, he may, with such assistance as is necessary and at any reasonable time, enter said premises and inspect, take extracts from or make copies of any relevant record.
The ISC may, during an investigation, give written notice to a relevant person requiring the production of any relevant records at a reasonable time and place. If the records are stored electronically, the relevant person must produce it in documentary form. He may also require the relevant person by written notice to give all reasonable assistance and to attend to answer questions.
If the ISC is investigating (or has decided to investigate) and he has reasonable grounds for suspecting that there are (or may be) within the next three days required records on particular premises that have not been produced, he may lay an information or complaint before a magistrate on oath and apply for a search warrant. The magistrate may require further information, either orally or by affidavit.
If the magistrate is satisfied, he may issue a warrant authorising a member of the Australian Federal Police, the ISC or an authorised person, with such assistance and by such force as is necessary and reasonable to enter, search, break open and take possession of, or secure against interference, records that appear to be the said records. The magistrate must set out which grounds he has relied on to issue the warrant, and the warrant must specify the premises and records and authorised times of entry and that the warrant ceases on a specified day no longer than seven days after its issue.
Where records are produced to a person under this Division, the person may inspect, make copies of or take extracts and use the records for the purposes of a proceeding. Where records are produced to a person under this Division without a warrant, the person may in addition take possession of the records. The person may retain records for so long as is necessary to exercise a power under these immediate provisions, for the purpose of the investigation or for a decision to be made concerning beginning a proceeding or for a proceeding. No one is entitled to claim a lien on any of the records, but such a lien is not otherwise prejudiced. While records are in a person's possession, he must permit inspection at all reasonable times by someone who would be entitled to inspect if they were not in his possession.
Where the record holder fails to produce records required under this Division, he may be required to state where the records may be found and who last had possession, custody or control of the records and where they may be found.
Failure to comply with this Division is an offence (30 penalty units). A person aware of an investigation must not conceal, destroy, mutilate or alter a record with the intention of delaying or obstructing that investigation (6 months imprisonment). Self-incrimination is not a defence. However, evidence of the production of a record or anything obtained as a consequence of the production of a record or answer to a question is not admissible, except in relation to those delaying or obstructing offences immediately above.
Following an investigation, the ISC must provide a written summary of conclusions. The ISC may issue written directions, including a direction to issue no further policies, during or following an investigation if he thinks the company is or is about to become unable to meet its liabilities or has contravened a condition or direction under this Act. This does not prevent the variation of a policy. Such a direction must not exceed 12 months, but the ISC may issue further directions.
The ISC may, by written notice, vary or revoke a decision. The company may request the ISC to vary or revoke a decision. The ISC must advise the company of his decision. A failure to comply with a direction does not affect the validity of a transaction. A direction ceases upon a winding-up order. Failure to comply with a direction is an offence (300 penalty units).
The ISC may issue identity cards to an authorised person, containing a recent photograph. In the absence of a warrant, an authorised person must produce an identity card. If he ceases to be an authorised person, he must return the identity card (one penalty unit).
Division 4 - Special provisions relating to the execution of warrants
"Company concerned" means the either the life company by which or for which records are kept or the life company to whose records the warrant relates. "Executing officer" means authorised in the warrant or a person assisting such a person. "Warrant" means a Division 3 warrant.
An executing officer may bring any equipment reasonably required to determine whether records may be seized. If it is not practicable to do the examination at the premises, or if the life company consents in writing, things may be removed to another place for that purpose. If things containing electronically stored information are removed, the executing officer must, if practicable, inform the company concerned of the time and place of the examination and allow a nominated person to be present.
If the executing officer believes that the equipment already at the premises is suitable for the examination of electronically stored information and it an be carried out without damage, he may do so. If the executing officer finds the equipment suitable, he may seize it and any disk, tape and associated equipment or, if possible, put the information in documentary form and seize those documents, if possible, transfer the information to a disk, tape or other storage device.
Equipment may only be seized if it is not possible to put it in documentary form or transfer it. If expert assistance is required but the executing officer believes the information may be destroyed, altered or otherwise interfered with, he may secure it by lock or guard or otherwise as required.
Notice must be given of intention to secure equipment and of the fact that it may only be secured for 24 hours, or until it has been operated by the expert, whichever happens first. If the expert is not available within 24 hours, he may apply to the magistrate for an extension of that period. He must notify the company concerned of his intention and the life company is entitled to be heard in relation to the application. The provisions applying to the grant of warrants apply to the granting of extensions.
If damage is caused to equipment as a result of insufficient care, compensation is payable out of money appropriated for the purpose. In determining compensation, regard is had to whether the life company concerned provided any possible appropriate warning or guidance. If the document, film, computer file, storage device or other thing seized may be readily copied, the executing officer must, if
requested, provide a copy to the company concerned unless it was itself put in documentary form or transferred.
Part 8 - Judicial Management and Winding-Up
Division 1 - Judicial management
The ISC or the life company, providing it has given the ISC one month's notice, may apply to the Court that a life company or its business (or part thereof) be placed under judicial management. On application by either party, the other party is entitled to be heard.
The Court may make such an order if it is satisfied that the life insurance business has been investigated under Division 3 of Part 7 and that it is in the interests of the policy owners to do so, or if it is satisfied that the life company is or is likely to be unable to meet its obligations, the company has failed the solvency standard, the company has not complied with a Division 1 Part 5 direction, or the financial position of the management may be unsatisfactory and, in all cases, the time needed to complete a Division 3 Part 7 investigation would prejudice policy owners.
The judicial manager must conduct the judicial management as efficiently as possible. Judicial management commences on a day specified in the order or, where there is none, when the order is made. While under judicial management, a proceeding against the life company cannot be commenced or proceeded with, except with the judicial manager's written consent or with the leave of the Court. This does not apply in the case of an offence. A judicial manager is not subject to any liability for refusal to give such consent.
A life company may only be judicially managed in accordance with this Act. If the Court orders judicial management, it must appoint a judicial manager, and may replace him at any time. Only an official liquidator may be so appointed, and the Court may give directions concerning remuneration and allowances and who is to pay. The Court may charge the remuneration and allowances against the life company with such priority as to existing charges as it sees fit.
When judicial management commences, management is vested with the judicial manager. No policies may be issued while under judicial management without leave of the Court. This does not prevent a variation of a policy. The appointment of a judicial manager does not affect the continued operation of this Act. The judicial manager is subject to control of the Court and has such duties as the Court directs. The judicial manager may apply to the Court at any time for instructions providing he has given the ISC written details of the application. The ISC is entitled to be heard on the application.
The judicial manager's powers include those to bring or defend legal proceedings, appoint a legal practitioner, an actuary (other than the Division 3 Part 6 actuary), to sell property using the life company's common or legal seal, to do all acts and execute all deeds, receipts and other documents, to prove bankruptcy, to draw, accept, make and endorse negotiable instruments, to obtain credit, with or without security, to take out letters of administration and appoint an agent to act on his behalf.
The ISC may apply to the Court to give instructions to the judicial manager, who is entitled to be heard on application. The ISC may ask the judicial manager for information, which must be provided.
Judicial management continues until it is cancelled or the company wound up. The judicial manager or any other interested person may apply to the Court for an order cancelling judicial management, providing they have given the ISC details of the application. The ISC is entitled to be heard on any applications. The Court may cancel the judicial management if the purpose has been fulfilled or if for any reason it is undesirable it remain in force. When judicial management is cancelled, management vests in the board of directors or other governing body.
A judicial manager has the same power to disclaim property as a liquidator under the Corporations Law.
As soon as possible after appointment, a judicial manager must provide the Court with a report that recommends the most favourable course of action and his reasons for the recommendation, and a copy must be provided to the ISC. The ISC is entitled to be heard. Possible courses of action are to transfer the business (or part thereof) to another life company, to allow the life company to carry on its business, to wind-up the life company or to take some other course of action. The report may make different recommendations for different parts of the business. If the Court orders any course other than winding-up, further reports may be made. A copy of any report must be made available at the Court Registry and such other place (if any) as the ISC determines.
The Court may make an order it considers in the best interests of policy owners. The order is binding on all persons and takes effect despite anything in the articles of association. If the Court orders a transfer to another company, the judicial manager must prepare a scheme for the transfer in accordance with Part 9. Until the Court confirms the scheme under Part 9, management continues to vest in the judicial manager.
A judicial manager may resign by filing a signed resignation with the Court. A judicial is not liable for anything done (or not done) in good faith.
Division 2 - Winding-up
A company is not to be wound up except on order of the Court following a Division 1 application. The ISC may apply for a winding-up order if he is satisfied that it is necessary following a Division 3 Part 7 investigation. The Court may grant the order if it is satisfied that it is in the interests of the policy owners to do so. Subject to this Division, winding-up is to be done in accordance with the Corporations Law.
If a liquidator applies for winding-up, he must give advice of the intention to apply to the ISC, who is entitled to be heard on the application. The ISC may apply to the Court for directions concerning a winding-up, and must give advice of the intention to apply to the liquidator, who is entitled to be heard. The ISC may ask a liquidator for information, who must comply.
The liquidator must assess the life company's liability to each person who appears to be a policy owner or interested in a policy, according to a method approved by the Court, and notify each person of his binding assessment. A person may dispute the assessment in accordance with the rules of Court or as the Court otherwise directs.
In winding-up, the assets of a statutory fund (the "primary fund") must be applied first to the primary fund policy owners, next to other business of the fund as defined in Part 2, and finally as the Court directs, having regard to the interests of the primary fund policy owners, the interests of other policy owners, the interests of creditors not within the Part 2 definition, that is, all creditors, and finally shareholders.
If a contravention of this Act results in a loss to the statutory fund and the Court orders winding-up, the directors at the time of the loss are liable to the amount of that loss. However, there is no liability if the director proves that the contravention occurred without his knowledge and that he used due diligence to avoid the contravention. On application by the liquidator, the Court may order a liable director to pay the whole or part of the loss. A person cannot be made liable under both this and Division 2 Part 4 in respect of the same contravention.
Part 9 - Transfers and Amalgamations of Life Insurance Business
No life insurance business may be transferred or amalgamated except under a scheme confirmed by the Court. The scheme must set out the terms of the transfer or amalgamation and particulars of any necessary arrangements.
An application for confirmation of a scheme cannot be made unless notice of intention has been published in accordance with the regulations, the ISC has been provided a copy and any actuarial report in accordance with the regulations (including the place and time policy owners may obtain the following approved summary), and a summary of the scheme approved by the ISC has been given to policy owners of the statutory fund, who are each entitled to one free copy, although the Court may dispense with this requirement. The ISC may arrange for an independent actuary to provide a written report on the scheme, and may provide a copy to life company affected by the scheme. Any of the life companies affected by the scheme may apply for confirmation in accordance with ISC regulations. The ISC is entitled to be heard.
The Court may confirm a scheme with or without modifications or refuse to confirm the scheme. When a scheme is confirmed it is binding on all parties, over-rides all articles of association and the life company on whose application the scheme was confirmed must lodge a copy with the Australian Securities Commission in all states in which an affected life company carries on business, and becomes liable for reasonable ISC's costs in obtaining any independent actuary's report, which may be recovered in any court of competent jurisdiction.
Where life insurance business of one life company is transferred to or amalgamated with life insurance business of a second life company, the second life company must give the ISC such documents within such time as are required by the regulations. 6
Part 10 - Miscellaneous
The ISC must provide an annual report to the Treasurer on the operation of this Act. The Treasurer must provide a copy of the annual report to each House of Parliament within 15 days of receipt. The ISC may delegate any power to any member of his staff. The Parliament's intention is not to exclude a State or Territory law capable of operating concurrently with this Act. A life company may not intentionally carry on any insurance business other than life insurance, unless it did so immediately before the operation of this Act (300 penalty units).
If a life company has, is or proposes to contravene this Act, the Court may grant an injunction or interim injunction restraining or requiring a particular act, but only on the application of the ISC, but who is not required to give an undertaking as to damages. The power to grant an injunction is irrespective of the life company's intention or previous conduct, and are in addition to and not in derogation of any other power of the Court.
The ISC's decisions are reviewable decisions and a person affected may request by written notice setting out the reasons within 21 days that the ISC review its decision. The ISC must reconsider and confirm, vary or revoke the decision, but must have the Treasurer's approval concerning registration decisions. If the Commissioner does not confirm, vary or revoke a decision within 21 days, he is deemed to have confirmed the decision. If the ISC does confirm, vary or revoke a decision within 21 days, he must give written notice including his reasons. Confirmed or varied decisions may be appealed to the Administrative Appeals Tribunal.
The Administrative Appeals Tribunal is to consist of a presidential member and two non-presidential members, who have special knowledge or skill in life insurance, unless they are an director or employee of a company carrying on any insurance business in any country, in which case they must not sit. The hearing must take place in private, and the Tribunal may give directions.
The ISC must be given a copy of any prospectus lodged under the Corporations Law and a copy of any document lodged for the purposes of Part 6.3 (Takeover Schemes) of that law within 7 days.
A life company that does not have share capital and a life company limited both by shares and guarantee must, within one year of registration, establish a postal voters' roll for contested elections of directors alterations of the articles of association and enrol any member who is not a shareholder and applies and is eligible. All regular votes cast under these arrangements are valid. If an eligible postal voter does not vote on three consecutive occasions they may be removed from the roll, but must be reinstated on request.
The ISC must ensure that life companies' Division 2 Part 6 financial statements are available at his office for inspection during business hours by anyone, who may, for a fee prescribed by regulation, make a copy of or take an extract from the statements. The ISC must ensure that he collects statistics at such time as prescribed by his rules, and may publish these as he thinks fit. A life company must comply.
A person who has been convicted of an offence against this Act or the 1945 Act, an offence in respect of insurance or dishonest conduct, has become bankrupt etc. must not be or act as a director, principle executive officer or appointed actuary (penalty 2 years). The life company must not permit such a person to be or act (600 penalty units). It is a defence if the defendant did not know and took all reasonable efforts to ascertain. A failure to comply with this does not affect the validity of a transaction or appointment.
The principle executive officer of a life company is that person appointed under Part 2. An existing company must notify the ISC of this persons identity within 3 months of the commencement of this Act. A life company may at any time change the principle executive officer by notifying the ISC.
A person who discloses information or producers documents in accordance with this Act is not liable in respect of that disclosure or production. No proceedings may be instituted after 3 years of the commission of an offence under the Act. Proceedings against a company for an offence under this Act do not prevent the appointment of a judicial manager or the winding up of the company. A person who deliberately makes a false statement or omits a material fact is guilty of an offence (penalty 12 months).
The ISC may make rules in writing prescribing all matters required or permitted by this Act to be prescribed by ISC rules. ISC rules are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901. The Governor-General may make regulations prescribing matters required or permitted by this Act or matters necessary or convenient, other than matters to be prescribed by ISC rules or actuarial standards, including time limits and penalties not exceeding 10 penalty units.
Part 11 - How This Act Affects Existing Life Companies Etc.
An existing life company is taken to be registered under this Act. Conditions imposed under the 1945 Act continue under this Act. A certificate of registration given under the 1945 Act has the same status as a certificate of registration given under this Act. This Act does not apply to life insurance business carried on outside Australia by an existing life company that is incorporated outside Australia. An approved auditor under the 1945 Act is an approved auditor under this Act. An appointed actuary under the 1945 Act is an appointed actuary under this Act. Documents lodged under the 1945 Act continue under this Act.
A life company does not contravene Part 4 by engaging in reinsurance between statutory funds if the policy was issued before and in force immediately before the commencement of this Act and the appointed actuary's investigation for the previous financial year stated that the policy does not adversely affect the financial condition of the company or unfairly affect the interests of policy owners.
If a copy of a scheme for transfer or amalgamation was lodged under the 1945 Act before the commencement of this Act, Part 9 of this Act does not apply in relation to that scheme. If immediately before the commencement of this Act a society was registered under a state or territory law for registration of benefit societies and because of that the business of the society was not life insurance business, that business will continue not to be classed as life insurance business.
If a life company was under judicial management or being wound up under the 1945 Act, the 1945 Act continues to apply and Parts 8 and 9 of this Act do not apply. This provision ceases if the life company was under judicial management immediately before the commencement of this Act, the Court has cancelled the judicial management under the continued 1945 Act and no order for winding up has been made at the time of the cancellation of the judicial management.
The schedule provides a dictionary of the various terms used within this Act.
1 A draft Code of Practice was issued by the Parliamentary Secretary to the Treasurer on 7 August 1994. A final version is expected to coincide with debate.
2 Details in this section were drawn from Insurance and Superannuation Commission Annual Reports and the Treasurer's address to the Life Insurance Federation of Australia's Annual Dinner on 26 May 1994.
3 The phrase "under this part" in paragraph 19(2)(a) should read "under Part 2".
4 A diagrammatic representation of the Solvency and Capital Adequacy Standards is attached at the end of this digest.
5 It is interesting to note that the ISC does not have the power to revoke his approval of actuaries as he does for auditors.
6 In the case of an amalgamation, it may be difficult to know which is the first life company and which is the second.
Michael Reid (Phone 06 277 2467)
Economics, Commerce Industrial Relations Group
for the Bills Digest Service 4 October 1994
Parliamentary Research Service
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Commonwealth of Australia 1994.
Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.
Published by the Department of the Parliamentary Library, 1994.
DIAGRAMMATIC REPRESENTATION OF THE SOLVENCY AND CAPITAL ADEQUACY STANDARDS - [NOT AVAILABLE ONLINE]