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Insurance and Superannuation Commission - Report - 1993-94


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Insurance AND

Superannuation Commission

ANNUAL REPORT 1993 - 94

C 1 s QX —)

Insurance and Superannuation Commission

Annual Report 1993-94

© Commonwealth of Australia 1994

ISBN 0 644 35202 7

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Australian Government Publishing Service. Requests and inquiries concerning reproduction rights should be directed to the Manager, Commonwealth

Information Services, Australian Government Publishing Service, GPO Box 84, Canberra ACT 2601.

Produced by the Australian Government Publishing Service

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I n s u r a n c e a n d S u p e r a n n u a t i o n C o m m i s s i o n

212 Northboume Avenue, Canberra ACT 2600 GPO Box 9836 Canberra ACT 2601

From the Office of the Commissioner

The Hon. Ralph Willis, MP Treasurer Parliament House CANBERRA ACT 2600

Dear Treasurer

I present the Annual Report of the Insurance and Superannuation Commission for the year ending 30 June 1994.

The Report is presented in accordance with the requirements of:

. Section 11 of the Life Insurance Act 1945;

. Section 125 of the Insurance Act 1973;

. Section 45 of the Insurance (Agents and Brokers) Act 1984;

. Section 11H of the Insurance Contracts Act 1984;

. Section 21 of the Occupational Superannuation Standards Act 1987 (now called the Superannuation Entities (Taxation) Act 1987); and

. Section 352 of the Superannuation Industry (Supervision) Act 1993.

Yours sincerely

F.G.H. Pooley Insurance and Superannuation Commissioner ^-0 September 1994

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COMMISSION HIGHLIGHTS 1993-94

• Legislation to strengthen prudential supervision o f the superannuation industry, notably the Superannuation Industry (Supervision) Act 1993 (hereafter referred to as the SIS legislation) was passed by Parliament in November 1993. The associated SIS Regulations were gazetted in March 1994. The SIS legislation, which applies to funds and trusts from the beginning of their 1994-95 year of income, will enhance the security of the growing pool of superannuation

savings by making trustees more accountable to fund members, enhancing the scope for member participation in the management o f the funds and substantially increasing the Commission's investigation and enforcement powers.

• Legislation to upgrade prudential supervision of the life insurance industry was introduced into Parliament in June 1994. The Life Insurance Bill aims to make the financial soundness and performance of life companies more transparent and give increased protection to policyholders by, inter alia, updating and improving solvency and capital requirements,

increasing the responsibilities of life company directors, auditors and actuaries, improved financial reporting requirements and strengthening the regulatory and enforcement powers of the Commission.

• The Insurance (Agents and Brokers) Act 1984 was amended to enable the Commission to discharge its responsibilities in respect of insurance brokers and agents acting on behalf of unauthorised foreign insurers more effectively and provide greater protection to purchasers of insurance through intermediaries.

• Amendments were also made to the Insurance Contracts Act 1984 to increase the level of protection for purchasers of insurance products in general, and of consumer credit insurance in particular, and to make the Commission responsible for the administration o f the Act.

• Substantial progress was made on the development of Codes of Practice for the life and general insurance industries. The Codes will cover matters such as minimum standards for intermediary selection, training, competence and conduct; monitoring by insurance companies of the conduct and competence of their intermediaries; and dispute settling and consumer access to independent complaints bodies.

• An independent Superannuation Complaints Tribunal commenced to operate from 1 July 1994. Established under the Superannuation (Resolution o f Complaints) Act 1993, the Tribunal aims to provide a low cost, informal and speedy disputes resolution mechanism for members of large funds who cannot have their complaints about trustee decisions resolved internally by the fund. •

• The Commission contributed to the development of the Treasurer's Superannuation Policy Statement of 28 June 1994 which, among other things, announced measures to address the problem of small superannuation accounts being eroded by fees and charges. The Commission also made submissions to several Parliamentary and Government inquiries

including references considered by the Senate Select Committee on Superannuation.

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• The General Insurance, Life Insurance and Superannuation Consultative Committees appointed by the Treasurer met separately to exchange views with the Government on industry and policy developments.

• The Commission opened regional offices in Adelaide, Brisbane and Perth as part of the expansion of its superannuation audit and public education programs.

- Over 1,200 superannuation fund audits were conducted. Most breaches of the superannuation standards identified during the audits were of a minor technical nature, and could be remedied by consultation with the trustees concerned, although stronger Commission investigation and intervention were required in a number of cases.

• To raise awareness amongst trustees and industry practitioners about the new SIS legislation, the Commission organised seminars in all State capital cities around Australia, with keynote addresses delivered by the Parliamentary Secretary to the Treasurer. The Commission also published booklets and brochures about various aspects of the new legislation, and delivered

over 100 presentations to industry seminars and conferences and industry practitioners about the new SIS legislation.

• Other prudential initiatives by the Commission included:

- revising the statutory financial reporting forms for general insurance companies to simplify the reporting process and improve the reliability of information provided by the industry;

- reviewing applications from companies seeking to operate as trustees of public offer superannuation entities (124 were approved); and

- visiting 106 general insurance companies, 26 life insurance companies and 14 registered brokers.

• The Commission enhanced the information disclosure requirements relating to life insurance products through the issue of Circulars 304 and 305, dealing with policies including an investment element and policies providing risk cover only respectively.

• Guidelines were issued clarifying the Commission’s position on financial or finite reinsurance contracts by general insurers.

• The Commission considered 36,184 applications for early release of superannuation benefits to members on grounds o f severe financial hardship, and responded to over 77,750 written and 129,360 telephone enquiries.

• The Australian Government Actuary conducted a major review o f the long term costs of the Public Sector Superannuation Scheme (PSS) and the Commonwealth Superannuation Scheme (CSS) using data to 30 June 1993. The report, along with a paper from the Actuary entitled 'The Financing and Costing o f Government Superannuation Schemes’, was tabled in

Parliament on 30 June 1994. •

• To give effect to the Government’s decisions increasing the Commission’s responsibilities, the number of permanent staff grew by 40 per cent. The Commission continued to develop a comprehensive range of human resource management programs for its staff and to upgrade its information technology and financial management systems.

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CONTENTS

The Commission's charter V

Highlights v i-v ii

Table of contents ix

Note to readers X

Financial and Staffing Resources Summary x iii

Chapter one - Overview 1

Chapter two - General insurance 1 7

Chapter three - Life insurance 3 5

Chapter four - Superannuation 51

Chapter five - Actuarial services 71

Chapter six - Corporate services 7 7

APPENDICES

1. Financial statements 87

2. Staff profile 111

3. Internal programs 114

4. Staff training 119

5. Social justice, access and equity 120

6. External scrutiny and review of the Commission's decision-making processes 122

7. Freedom of information 124

8. Consultants 127

9. Advertising and market research 130

10. Publications 131

11. Papers and presentations 134

12. Glossary of insurance and superannuation terms 139

13. Summary of reporting requirements 146

Index 148

Note to Readers of this Report

The Insurance and Superannuation Commission had 454 permanent staff and 48 temporary staff at its Canberra headquarters and regional offices at June 1994.

The Commission's main address is:

AAA Building 212 Northboume Avenue Braddon ACT 2601

Phone: (06) 247 2299 Fax: (06) 257 1639

Regional offices are located at:

Level 11 Piccadilly Tower 222 Pitt Street Sydney NSW 2000

Phone: (02) 395 7333 Fax: (02) 395 7345

Level 7 Reserve Bank Building King George Square Brisbane QLD 4000

Phone: (07) 221 2533 Fax: (07)221 2619

The postal address is GPO Box 9836 in each of these capital cities.

This report outlines the Insurance and Superannuation Commission's achievements in 1993-94. Industry data contained in this report are based on information collected by the Commission, Reserve Bank of Australia and the Australian Bureau of Statistics. Readers with enquiries about the Commission or this report should contact:

John Larkin Director (Policy) Insurance and Superannuation Commission GPO Box 9836 Canberra ACT 2601

Phone: (06) 267 6892

Fax: (06)257 1639

Level 9 QV1 Building 250 St Georges Terrace Perth WA 6000

(09)481 8266 (09)481 8142

Level 5 MLC Building 100 Pirie Street Adelaide SA 5000

(08) 232 5130 (08) 232 5180

Level 21 Casselden Place 2 Lonsdale Street Melbourne VIC 3000

(03) 246 7500 (03) 663 5085

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The Parliamentary Secretary to the Treasurer with members o f the Council o f Financial Supervisors - from left to right: Mr Alan Cameron (ASC), Mr George Pooley (ISC), the Hon Paul Elliott, MP, Mr Bernie Fraser (RBA), Mr David Knott (AFIC), and Mr Graham Thompson (RBA).

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FINANCIAL AND STAFFING RESOURCES SUMMARY

Actual Budget Actual

(1992-93) (1993-94) (1993-94)

$(000) $(000) $(000)

BUDGETARY (CASH) BASIS

Comnonents of Aopropriations

Program costs (excl. running costs) 942 1,942 1,755

Running costs 25,675 39,980 34,539

Total Appropriations 26,617 41,922 36,294

Less adjustments 1,142 1,558 2,147

Total Outlays 25,475 40,364 34,147

Total Revenue 33,479 33,161 40,644

ACCRUAL BASIS

Program Cost (excl. service delivery) na na 37,844

Net cost of service delivery na na 1,041

Program Costs na na 36,803

Program revenues na na 77,793

Total (allocated) assets na na 6,663

Total (allocated) liabilities na na 21,859

STAFFING Staff years (actual) 336.5 520.0 453.4

SUMMARY TABLE OF RESOURCES

RECONCILIATION OF PROGRAMS AND APPROPRIATION ELEMENTS FOR 1993-94 $(000)

A + B + C + D = E - F = G |

Program Approp Bills Approp Bills Special Annotated Program Adjustments Programs Number Nos 1 and 3 Nos 2 and 4 Approps Approps* * Approps (1) Outlays

2.1 34,566 829 899 - 36,294 2,147 34,147

(*) Annotated Appropriations are a form of special appropriation to allow a Department access to the money it earns (1) Adjustments to derive outlays, including receipt items classified as outlays, net movements in trust accounts balances, etc.

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CHAPTER 1 - OVERVIEW

ROLE OF THE COMMISSION

The Commonwealth Government and the State Governments supervise a range of financial institutions - banks, building societies, credit unions, insurance companies and superannuation funds. Regulatory frameworks which aim to ensure that the assets controlled by those institutions are managed prudently are warranted on a number of

grounds. These include the need to promote public confidence and avert instability in the financial system, the need to provide a relatively safe haven for the savings of small investors and, in some cases, the importance of the sector for the achievement of particular economic and social policy goals.

The Commission was established in 1987, following the appointment of the first Commissioner under the Insurance and Superannuation Commissioner Act 1987, as the financial supervisor of the insurance and superannuation industries. In 1993-94 the Commission supervised:

• 51 life offices (total assets $116 billion which includes superannuation assets of $79 billion);

• 161 general insurers (total assets $29 billion); and

• approximately 86 000 superannuation entities (total assets $183 billion, including around $80 billion in life insurance offices).

Policy Objectives of the Commission

The approach adopted in Australia to financial supervision since the early 1980s may be characterised as market-oriented, with an emphasis on minimising interference into commercial activities. The objective of government intervention is to remedy or compensate for market imperfections or to advance specific social policies. Generally

speaking, however, price controls, routine vetting of particular financial products or direct investment controls are eschewed on the basis that making the market work better is preferable to substituting government judgements for market decisions.

There are, of course, exceptions to this primarily market-oriented approach in the insurance and superannuation sectors. For example, State Governments provide workers’ compensation schemes for employees and compulsory third party motor vehicle insurance schemes. Superannuation funds are subject to certain broad

investment restrictions for prudential reasons (for example, the need to formulate and give effect to an investment strategy which has regard to risk, return, the benefits of diversification and liquidity needs, the general prohibition on gearing and restrictions on 'in-house' assets). Sound reasons can be advanced to justify these examples of

government intervention, and they do not detract from the general presumption that

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market-oriented supervision is the best model for Australia's financial services industries.

Three key policy objectives of financial supervision that are particularly relevant to the Commission are financial system stability, financial system efficiency, and small investor protection.

Financial system stability

The need for stability in the financial system is based on the notion that the failure of a financial institution could, through confidence and contagion effects, undermine the stability of the financial system as a whole. The absence of government intervention, for example to regulate entry to the market and to limit some forms of competition, could lead to instances of excessive risk taking and possible failures that would fall on debtors, creditors, investors and society as a whole.

Loss of public confidence in a financial institution can precipitate a large scale withdrawal of investments. In addition, the failure of one institution may lead investors to believe, rightly or wrongly, that its problems are symptomatic of a more general industry malaise. Also, commercial linkages between financial institutions can create the potential for flow-on or domino effects from a troubled institution to healthy institutions.

Such ‘contagion risk’ may not be as acute in insurance and superannuation as in some other sectors because insurance companies and superannuation funds are dealing with longer term liabilities. In the superannuation sector there are also ‘preservation’ rules which govern when and in what circumstances benefits may be accessed, thereby reducing liquidity risks. Nevertheless, major losses in a large superannuation fund or insurance company could have serious flow-on effects for public confidence.

The need to maintain public confidence in the superannuation system is given extra weight by the mandating of employer contributions under the Superannuation Guarantee Charge (SGC) scheme, and the expected trade-off between increased employer contributions under the SGC scale and wage restraint. People will be more willing to forgo current consumption and lock away their savings in a long-term

savings vehicle if they are confident that those savings are secure.

Where failures do occur, it is important that the institution leaves the industry in an orderly manner, and that the interests of investors are protected. While the Commission tries to ensure that benefits or claims will be paid as and when they fall due, this does not mean keeping a particular company or fund in business. There are provisions in the insurance and superannuation legislation for the orderly dissolution or winding-up of insurance companies and superannuation funds, and the protection of member or policyholder interests in such situations.

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Financial system efficiency

The market-oriented approach to financial supervision requires effective competition between providers of goods and services. Competition puts downward pressure on the price of financial services, ensures that consumer preferences are met and encourages institutions to become strong, profitable and dynamic.

There can be tensions between market efficiency and stability. For example, laissez- faire competition could lead to excessive risk taking and therefore reduced investor security and public confidence. On the other hand, tight regulation could stifle the ability of firms to innovate and respond quickly and efficiently to market developments. Achieving this balance in terms of prudential supervision requires a

sensible judgement about the trade-off between principles of 'caveat emptor' and investor protection.

Ultimately, there is a close link between competition based on prices and profits and prudential security, in that financial institutions which are cost efficient and consistently profitable are more likely to be stable and secure.

Investor protection

The market-oriented approach requires that consumers, competitors and shareholders be in a position to base their decisions on clear and correct information about an entity’s products and performance.

In insurance and superannuation, information imperfections are particularly critical for several reasons. The products involved are complex, infrequently purchased, and may have long-term maturity dates. The consumer is essentially buying a promise. Consumers of insurance and superannuation products are, in many cases, 'small'

investors, for whom the relevant contract looms large. Mistakes based on misinformation about the nature of the product or the soundness of the institution can be personally devastating. Commercial negotiations between the individual consumer

and large financial institutions (like insurance companies) are characterised by unequal bargaining power.

Information gaps are also a problem for competitors and shareholders, particularly in life insurance where published financial accounts have in the past been difficult to understand and compare.

The policy objectives of efficiency, system stability and investor/consumer protection are interrelated. Prudential supervision is fundamentally about minimising 'institutional risk', that is, the risk that the institution which operates the scheme will collapse. However, industry efficiency and consumer protection are also valid objectives for a financial regulator to pursue. Competitive, informed markets

operating under fair trading rules on a level playing field will not only improve efficiency and protect consumers, but also enhance public confidence in institutions and contribute to system stability.

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Approaches to supervision

The Commission consults extensively with industry representatives, consumer groups and professional associations to obtain technical advice and community views on its legislative and administrative proposals. The intention is to reduce compliance costs, to emphasise the responsibility of the institutions’ directors and management, and to enhance market competition and innovation.

The Commission's approach to supervision of the insurance industry is characterised by licensing (entry and ownership) restrictions and close attention to the solvency or financial soundness of individual insurance companies. Insurance companies are monitored by the Commission through regular financial reporting arrangements, company lodgement of audited accounts and frequent company visits and inspections by Commission officers. The insurance distribution system is also subject to some Commission supervision through licensing and reporting requirements on brokers and rules governing the practices of agents which aim to ensure the maintenance of acceptable standards of conduct and quality of advice. Regular discussions with companies help to promote compliance with the prudential mles.

By contrast, the size and structure of the superannuation industry necessarily restricts the ability of the Commission to maintain close and frequent contact with individual funds. Accordingly, the supervisory framework is based on the fundamental principle that trustees are primarily responsible for the viability and prudent operation of funds

and for ensuring compliance with the operational standards. Fund members, auditors and actuaries also have important roles in monitoring the operation and performance of funds.

As trusts, superannuation funds provide members the protection afforded by the fiduciary obligations which tmstees owe them under the trust deed and tmst law. Flowever, the new superannuation supervisory regime provided for under the Superannuation Industry (Supervision) Act 1993 supplements this by codifying the main fiduciary duties of tmstees and requiring them to formulate and give effect to an investment strategy. Other checks and balances in the legislation include extensive disclosure requirements, internal complaints handling arrangements, equal employee representation on the tmstee boards of employer-sponsored superannuation funds and minimum capital requirements for tmstees of public offer funds.

The Commission also has a revenue protection as well as pmdential supervision role in respect of superannuation; various standards (including the sole purpose test, preservation, vesting, and restrictions on acquiring assets from or giving financial

assistance to members) are designed to ensure that tax assisted superannuation is used for genuine retirement income purposes and not for tax minimisation purposes or to ‘prop up’ an employer’s business. The Commission also services the Superannuation Complaints Tribunal secretariat.

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The superannuation supervisory regime provides for a system of annual reporting by trustees, supplemented by an extensive audit program conducted by the Commission, and 'whistle-blower' obligations on external auditors and actuaries.

Pitfalls for the supervisor

Various obstacles or constraints can affect financial supervision. The Commission works constantly to minimise any potential effects of these constraints on the effectiveness of its supervision. Some of these constraints, as they relate to the Commission, are discussed below.

Moral Hazard, Community Expectations Gap

(i) Moral hazard

Moral hazard in this context refers to the incentive financial institutions have to take excessive risks if their losses are covered by some kind of guarantee from the government or underwritten by another third party. The problem is best illustrated by reference to overly generous deposit schemes or guarantee funds, where insurance

premiums are paid to an industry fund or a public scheme to cover the risk of losses.

The legislation administered by the Commission provides no guarantee that an insurance company will not fail, or that a superannuation fund will not suffer large losses, although the checks and balances are intended to minimise the impact of adverse market movements or poor commercial decisions by trustees. The Commission supervisory regimes have been structured so that the autonomy and transparency of institutions’ management with respect to commercial decisions are maximised, whilst ensuring that management is made accountable for breaches of

important prudential obligations. Moreover, the legislation makes provision for the orderly exit of insurance companies and the winding up or dissolution of a superannuation fund.

It is important for the market to understand that superannuation entitlements and policyholder interests are not guaranteed; and that the prudential measures are designed to enhance security, not guarantee it.

(ii) Community expectations gap

There can be a significant mismatch between community expectations and reality with regard to the adequacy, accessibility and security of insurance or superannuation. On the one hand, some people may expect too much from the system; others may be excessively cynical, pointing to complexity and frequent rule changes.

Unrealistic community expectations are essentially a communication and balancing problem for the Commission. However, insofar as these expectations are based on a misunderstanding of the Commission's approach to supervision, or the nature and

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purpose of the Government's insurance or retirement incomes policies, they can lead to a loss of confidence in the system and weakening of supervisory authority. Despite the existence of sound and well-developed supervisory frameworks, the Government cannot realistically prevent a determined act of theft or fraud, or predict the economic future or prevent poor commercial judgement or pure bad luck.

Regulatory Capture, Heavy-handedness

(i) Avoiding capture

There is a possibility that unwary regulators could over time become ‘captive’ to the interests of the industries they regulate. That is, vocal, well-organised groups could conceivably over time wield a disproportionate and inordinate amount of influence over the regulator (at the expense of less well-organised groups or broader, more diffused interests). The danger signs and negative consequences of such tendencies would include overuse or partiality in the use of discretionary powers, not enforcing the rules, not taking timely, preventative supervisory action and, ultimately, inappropriate and unbalanced advice to the Government. The Commission is conscious of this danger, and takes particular care to maintain a position of balance and independence.

(ii) Avoiding heavy-handedness

As mentioned earlier, there is a tension between security and efficiency. For example, removing all risks from superannuation fund investments through direct investment controls, could lower returns for members and, ultimately, their retirement benefits. Similarly, the imposition of excessively high minimum capital requirements for insurance companies could constitute a substantial barrier to entry and deprive

consumers of the benefits of choice and competition.

The danger in over-regulation is not only that the costs in terms of compliance burden and market interference may be excessive, but also that the design of regulatory measures may be so ill-conceived as to create unintended and possibly perverse commercial effects. The aim of regulation is to strengthen the institution's own capacity to deal effectively with adverse market developments, and the Commission constantly reviews the effectiveness of its supervision to ensure that the degree of regulation is reasonable.

Regulatory gaps and overlaps

Financial supervisors need to be mindful of two broader issues in their supervisory activities: institutional versus functional regulation and the trend towards, and supervisory implications of, financial conglomeration. Addressing these issues is closely linked to the policy objective of efficiency.

First, supervision of financial institutions in Australia has traditionally been conducted on institutional lines. This approach reflects history and assumes that the level of risk

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borne by investors depends inter alia on the type of institution offering the product. However, it also has the potential to impose apparently unequal regulatory burdens on institutions where particular products appear to be functionally similar. In other words, 'level playing field’ problems arise if there are unequal regulatory burdens on

functionally similar products.

Different rules for functionally similar products can be justified on the basis of substantive differences between the institutions providing the products, including how strictly they are supervised and their risk and liquidity profiles. Products whose underlying degree of institutional risk differs should appear as different products in the

marketplace so that prospective consumers are not misled. In addition, there is a need to maintain a broad spectrum of risk/retum profiles for investors in a market-based economy, and to not subject all products to the same level and form of regulation.

Nevertheless, the financial supervisors must be conscious of the extent to which regulations might affect 'competitive neutrality', that is, consistency in the regulatory and taxation burdens imposed on different intermediaries.

Secondly, there has been a trend towards the formation of financial conglomerates; that is, financial groups consisting, for example, of a bank, a life office and a unit trust manager operating as separate entities under one corporate banner. The emergence of financial conglomerates poses significant questions for the financial supervisors, such

as: whether there is a risk that the capital position of healthy segments of a conglomerate might be weakened because the parent company feels obliged, for moral or commercial reasons, to support an ailing segment; and whether public confidence in the entire conglomerate might be weakened because of emerging problems in one

segment.

Concerns about the need to avoid duplication and regulatory overlaps and gaps among the main financial supervisory authorities in Australia (Reserve Bank of Australia, Australian Securities Commission, Insurance and Superannuation Commission, and

Australian Financial Institutions Commission) led to the establishment of the Council of Financial Supervisors in 1992. The Council seeks to enhance the overall quality of financial supervision and regulation in Australia, and its main objectives are to:

• facilitate the exchange of information which bears on the efficiency and well­ being of the financial system, including the promotion of regular liaison among financial supervisors; •

• assist each supervisor to be aware of, and to understand, developments in other parts of the financial system;

• identify issues and trends important to the financial system as a whole; and

• avoid unintended gaps, duplication and inconsistencies in regulation.

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Superannuation - Legislative Complexity, Industry Fragmentation

Finally, certain unique features of the superannuation industry, such as its size, its diversity and the compulsory nature of the SGC scheme have some important implications for the Commission as industry supervisor. The dual 'revenue protection/prudential supervision' role and the number and variety of funds have contributed to the development of a large body of legislation. The difficulty of formulating simple rules which can apply universally to a wide variety of fund types across the industry has resulted in the need for discretionary power. While this brings flexibility into the regulatory framework, it also involves detailed case-by-case consideration of the circumstances of many individual funds.

The large number of funds also has an important bearing on the nature and scope of the Commission’s audit programme and surveillance techniques.

Regulators need to be aware of the pitfalls in financial supervision, but not deterred by them. The art of good financial supervision is achieving an appropriate balance between a range of (sometimes conflicting) principles, and this will continue to be a major challenge for the Commission in the years ahead.

Legislation administered by the Commission

During 1993-94, the Commission supervised the insurance and superannuation industries under the following legislation:

• Insurance Act 1973;

• Life Insurance Act 1945;

• Insurance (Agents and Brokers) Act 1984; and the

• Occupational Superannuation Standards Act 1987.

The Commission also had responsibility for the:

• Insurance (Deposits) Act 1932;

• Insurance Contracts Act 1984;

• Insurance Supervisory Levies Collection Act 1989;

• General Insurance Supervisory Levy Act 1989;

• Life Insurance Supervisory Levy Act 1989;

• Life Insurance Policyholders' Protection Levies Act 1991;

• Life Insurance Policyholders' Protection Levies Collection Act 1991;

• Insurance Acquisitions and Takeovers Act 1991; and

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• Superannuation Supervisory Levy Act 1991.

The Insurance Act 1973 has effectively replaced the Insurance (Deposits) Act 1932 which is being phased out.

Complying superannuation funds, approved deposit funds and pooled superannuation trusts will be supervised under the Superannuation Industry (Supervision) Act 1993 (hereafter referred to as the SIS Act) from the beginning of their 1994-95 year o f income. The SIS Act supersedes the OSS Act which was

renamed the Superannuation Entities (Taxation) Act from 1 July 1994. The Commission also assumed responsibility for the Superannuation (Resolution o f Complaints) Act 1993, the Superannuation (Financial Assistance Funding) Levy Act 1993, and the Superannuation (Rolled-Over Benefits) Levy Act 1993 from 1 July

1994.

STRUCTURE OF THE COMMISSION

The work of the Commission is directed by the Commissioner, a statutory officeholder, who is responsible directly to the Treasurer. The Treasurer has delegated responsibility for all insurance and superannuation matters, apart from policy issues, to the Parliamentary Secretary to the Treasurer, the Hon. Paul Elliott,

MP.

The Commissioner is assisted by:

• three prudential supervision groups for life insurance, general insurance and superannuation;

• a Policy, Legal and Actuarial Group; and

• a Corporate Services Group.

The bulk of the Commission's annual running costs are recouped from industry levies.

In 1994, important structural changes were made to the Commission. First, the previously separate Policy and Actuarial Groups, together with the Legal Branch of the Superannuation Group, combined to form the Policy, Legal and Actuarial Group. As these three areas provide support functions to the three prudential supervision

groups of the Commission, and often work closely together, consolidation into one group was a logical move which should ensure more efficient, effective and closely coordinated provision of services within the Commission.

Secondly, the Superannuation Group was restructured in order to strengthen and streamline the Group's prudential supervision function in light of the implementation of the SIS legislation.

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Commissioner

George Pooley was appointed Commissioner in October 1992 after serving as First Assistant Secretary heading the Financial Institutions Division of the Commonwealth Treasury. Mr Pooley joined the Treasury in 1960, and has since served in such roles as Executive Assistant to the Secretary of the Treasury, Counsellor (Financial) to the Australian Embassy in Washington DC, Executive Member of the Foreign Investment Review Board and head of the Finance and Investment Division of the Treasury.

Deputy Commissioners

The Deputy Commissioner (Superannuation), Ron Dean, joined the Commission in 1987. He previously held senior positions in the World Bank and the

Commonwealth Treasury.

The Deputy Commissioner (Life Insurance), Bob Glading, joined the Commission in 1988. He worked for 32 years in life insurance companies in Australia and the United Kingdom. During 1994 he has been President of the Institute of Actuaries of Australia. It is a singular honour for an actuary in government service to be elected to this position.

The Deputy Commissioner (General Insurance), Richard Smith, joined the Commission in 1988. He was previously First Assistant Commissioner with the Trade Practices Commission.

Australian Government Actuary

The Australian Government Actuary, Donald Duval, joined the Commission in 1991 after working as an actuary in Australia and the United Kingdom. In 1994, he was also appointed First Assistant Commissioner of the newly formed Policy, Legal and Actuarial Group.

Changes to the Commission’s Executive

An organisation chart outlining the Commission’s executive structure as at June 1994 is set out on page 12.

Changes to the Commission's executive in 1993-94 were as follows:

Bruce Abrahams, formerly Director of the Commission’s office in Adelaide became Executive Director, Superannuation Complaints Tribunal;

Peter Bond, Information Technology Manager, was contracted in December 1993 for a two year period to restructure the information technology area;

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Roger Brown became Assistant Commissioner, Superannuation and Audit Branch 1, Superannuation Group;

Keith Chapman became Assistant Commissioner, Superannuation and Audit Branch 2, Superannuation Group;

Kevin Beeves became Assistant Commissioner and Deputy Government Actuary, Actuarial Branch of the Policy, Legal and Actuarial Group;

Tom Karp became First Assistant Commissioner, Life Insurance Group;

Bruce Paine, formely Assistant Commissioner, Review Branch, Superannuation Group, transferred out of the Commission in January 1994 to take up a position in the Commonwealth Treasury;

Nick Stuparich, Assistant Commissioner, Audit Branch, Superannuation Group, on leave, was seconded to the Harvard Institute for Development Studies in Indonesia, to assist in the development and implementation of insurance and superannuation regulatory measures in that country;

Trevor Thomas became Assistant Commissioner, Review Branch, Superannuation Group; and

Alan Wilson, formerly Assistant Commissioner, Operations Branch, Superannuation Group, retired in May 1994.

INDUSTRY DEVELOPMENTS

The insurance and superannuation industries form an important and growing part of the financial sector. The assets of the industries (excluding State Government insurers not supervised by the Commission) totalled around $248 billion as at June 1994. This accounts for about 30 per cent of the assets of the financial sector.

However, extensive overlaps exist within major sectors of the Australian financial system - banking, insurance and superannuation, and collective investments.

Within the insurance and superannuation sector itself, life insurance companies manage over 43 per cent of superannuation assets.

The life insurance and superannuation industries face competition for household savings from banks and other financial institutions. Banking groups, which play a central role in the Australian financial system, now have a significant interest in the insurance and superannuation industries. Realising the implications for the flow of

funds into the banking sector, a number of banks have formed life company subsidiaries, distribute life insurance and superannuation products through their

11

Bruce Abrahams Trevor Thomas

Graem e Colley

R enaleTonks (Acting)

Stephen Ashburn

COMMISSION ORGANISATION CHART - JUNE 1994

COMMISSIONER George Pooley

POLICY, LEGAL AND GENERAL INSURANCE SUPERANNUATION

Deputy Commissioner Ron Dean

ACTUARIAL Deputy Commissioner

Australian Government R ichard Sm ith

Actuary & First Assistant Commissioner D onald Duval

PRU DE NT IA L

O P ER AT IO N S First Assistant Commissioner Roger Freney

POLICY Assistant Commissioner Darryl Roberts

GENERAL INSURANCE Assistant Commissioner Eric C halmers

S U PE RA N NU AT IO N AND AUD IT BRAN CH 1

Assistant Commissioner Roger Brown

LEGAL Assistant Commissioner George Kri:

B RO KE R S AND S U PP O R T

Assistant C ommissioner Don Gruber

AC TU AR IA L Assistant Co mmissio ner & Deputy Go ve rn m en t Actuary Kevin Peeves

S U PE RA N NU AT IO N AND AUD IT B RA NC H 2

Assistant Commissioner Keith Chapman

R E VI E W BRANCH C O M P L A I N T S T R I B U N A L

Exec ut iv e Di re ct or Ass ist ant C o m m i s s i o n e r

SYDNEY BRI SBANE

A s s is ta nt C o m m i s s i o n e r r a t Hannan

A D E L A I D E

M E L B O I R N E

Assi st ant C o mmi s s i o n e r P E R I

l e te r I rat! Ms Ros Sumner was appointed to this position in August 1994

BRISBANE

r a t Hannan

LIFE INSURANCE Deputy Commissioner Bob Glading

CORPORATE SERVICES | Assistant Commissioner Graham B urns

L IF E INSURAN CE First Assistant Commissioner

I Tom Karp

A C T U A R IA L AND

SY ST EMS Assistant Commissioner

Karen Doran (Acting)

C O M P U T E R SE RV IC ES

AND C O M M U N I C A T I O N S Inf ormation Technology M an a ge r

Peter Bond

I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L · R E P O R T 1 1 9 1 - 9 4

branches, and raise equity and deposits from insurance and superannuation institutions.

In addition, insurance and superannuation products compete against other managed fund investments, notably unit trusts and friendly society bonds.

These competing products are regulated under different financial supervisors, leading to concerns about overlaps and gaps in their regulation and a need for greater coordination between regulatory agencies. This was a key factor in the Government’s decision to establish the Council of Financial Supervisors in 1992 (mentioned above); this initiative has been a significant success.

The Commission is also co-operating with other insurance and superannuation supervisors around the world. The Commissioner is a founding member of the International Association of Insurance Supervisors (IAIS) which was established in 1993-94, and has a secretariat located in the USA. The principal purpose of IAIS is cooperation between supervisors with respect to the exchange of information and the promotion of efficient insurance markets, for the protection o f policyholders.

Economic developments in the 1993-94 financial year had a significant effect on the performance and growth of the general, life and superannuation industries. High returns on investments during the first half of the year, due to the rapid rise in the Australian sharemarket, were partly offset by the sharp worldwide downturns in the

bond and share markets from February 1994. On balance, however, the year was broadly characterised by positive returns and industry investment growth.

The continuing recovery in the Australian economy during the year contributed to fewer discontinuances of life insurance policies and significant growth in insurance premiums and superannuation contributions.

The rationalisation process in the general and life insurance industries slowed down. The number of life companies remained at 51 and general insurance companies increased by one to 161. On the other hand, the number of superannuation funds reporting to the Commission increased sharply from around 72 000 in 1992-93 to

around 84 000 at the end of 1993-94. It appears this was due to the establishment of new funds to accept Superannuation Guarantee contributions and to some improvements in fund reporting arrangements.

General insurance

At June 1994, there were 161 separate general (private) insurance companies. Assets of private insurers as at 31 December 1993 were around $29 billion in assets. State Government insurers, which had around $21 billion in assets as at 30 June 1993, are not supervised by the Commission.

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The industry continued to be very competitive and experienced difficult market conditions in 1993. Insurers again reported underwriting losses, this time of $616 million, despite an improvement in the expense ratio (expenses/premium) and growth in direct premium written. The industry experienced an increase in profits - underwriting losses being offset by investment income - with healthy returns during the early part of the financial year. However, the investment climate in the second part of the year did not augur well for investment returns.

Life insurance

There were around 40 life insurance groups in Australia operating 51 registered life companies at June 1994. These companies offer life and disability insurance, personal superannuation and other investment products. They also play a major role in administering and managing the assets o f the superannuation industry.

Like general insurers, life companies were affected by volatile market conditions in 1993-94. The continuing economic recovery in 1993-94 and spread of compulsory superannuation led to a 26 per cent increase in new premium written. Growth of new premium was mainly in single premium superannuation business, which totalled $13 billion - representing 80 per cent of the $15.9 billion new premiums written for the year to March 1994. Premium growth and good investment returns helped increase total life insurance industry assets to $116 billion at March 1994, compared to around $100 billion in 1992-93.

Total industry growth masked the continuing decline in new annual premium business, which represented only 12 per cent of new premium written at March 1994. This decline was accompanied by a corresponding decline in agents’ commissions. Life companies which rely on an expensive network of tied agents are under increasing pressure to find alternate distribution systems for the more popular low cost single premium business.

Since the majority of single premium products are investment linked, they face competition both within the life insurance industry and with other savings products. Increased competition has forced a shift in focus by life companies to investment returns and profitability and away from growth for growth’s sake as in the late

1980s. The proposed new financial reporting requirements for life offices under the Life Insurance Bill 1994 will reinforce this focus on profitability because life company financial performance will become more transparent, and financial analysts and markets will be able to make sounder assessments of financial statements and ratings of companies.

Banking groups have been successful in gaining a strong foothold in the life industry in recent years through their life office subsidiaries. Bank owned life companies increased their market share in 1993 to 11.5 per cent in terms of total statutory fund assets. As a consequence of increased competition, many life companies now operate through subsidiaries in sectors other than life insurance business, such as

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fund management, superannuation fund administration, and also housing loan business. Other strategies being considered include demutualisation and bancassurance.

Superannuation

Superannuation offers Australians in paid employment a generally tax preferred method for saving for their retirement.

Total superannuation assets reached $183 billion at June 1994 (compared to $169 billion at June 1993) and 87 per cent of employees had some superannuation coverage as at August 1993. Notwithstanding the growth in coverage, the main determinant of the increase in superannuation assets of late has probably been

investment earnings, given that the contribution levels under compulsory superannuation are only relatively small at this stage and have been offset, to a large extent, by outflows during the early 1990s. Volatile market conditions during 1993­ 94 affected investment earnings of superannuation funds as they did for general and

life companies.

PROGRAM PERFORMANCE REPORTING

The Commission reports to Parliament under the Commonwealth Department of the Treasury portfolio program performance statements. Specifically, the Commission is a component of Program 2 - ‘Financial System’ of the Treasury portfolio. The following chapters in this report are organised using the program performance

reporting format outlined in the Treasury Portfolio Program Performance Statements 1993-94.

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CHAPTER 2 - GENERAL INSURANCE

The general insurance industry offers businesses, households and individual consumers protection against risk of unexpected financial losses. The most common types of general insurance products purchased are motor vehicle, house and contents, fire and compulsory third party insurance policies.

OBJECTIVES

The Commission's objectives in respect of general insurance are to promote the interests of insurance policyholders, in particular, through the development of a well managed, competitive and financially sound general insurance industry.

OPERATIONAL APPROACH

The Commission's general insurance supervisory objectives are the responsibility of the General Insurance Group. The Group carries out its objectives by:

• enhancing the financial protection of insurance policyholders through the effective administration of prudential supervisory legislation;

• reviewing and developing the relevant legislation and administrative arrangements on an ongoing basis; and

• maintaining close liaison with the general insurance industry, consumer bodies and other interested parties on issues affecting the industry and insurance policyholders.

The General Insurance Group consists of two branches: the General Insurance Branch and the Brokers and Support Branch. General Insurance Branch is responsible for monitoring the solvency and activities of general insurers operating from within Australia. The Branch also deals with supervision matters involving reinsurance,

claims and processes. Brokers and Support Branch is responsible for monitoring intermediaries, monitoring compliance with the Insurance Contracts Act 1984 (since April 1994) and providing Group support services. The Group employed 37 staff as at 30 June 1994.

A new Group structure put into place during 1992-93 was consolidated during 1993-94. Group resources are now deployed on a functional basis to improve administrative efficiency. Complementary development of the Group's information technology systems during 1993-94, including improved lodgement and processing

facilities for quarterly and annual returns from general insurers, along with a continued focus on training and staff development have enhanced improvements in efficiency and effectiveness flowing from the organisational restructure.

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The Commission derives its supervisory functions in relation to the general insurance industry from the following legislation:

• Insurance Act 1973;

• Insurance (Agents and Brokers) Act 1984;

• Insurance Contracts Act 1984; and

• Insurance Acquisitions and Takeovers Act 1991.

The Insurance Act 1973 constitutes the primary legislation for the prudential supervision of general insurers in Australia. It contains solvency and reinsurance provisions which enable the Commission to monitor insurers’ ability to pay claims.

Ongoing prudential supervision is based on financial information provided to the Commission through quarterly and annual statutory returns. The Commission examines these returns, together with reports from company auditors and actuaries, and carries out on-site inspections. The Commission consults closely with the industry in order to monitor and influence the stability and solvency of insurers and insurance intermediaries.

The Commission also regulates insurance intermediaries. The Insurance (Agents and Brokers) Act 1984 establishes some minimum financial controls, and a registration and annual reporting regime for insurance brokers, and aims to protect the insuring public against the negligence, default or professional misconduct of an agent or broker. The Insurance Contracts Act 1984, for which the Commission assumed direct administrative responsibility in 1994, aims to promote fair dealing and adequate disclosure between the parties to an insurance contract.

The Group also administers the General Insurance Supervisory Levy Act 1989 and the Insurance Supervisory Levies Collection Act 1989 which empower the Commission to collect a levy from general insurers and registered brokers to help fund supervisory activities.

The annual levy for general insurance companies was $13 000 for their 1993-94 income year. Corporate brokers were subject to an annual levy of $800, and sole traders to an annual levy of $400.

OVERVIEW

1993-94 witnessed continued refinement and streamlining of the Commission's approach to prudential supervision of the general insurance industry, and legislative changes which enhanced the Commission's powers and responsibilities. Statutory return forms were redesigned to simplify reporting and processing requirements, and to improve the reliability of information collected.

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The Commission is taking a more active role in the supervision and administration of matters subject to the Insurance Contracts Act and made significant progress working towards an industry Code of Practice governing relationships between insurers, intermediaries and consumers. On-site inspections continued to make a valuable

contribution to prudential supervision of the industry.

OUTCOMES

Policy and Legislation

Substantial legislative amendments to the Insurance (Agents and Brokers) Act 1984 and the Insurance Contracts Act 1984 were enacted during 1993-94.

Insurance Laws Amendment Act 1994

The Insurance Laws Amendment Act 1994 received Royal Assent on 7 April 1994. Its primary purpose was to amend the Insurance (Agents and Brokers) Act to enable the Commission to more effectively discharge its responsibilities and provide greater protection where insurance is purchased through intermediaries. These amendments

were developed following a comprehensive review of the Act, conducted by the Commission in consultation with industry, consumers and other interested parties.

Key amendments to the Insurance (Agents and Brokers) Act include:

• giving the Commissioner increased powers to cancel or suspend the registration of insurance intermediaries;

• clarifying the responsibilities of insurers for the actions of multi-agents selling insurers' products;

• raising the standard of professional indemnity insurance required of registered intermediaries; and

• strengthening the powers of the Commissioner to investigate the affairs of intermediaries.

Insurance Laws Amendment Act (No.2) 1994

This Act also received Royal Assent on 7 April 1994. Its primary purpose was to amend the Insurance Contracts Act to increase the level of protection for purchasers of insurance products in general, and of consumer credit insurance in particular. These amendments give effect to the Government's decision, announced in July 1993, on

issues raised in the 1991 Trade Practices Commission report on consumer credit insurance and a subsequent report by a working party of Government officials.

Key amendments to the Insurance Contracts Act include:

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• making the Commissioner responsible for the general administration of the Insurance Contracts Act and allowing the Commissioner to take representative action on behalf of insureds where this is in the public interest;

• requiring statutory information notices to be given to purchasers of consumer credit insurance (pre-sale, point-of-sale and post-sale) to promote better informed decision making about insurance purchases, and mandating a 14 day cooling-off period for this class of business; and

• clarifying the rights of insureds to seek redress under the Trade Practices Act 1974 for pre-contractual unconscionable conduct by insurers.

In tandem with these amendments, the Commission issued a circular to the industry in March 1994 seeking its co-operation in implementing, at an early stage, reforms in the procedures for the sale of consumer credit insurance and setting out standards for the training and performance of agents.

The Insurance Laws Amendment Act (No.2) also included minor amendments to the General Insurance Supervisory Levy Act and the Life Insurance Supervisory Levy Act 1989 to allow the Commission to recoup the increased costs of supervision arising from its new responsibility for administration of the Insurance Contracts Act.

Code o f Practice

In July 1993 the Government announced its intention to establish a Government Taskforce chaired by the Commission to develop a structure for a compulsory Code of Practice governing the relationships between insurers, intermediaries and consumers in the general insurance industry. The objective is to provide minimum standards, including in relation to product documentation; selection and training of intermediaries; claims handling; and disputes resolution.

Following consultations with the industry during the first half of 1994, the Government agreed on a broad model under which participation will be required by law, with actual administration of the Code being undertaken by the industry. It is anticipated that the Code will be finalised and commence operation during 1995.

Revised Reinsurance Approval Processes

Unless specifically exempted, all authorised insurers must have at all times reinsurance arrangements approved by the Commission.

Due to market procedures, some authorised insurers have experienced difficulties in notifying their program of arrangements within the required timeframe. To address this problem, the Commission introduced a new reporting system which came into effect from 31 December 1993. The revised procedures essentially enable the Commissioner to approve, subject to some safeguards, proposed reinsurance arrangements before they come into effect. This approach, combined with an

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emphasis by the Commission on the structural and conceptual nature of a company's reinsurance program rather than on the minute details, will help improve market efficiency.

Financial Reinsurance

Financial reinsurance arrangements generally involve a combination of reinsurance and financing facilities. In effect, financial reinsurance involves a borrowing arrangement that does not lead to the full transfer of insurance risk to the reinsurer and cannot therefore be regarded as reinsurance for pmdential purposes. These arrangements can nevertheless play an important role in the funding and cash flow management of an insurer.

Following consultations with insurers, reinsurers, reinsurance brokers and accountants, a circular was issued by the Commission in April 1994 (No G3/94) which provides clearer guidelines to the industry on what arrangements would be considered financial reinsurance for pmdential purposes.

Any company which has an unsatisfactory contract within its reinsurance program will not receive approval, as it is not possible for the Commission to partially approve a company's reinsurance program. Insurers are therefore strongly encouraged to discuss any such proposals with the Commission if they consider there may be any issue

which would inhibit the approval process.

AASB 1023 and Reinsurance Recoveries due from Overseas

One consequence of the gross reporting basis of Australian Accounting Standard Board standard (AASB) 1023 is that insurers’ liabilities for outstanding claims are no longer accounted for as a net figure after deduction of expected reinsurance recoveries. The outstanding claims provision is recorded at its gross level as a liability with

corresponding reinsurance recoveries reported separately as an asset.

Australian incorporated companies are subject to solvency tests based on assets/liabilities both inside Australia and in total. For those companies which rely on reinsurance, a substantial or even the major part of reinsurance recoveries may be due from overseas reinsurers, which may mean that solvency margins inside Australia are diminished as a result of the recording of overseas reinsurance recoveries on Australian liabilities as assets outside Australia. In the ordinary course of business, these overseas reinsurance recoveries are received in Australia and are realised as an

offset against gross claims liabilities. This issue also arises for branch operations, which are subject to an ‘inside Australia’ solvency test only, as overseas reinsurance recoveries do not count for Australian solvency until received.

To overcome this anomaly, amendments to the Insurance Act are under consideration which would establish a discretionary approval mechanism under which properly valued reinsurance assets, attributable to Australian liabilities, may be counted as ‘inside Australia’ assets for solvency purposes.

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Social Justice, Access and Equity

Legislative changes to improve consumer protection, including the Commission’s responsibility for administration of the Insurance Contracts Act, and formulation of the general insurance industry Code of Practice, will enhance social justice and equity for insurance consumers.

Industry Supervision

Statutory Returns

Consistent with its commitment to deregulate by streamlining supervision wherever possible, the Commission amended the majority of its general insurance statutory return forms during 1993-94 to simplify reporting and processing requirements following consultations with insurers and industry advisers.

Computerised data bases containing financial information enable Commission staff to closely monitor the financial soundness o f insurance companies.

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Generally, the changes involved simplifying returns through deletion of excessive questions on detail, and the creation of specific versions of some returns to cater for the needs of specialist reinsurers.

To offset the reduction in detail, greater emphasis has been placed on the quality and reliability of information supplied. Greater reliance has also been placed on the company's 'approved auditor' to confirm that appropriate systems are in place or that certain events have occurred.

The amended returns were introduced for all general insurers balancing on or after 31 December 1993.

In addition, consultations were held with the major providers of professional indemnity insurance to brokers concerning the information being provided in certificates of currency (these are documents containing specific information on the nature and characteristics of the policies of professional indemnity insurance held by

particular brokers). As a result, improved procedures are expected to be put in place in 1994-95.

On-site Inspections

The Commission regularly visits general insurance companies on-site as part of its prudential supervision of the industry. Regular inspections enable a company’s investments, major underwriting liabilities, reinsurance arrangements, business operations and internal reporting and recording systems to be monitored and

scrutinised more closely. The scope of each inspection varies according to the specific issues of interest to the Commission at the time.

During 1993-94, the Commission visited/inspected 106 general insurance companies. On the whole, the Commission was satisfied with the business standards, approach and financial standing of the companies inspected during 1993-94.

The Commission was less satisfied, however, with the insurance brokers inspected during 1993-94 under its broker inspection program. Fourteen inspections were conducted with the object of collecting information, gaining an appreciation of brokers' business operations and examining records of client transactions, banking and returns

to underwriters. The Commission had concerns with the viability and/or business practices of a number of the brokers inspected; three brokers ceased operations soon after the inspections were completed and others responded by discontinuing unacceptable business practices, and by injecting fresh capital into their businesses

where necessary. The 1994-95 inspection program includes further monitoring of these brokers.

Related Body Assets

General insurance companies hold about 22 per cent of their assets in related bodies, such as subsidiary investment companies. These related bodies are, in many cases, not

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directly supervised by the Commission and section 30 of the Insurance Act provides that related body assets are not eligible to be counted for solvency purposes unless approved by the Commissioner. Applications for approval are considered on a case- by-case basis in accordance with guidelines covering a number of factors including the nature, spread and diversity of assets and the nature of the subsidiary involved.

During the year, substantial progress was made with individual insurers in resolving issues relating to section 30 of the Insurance Act, and in processing related body asset applications in accordance with the Act and guidelines. Action is continuing with respect to a limited number of outstanding applications.

The Commission is considering recommending to the Government amendments to section 30 of the Insurance Act to provide more direct and enforceable power over related body assets, and it plans to revise the guidelines for approving investments in

related body assets to streamline the approval process where prudential concerns are satisfied. This proposal is expected to be put to the Government in late 1994.

Consumer Complaints

During 1993-94, the Commission handled 156 consumer complaints on general insurance matters. Where these raised significant matters of principle, the Commission took the complaint up directly with the insurance company concerned and advised the complainant of action taken. Other complaints were either referred to the industry claims review scheme or the Trade Practices Commission, or were handled by advising the complainant of the most appropriate course of action in the circumstances.

Insurance Brokers

Insurance brokers are an important element of the general insurance distribution system. About 40 per cent of total insurance business (private and public sectors) is placed through brokers. In 1993-94, brokers placed $4.5 billion worth of premiums with general insurance companies, representing an increase of 15 per cent over 1992­ 93 and accounting for around 47 per cent of the business written by private sector insurers.

A person (individual or corporate) who intends to carry on business as an insurance broker, must first obtain registration under the Insurance (Agents and Brokers) Act. Separate registration is necessary for life and for general insurance broking businesses.

This registration is renewable annually and applications must be accompanied by an annual registration fee of $800 for corporate applicants, or $400 for individuals. The main elements of registration are: the agreement of a registered company auditor to audit the broker's business, the taking out of professional indemnity insurance and the

submission to the Commission of annual audited accounts.

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The number of brokers registered as at 30 June 1994 and, for comparison, at 30 June 1993 were:

30 June 1994 30 June 1993

General Brokers 1 002 993

Life Brokers 54 41

Total 1 056 1 034

Growth in the number of brokers was largely a by-product of insurance company restructuring, as retrenched insurance company employees sought to stay within the industry by becoming registered brokers. The number of life brokers could rise substantially during 1994 and 1995, as a result of the reforms that are taking place in

the distribution of life products, in particular, the requirements under the proposed life insurance Code of Practice for companies to take greater responsibility for their intermediaries and for better disclosure of information. Growth in the number of brokers is expected to enhance competition, which should improve industry efficiency

and produce more competitively priced products.

One former broker was prosecuted for offences under the Insurance (Agents and Brokers) Act 1984 during the 1993-94 year of income.

Consultation and liaison

The Commission's level of consultation increased as a result of its new responsibilities for administering the Insurance Contracts Act, implementing reforms associated with Consumer Credit Insurance, developing amendments to both the Insurance Contracts Act and the Insurance (Agents and Brokers) Act, and coordinating the Code of Practice

for the general insurance industry. For example, in working towards the development of the Code of Practice, the Commission liaised with the Insurance Council of Australia, Australian Lifewriters’ Association, National Insurance Brokers’ Association, Australian Financial Planning Association, Australian Federation of

Consumer Organisations, and Australian Consumers’ Association.

The General Insurance Consultative Committee met in July 1993 and April 1994. The Committee, which was established in 1975, provides a confidential forum for the Government to seek advice on insurance legislation and policy proposals. Members are chosen for their knowledge of the insurance industry and participate in

their personal capacities, and not as representatives of a particular institution or organisation.

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Members of the Committee during 1993-94 were Ms Nancy Milne, Messrs John Cloney, Peter Daly, Kevin Davem, Ian Hutchinson, Bill Jocelyn, John Mai lick, Paul Miller, Denis Nelthorpe, Robert Piper, Phillip Shirriff and Ray Willing.

There is no set term of appointment, however, membership is reviewed from time to time to ensure that the composition of the Committee remains appropriate. No sitting fees are paid to members.

INDUSTRY AND MARKET DEVELOPMENTS

Industry Structure

The Australian general insurance industry forms a small part (around 2 per cent) of the much larger integrated international market. Australian general insurers are active in overseas insurance and reinsurance markets. Around 61 per cent of authorised companies in Australia are foreign owned. The number of foreign companies has fallen in recent years, mainly due to mergers of the Australian arms of foreign owned insurance companies and a redirection of interest by parent companies toward the emerging European Community market.

Number and Distribution o f General Insurance Companies

The number of authorised general insurance companies rose marginally from 160 at 30 June 1993 to 161 at 30 June 1994 (Chart 2.1); of these, 73 belong to groups of related or associated insurers. There were 20 multi-licence groups as at the end of the 1993­ 94 income year. General insurers authorised at June 1994 comprised:

• 119 direct underwriters offering general insurance products directly to the Australian public;

• 26 professional reinsurers accepting underwriting risks from both Australian and foreign insurers;

• 10 mortgage insurers underwriting risks on home loans;

• three insurers writing business for the benefit of limited groups of associations; and

• three 'captive' insurers owned by large corporations for the purpose of self- insuring risks.

Twenty three of the above insurers are running off existing claims obligations and are not writing new business.

Despite the increase of one in 1993-94, the number of companies has generally declined over the past few years. Recent experience is consistent with a longer term

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trend toward fewer general insurers, which can be traced back to the 1970s. Low profitability, poor underwriting performance, and low returns on capital have encouraged mergers and rationalisations as companies have sought to cut costs and generate acceptable returns for shareholders. Mergers and rationalisations have been

the major factors contributing to a decline in the number of general insurers in recent years.

Number of general insurance companies at 30 June

Chart 2.1

Industry rationalisation was reflected in 16 applications under the Insurance Acquisitions and Takeovers Act 1991 for changes in the ownership or control of insurance businesses. The Treasurer or under his delegation, the Commissioner, approved 16 prospective transactions including mergers and takeovers, sales of the

insurance portfolios of companies leaving the market and management buy-outs.

The broad trend to fewer authorised insurance companies has been offset to some extent in recent years by new authorisations resulting from the privatisation of some State government insurers. Privatisation has potentially significant implications for the structure and growth of the private general insurance industry given the relatively large

size of the public insurance sector ($3.6 billion of premium in 1993 compared to $9.5 billion for the private sector). Two new private insurers were authorised during 1993­ 94 following the privatisation of the State Government Insurance Office of Western

Australia (SGIO) and the Tasmanian Government Insurance Office (TGIO).

Internationally, many companies have withdrawn from the reinsurance market following the spate of catastrophes recorded around the world in recent years. This

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trend has also extended to the Australian reinsurance market with NRG Victory Australia Limited and NW Reinsurance Corporation no longer accepting business. Of the 26 reinsurance companies authorised under the Insurance Act, only 21 companies are actively underwriting business, while the remaining 5 are running off existing portfolios.

Industry concentration

The trend towards higher levels of industry concentration is continuing. Chart 2.2 shows that for the private sector the top five insurance companies accounted for 31 per cent of industry assets, and the next 45 companies, 57 per cent. Despite this level of concentration, and the fact that different companies are stronger in distinct regions and particular classes of business, competition is strong.

Market share by industry assets at 31 December 1993

Other companies Top 5

12% companies

Next 6 - 50 companies 57%

Chart 2.2

Assets

As illustrated in Chart 2.3, total assets of private sector general insurance companies increased significantly to $29.2 billion in 1993. Some of this increase reflects the transfer of assets from the public to the private sector as a result of privatisations, and the effects of altered reporting requirements under accounting standard AASB 1023. State Government insurers (with around $21 billion in assets in June 1993) are not supervised by the Commission. Australian insurers have continued an active involvement in overseas insurance and reinsurance markets, as reflected in an increase in total overseas assets to $1 954 million in 1993. Three Australian owned companies have substantial overseas reinsurance portfolios.

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Private general insurers’ assets

30,000

25.000

20.000 -

1 15,000 -10,000

5,000 -

Chart 2.3

Lloyd's o f London

In Australia, Lloyd's is authorised to carry on insurance business through the Insurance Act. In 1993, Lloyd's total premium income in Australia amounted to $A303 million compared with $A288 million in 1992. The risks accepted by Lloyd's in Australia are secured by the personal assets of Lloyd's names, the assets of Lloyd's itself, and the

securities and guarantees lodged by Lloyd's with the Australian Government (Lloyd's maintains surety for its Australian claims liabilities comprising a deposit of $A500 000 in Commonwealth Government securities and a bank guarantee for over $A300

million).

Although these arrangements are monitored by the Commission, the Insurance Act does not provide any protection for Lloyd's names from the losses that have been reported. Lloyd's is in the process of implementing radical reforms which will abandon its 300 year old tradition of relying solely on individuals to support the

Lloyd's market and the tradition of unlimited liability. These initiatives form the basis of Lloyd's first ever 'Business Plan'.

Market Developments

The general insurance industry, despite recording generally poor returns on shareholders' funds, has maintained a relatively healthy solvency margin with the great majority of companies significantly exceeding the minimum requirements. Strengthened solvency margins have provided a 'buffer' to enable the industry to

withstand the large losses and poor returns recorded in Australia and internationally in the late 1980s and early 1990s.

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Profitability

Private sector general insurers reported a $176 million (25 per cent) rise in aggregate after-tax profits from $694 million in 1992 to $870 million in 1993. Despite this increase, the profit performance of the industry over the last two years has been poor in terms of return on total assets (3 per cent in 1993), but has recovered considerably

from the results posted in the years 1990 and 1991.

Historically, poor profitability has been due to strong competition arising from the large number of insurers (including foreign insurers) in the relatively small Australian market. More recently, low profitability can be attributed to reduced investment returns (particularly as a result of the recession), fewer policy renewals and a greater incidence of insurance fraud, although the 1993 rise in the stockmarket and continuing economic recovery helped improve profit performance. Chart 2.4 shows that, in 1993, investment income increased by $595 million (41 per cent) over 1992. This offset a $223 million increase in underwriting loss.

Private general insurers - underwriting, investment, profits

at 30 June

2,500

2,000

1,500

1,000 Underwriting

results

0 ♦— Net Profit after

tax

-500

- 1,000

-1,500

Chart 2.4

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Underwriting Performance

The private sector general insurance industry is continuing to experience poor underwriting performance. Chart 2.4 above shows an underwriting loss of $616 million for 1993, representing a 56 per cent deterioration over 1992. This loss was despite an improvement in the industry expense ratio (that is, expenses over premium

revenue), which continued to trend downward (see Chart 2.5).

Private general insurers’ expense ratios

0.35

0.34 f \

0.33

0.32 ;

0.31 ·

0.30

0.29 -0.28 1989 1990 1991 1992 1993

Chart 2.5

Premiums

Overall, private sector insurer direct premiums increased 22 per cent to $9.5 billion in 1993 from $7.8 billion in 1992. The increase reflected growth in almost all categories of business, especially houseowners and householders (29 per cent), and employers’ liability (141 per cent - see Chart 2.6). These increases were due in part to the effects

of privatisation of government business. Compulsory third party motor vehicle recorded a decrease of 2 per cent continuing the pattern set in 1990, following the opening of competition in this market in NSW in 1989.

Reinsurance

Authorised insurers paid $A2.2 billion for reinsurance cover in 1993, up from $A1.7 billion in the previous year. This represents roughly one quarter of total private sector premiums written.

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Private direct underw riters - direct premiums

---------- Motor vehicle

---------- Houseowners and

Householders

Fire

— — Public Liability

-------- Compulsory third party

— ■ — Employers' Liability

Chart 2.6

Tire reinsurance market has been severely affected by the high cost and limited availability of catastrophe insurance worldwide in recent years. Internationally, reinsurers sustained large losses as a result of natural -disasters, civil commotion, unexpectedly high environmental damage payouts, large employers' liability exposures and a poor economic climate. This resulted in a reduction in financial support from some foreign parent companies to their Australian subsidiaries due to pressures in overseas markets (particularly in the United Kingdom) and a redirection of interest towards the emerging European Community market.

Reinsurers responded by raising reinsurance premiums and becoming more selective in the risks they were prepared to accept. At the same time, reinsurance capacity was curtailed as reinsurance companies withdrew from the international market. Although there was a severe shortage of worldwide reinsurance capacity for catastrophe cover during 1993-94, Australian companies generally were successful in placing their programs.

However, the recently observed increase in the involvement of some internationally established reinsurers has led to the emergence of new capacity in the market. With the influx of additional capacity, the difficulties experienced in recent times by Australian insurers in placing their reinsurance programs should reduce significantly during the 1994 renewal season, and reinsurance rates may ease a little.

OUTLOOK

Following years of heavy premium discounting, general insurers are now becoming more focused on profitability and reserves. In many classes, premiums and

^1

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underwriting results are returning to more sustainable levels. Premium income can be expected to grow as the economic recovery continues. However, there is some evidence that insurance customers, particularly business customers, are responding to higher premium rates by self-insuring more of their risks. If the trend towards self­

insurance continues, it may serve to offset income growth to some extent.

Profitability could be adversely affected if companies are not prepared for the emerging worldwide problem of long-tail claims in the area of employer and public liability insurance, particularly in relation to environmental and health damage caused by business activities in the past. Expectations about the responsibility of industrial

companies for the environment and people’s health have risen, and worldwide claims enforced through court decisions could in aggregate reach very high levels over the next decades.

The emerging ‘environmental clean up’ exposure comes as insurers and reinsurers are struggling to deal with asbestos claims in the USA and a spate o f natural disasters, in the USA and Europe in particular. Insurers and reinsurers are doubly concerned because they not only face problems of a potentially immense scale, but also find themselves unprepared since often there was never any intention to underwrite these

risks, which were generally not apparent at the time. Nonetheless, it is hoped that the companies and the insurance industry will manage to distribute the cost of the damages in an efficient and equitable way.

In respect of consumer classes o f insurance products, the industry will need to continue to develop ways of meeting the demands for improved marketing and servicing. In particular, the industry will need to respond positively to recent legislative initiatives which strengthen consumer protection and information disclosure requirements.

High premiums and limitations on cover available to both commercial and domestic policyholders may emerge during the coming year, as the international market adjusts to the burden of recent catastrophe losses. The availability of unlimited liability insurance is likely to diminish, and policies involving accumulation risk could be

difficult to obtain without strict caps on liability.

The Commission's key tasks in 1994-95 are to:

• review a number of aspects of the Insurance Act following the introduction of the revised statutory reporting arrangements in 1993-94, to determine if there is scope for improving the flexibility of the Act’s provisions in the current financial market;

• further improve internal administrative processes, particularly in respect of the brokers system; •

• complete arrangements for a general insurance industry Code of Practice for insurers and complaints handling requirements for brokers;

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• further develop administrative arrangements for the Insurance Contracts Act;

• respond to recommendations of the Industry Commission inquiries into motor vehicle and marine pleasure craft insurance and repair, and workers compensation; and

• continue to monitor insurance companies and brokers to protect and promote the interests of consumers.

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CHAPTER 3 - LIFE INSURANCE

Life insurance companies offer Australians savings products and insurance cover against the risk of death or disability. They play a major role in the superannuation industry - offering personal and group superannuation products and providing investment management and administration services to superannuation funds.

Premiums and contributions paid to life companies form a national savings pool which is available to fund the development o f our resources and industries.

OBJECTIVES

The Commission's supervisory objectives in respect of life insurance are to protect policyholders and promote financial system stability and efficiency by encouraging a viable, competitive, and efficient life insurance industry with financially sound

participants.

Responsibility for pursuing the Commission's objectives for life insurance supervision rests with the Life Insurance Group.

OPERATIONAL APPROACH

The Life Insurance Group supervises life insurance companies registered under the Life Insurance Act 1945, namely all companies writing life insurance business in Australia other than those owned by State Governments. The Group carries out its objectives by:

• enhancing financial protection of insurance policyholders through the administration of the Life Insurance Act and regulations made under that Act. The legislative system is supplemented by circulars issued from time to time by the Commission to life insurance companies;

• reviewing and developing relevant legislation and administrative arrangements; and

• maintaining close contact with the life insurance industry, consumer bodies and other professional and interest groups about issues affecting the industry and policyholders.

Broadly speaking, the Commission’s approach is based on close monitoring of the financial soundness of registered life companies. This involves analysis of information supplied by life companies through the regular lodgement of returns with the Commission, and is supplemented by on-site inspections o f companies by

Commission staff. As discussed below, the supervisory system is currently being

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strengthened by the implementation of measures announced by the Government in July 1993.

The Life Insurance Group's staff are based in Canberra. Staff numbers increased by 7 to 29 at June 1994 to help the Group handle actuarial, accounting and systems matters arising from the proposed new financial reporting arrangements and asset and liability valuation requirements, and to enable it to monitor industry performance on consumer issues.

The Life Insurance Group was re-organised during 1993-94 and now consists of four sections: Company Compliance, Actuarial and Systems, Accounting and Consumer Issues and Support.

The Company Compliance section, consisting of four teams, is responsible for prudential supervision of registered life companies. The focus of supervision is on quarterly reviews of each company's investment exposures, annual reviews of all aspects of each company's operations, and on-site inspections involving discussions with the organisation's senior and middle management and Appointed Actuary and Approved Auditor. These monitoring and surveillance procedures enable the Commission to assess the solvency of companies, and their compliance with legislative and circular requirements, and to gain a better understanding of company operations, particularly their internal control systems and management structures.

The Actuarial and Systems section is responsible for advice on actuarial issues arising from the prudential supervision of life companies and for the computer systems of the group.

The Accounting section is responsible for advice on accounting issues arising from the prudential supervision of life companies.

The Consumer Issues and Support section is responsible for all consumer related matters, including the examination of promotional material and the development of a Code of Practice for life insurance.

The Commission seeks to partially offset its costs of supervision through an annual supervisory levy on life insurance companies. This is authorised under the provisions of the Life Insurance Supervisory Levy Act 1989 and the Insurance Supervisory Levies Collection Act 1989. Collection of the levy is effected through the provisions of the Life Insurance Supervisory Levy Regulations.

In 1993-94, each registered life company paid a compulsory levy of $ 28 000 to fund the Commission's life insurance program.

In April 1994, the Insurance Laws Amendment Act (No 2) 1994, amended the Life Insurance Supervisory Levy Act to increase the previously permitted limit on the levy from $28 000 to $70 000. This increase reflects the Government's intention to

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move progressively to the full recovery o f the Commission's supervisory costs. This new levy limit will come into effect during the 1994-95 income year.

OVERVIEW

1993-94 witnessed substantial progress on a number of major reforms to the regulation of the life insurance industry, as well as a continuation of the Commission’s close on-going supervision o f the industry. A Bill to give legislative effect to new measures to improve prudential supervision and consumer protection in the industry was introduced into Parliament in June 1994. In addition, major

steps were taken to upgrade disclosure requirements for life insurance products with a savings or investment element, and to develop a life insurance Code of Practice. The Commission’s on-site inspections and financial reporting requirements

continued to make a valuable contribution to its supervisory goals.

OUTCOMES

Policy and legislation

Life Insurance Bill 1994

1993-94 witnessed intense activity on the part of the Commission to implement measures announced by the Government in July 1993 to enhance policyholder and consumer protection in the life insurance industry. Legislation to give effect to core measures in this announcement - the Life Insurance Bill 1994 and the Life Insurance

(Consequential Amendments and Repeals) Bill 1994 - was introduced into Parliament on the 30 June 1994.

Amendments will be introduced in the 1994 Spring Sittings to complete the range of consumer protection measures. These will include provisions to give statutory force to the proposed Code of Practice and to enhance product disclosure requirements for prospective and existing life insurance policyholders.

Details relating to solvency and capital adequacy rules and financial reporting requirements will be developed and introduced over the next few years as subordinate legislation. The objective is to have all requirements in place by 31 December 1996.

The Commission consulted closely with industry associations, professional bodies and consumer groups in developing the legislation.

Accounting and Actuarial Standards

Upgraded financial reporting statements will be introduced for returns under the Life Insurance Act. These new statements are being developed by a Taskforce on

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Financial Reporting, comprising expert actuaries and accountants with experience in the life insurance industry. The new statements will enable clearer comparisons of the financial strengths of the various companies within the industry and will provide information on profitability akin to that available for companies generally.

A new Life Insurance Actuarial Standards Board will formulate the details of the solvency and capital adequacy standards in the Life Insurance Bill, together with other actuarial standards which will be required. Subject to prior approval by the Commission, the standards will be promulgated and have the force of law. The Commission has been consulting closely with the Institute of Actuaries of Australia, which has issued discussion papers on the subject of solvency and capital adequacy

standards in recent years.

It is hoped that a general purpose life insurance accounting standard being developed by the Australian Accounting Standards Board will enable life companies to satisfy the variety of reporting requirements to which they are subject, with a single set of

financial statements. The Commission has consulted with the Board on the issues involved.

In January 1994, the Life Insurance Group issued Circular No 306 on Property Valuations. The Circular provides minimum standards for the procedures to be adopted for the valuation of properties held by statutory funds. This enables consistent and comparable valuations of this asset class throughout the industry.

Information disclosure

Consistent with the goal of encouraging fair and open dealing between the insurance and superannuation industries and their customers, the Commission places a strong emphasis on industry compliance with information disclosure requirements.

During 1993-1994, the Commission released two circulars relating to information disclosure - Circular 304 dealing with investment products, and Circular 305 dealing with risk products - which became effective from 1 January 1994 and 1 April 1994 respectively. The circulars, which were developed following consultation with industry and consumer groups, the Federal Bureau of Consumer Affairs and the Trade Practices Commission, aim to ensure that promotional material and policy documentation issued by life insurance companies, whether direct to policyholders and potential customers, or to intermediaries, contain certain key items of information (including the effect of fees and charges). The circulars also require the information to be presented in a format which enables people to make an informed assessment of the suitability of the product for their particular needs.

The Commission has actively assisted industry in complying with these new disclosure requirements through company visits and formal and informal discussions.

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KEY FEATURES OF THE NEW REGULATORY FRAMEWORK FOR THE LIFE INSURANCE INDUSTRY

The main purpose of the Life Insurance Bill 1994 is to establish a modem regulatory regime for the life insurance industry, and replace the Life Insurance Act 1945 which has remained largely unchanged for the past half century. The new regime will substantially strengthen prudential supervision and improve consumer protection by:

• Clarifying that all policies issued out of statutory funds of life insurance companies are subject to regulation by the Commission.

- In particular, this removes uncertainty as to the role of the Australian Securities Commission in relation to investment-linked life insurance products and will reduce the costs imposed on life companies and intermediaries through duplicate supervision.

• Updating and improving solvency and capital adequacy requirements.

- Life companies will be required to comply with new solvency and capital adequacy standards in respect of each of their statutory funds having regard to the particular size and structure of each fund's liabilities. Life offices will continue to be required to meet minimum capital requirements of $10 million outside statutory funds.

• Establishing a Life Insurance Actuarial Standards Board to develop solvency and capital adequacy standards for life companies.

- The Board, appointed by the Treasurer, will comprise a chairman, a government member and five other persons, all holding their position on a part-time basis. All but one of the members will be suitably qualified members of the Institute of Actuaries of Australia.

• Improving reporting requirements to the Commission through new financial statements which will make more transparent the financial position and operating performance of life companies.

• Increasing the responsibility of directors, auditors and actuaries.

- Directors will owe a fiduciary duty to policyholders and policyholders will have rights to initiate proceedings against a director for a breach of this duty. Directors will be jointly and severally liable for any loss incurred by policyholders as a result of a contravention and the Commission will be able to bring an action against a director on behalf of the company for recovery.

• Requiring company boards to establish an Audit Committee, with a majority of non-executive members.

- The Committee will be responsible for ensuring the accuracy, adequacy and reliability of financial reporting and the maintenance of internal management and financial controls.

• Strengthening the rules on allocation of operating profits to ensure that solvency standards are satisfied before any distribution of identified profit out of statutory funds and, unless the Commissioner approves otherwise, to ensure that capital adequacy standards are satisfied before any distribution is made to shareholders. •

• Introducing measures to protect consumers, such as requirements for each company to establish a Compliance Committee of the Board responsible for ensuring inter alia, that the company complies with the proposed consumer protection provisions including, in particular, the proposed product disclosure rules and Code of Practice.

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The Commission plans to undertake consumer testing during 1994-95 to further refine the new disclosure requirements. The aim of the market research is to ascertain which format for presentation o f product information - particularly fees and

charges - is most easily understood by consumers. When completed in January 1995, the Government will be in a better position to finalise its policy on some of the more contentious aspects of information disclosure. A number of options will be considered, particularly in relation to the best means of disclosing total charges and agent commissions.

Code o f Practice

During 1993-94, the Commission chaired a Taskforce, including representatives of the Trade Practices Commission and the Federal Bureau of Consumer Affairs, which has worked to develop a Code of Practice covering to sales practices and customer complaints handling for the life insurance industry. The Code is to set minimum standards for sales practices and the employment of life insurance intermediaries, oversight by life insurance companies and life brokers of the conduct and competence of their staff and agents, and dispute resolution arrangements. A preliminary outline was issued in March 1994 for industry comment and, following

further extensive consultations with various groups representing consumers, intermediaries and industry, a draft Code was circulated for comment on 7 August 1994. .

Social Justice, Access and Equity

The introduction and eventual passage o f the Life Insurance Bill, along with the implementation of the Code of Practice will do much to improve social justice for people who buy life company products. The new disclosure rules in ISC Circulars 304 and 305 have already resulted in a greater level of disclosure at the point of sale, so that consumers can now make better informed choices. Enhanced disclosure will redress the inequalities in bargaining power that arise between individual consumers

and large insurance companies.

Consultation and Liaison

During the year, the Commission had extensive discussions with representatives of industry, professional groups, consumer organisations and Commonwealth government departments and agencies, particularly with respect to the issues arising during the preparation of the Life Insurance Bill, the disclosure requirements and the proposed industry Code of Practice. Organisations and groups consulted during the year include: the Australian Federation of Consumer Organisations, the Australian Consumers’ Association, the Australian Lifewriters’ Association, the National Council of Life Agents Associations, the Life Federation Association of Australia, the Institute of Actuaries of Australia, the Investment Funds Association, the Financial Planning Association and the Lifewriters United Political Action Committee.

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The Life Insurance Consultative Committee met in October 1993. The Committee, which was established in 1975, provides a confidential forum for the Government to seek advice on current or prospective insurance legislation or on government policy proposals which have significant implications for the insurance industry. Members

are chosen for their knowledge of the life insurance industry and participate in their personal capacities and not as representatives of a particular institution or organisation. Members of the Committee during 1993-94 were Ms Sue Laing,

Messrs Rod Atfield, Robert Drake, Tim Jenkins, Barrie Martin, Trevor Matthews, Kerry Roberts, Peter Smedley, Geoff Tomlinson, Peter Vinson and Ian West.

There is no set term of appointment, however, membership is reviewed from time to time to ensure that the composition of the Committee remains appropriate. No sitting fees are paid to members.

Industry supervision

On-site inspections

The on-site inspection program enables the Commission to develop a familiarity with the investment strategy, management structures and administrative systems of particular life insurance companies, and to assess the adequacy of internal controls. This complements the extensive financial reporting requirements which the

Commission relies on to monitor the solvency and soundness of life office statutory funds.

The method adopted in the on-site inspection program involves discussions with the company’s senior and middle management, and specialists such as the Appointed Actuary and the Approved Auditor, and the examination of financial and other documents. An on-site inspection may last for two or three days, depending on

company size. Half-day visits may also be made from time to time, to address specific matters.

During the 1993-94 year, 26 companies were visited as part of the inspection program. The visits covered the spectrum of the industry: from small to large and new to old; niche operators and those with a full product range; bank subsidiaries and reinsurers.

The Commission was satisfied with the operations of all companies inspected during 1993-94 including, in particular, their solvency and financial soundness.

Inspection o f promotional material

The Group also examines company promotional material for compliance with Commission Circulars 304 and 305 on disclosure of product information. As at June 1994, a total of 309 Customer Information Brochures and 39 Direct Response Marketing Packages had been examined. O f the Customer Information Brochures,

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211 were covered by Circular 304, and 98 by Circular 305. The examinations indicated that life insurance companies have, in most cases, successfully adapted to the new information disclosure requirements.

Occidental and Regal

The Occidental and Regal case involving attempts at defrauding the two life insurance companies, Occidental Life and Regal Life, in October 1990 was resolved during 1993-94.

Following the work of the Judicial Manager, Mr Richard Grellman, the business of Occidental Life and Regal Life was transferred to Mercantile Mutual Life, a registered life company, such that policyholders generally received full value for their policies on the transfer. Accordingly, it has not been necessary to impose the levy under the specific legislation introduced as a contingent provision to ensure a minimum level of protection to policyholders of the two companies. As a consequence, the Life Insurance Policyholders' Protection Levies Act 1991 and the Life Insurance Policyholders’ Protection Levies Collection Act 1991 will be repealed.

Staff o f the Life Insurance Group

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Services to the community

Complaints and Enquiries

The Commission's responsibilities do not include handling consumer complaints. Nevertheless, some consumer complaints concerning the conduct of the industry were received and considered by the Group. Statistical analysis of complaints received by the Group shows that approximately 10 per cent of the 150 written

complaints and 30 per cent of the 300 telephone complaints received by the Commission were referred to the Life Insurance Complaints Board. Other complaints were dealt with by clarifying technical details in policy documentation and resolving misunderstandings between the consumer and the life insurance

company.

Life Insurance Complaints Board

During the year, the industry administered Life Insurance Complaints Board was substantially upgraded to have more independence and greater resources and wider coverage of complaints. This followed the implementation of the bulk of the

recommendations o f an independent report in 1993 by Ms Philippa Smith. There is a new Chairperson (Justice Ian Thompson) and a new manager (Mr Paul Bean).

Unclaimed moneys

Under section 106 o f the Life Insurance Act, the Commission administers unclaimed life insurance moneys arrangements. This involves the receipt and registration of monies from life insurance policies which have become payable, but are not claimed within seven years. In 1993-94, the Government received $2 560 409.30 as

unclaimed moneys. Claims amounting to $898 678.65 were authorised for payment to 990 claimants during 1993-94.

Details of each unclaimed money amount of $200 or more are published annually in a special edition of the Commonwealth of Australia Gazette. Interested persons may inspect records of individual unclaimed money amounts dating from 1991 during office hours at the Commission's Canberra, Sydney and Melbourne offices.

INDUSTRY AND MARKET DEVELOPMENTS

Industry Structure

Number and distribution o f life insurance offices

The number of registered life insurance companies at 30 June 1994 was 51, the same number as for the 1992-93 income year. However, the year saw the deregistration of two companies, NZI Life Limited and Guardian Assurance Public Limited Company, after the orderly transfer of their business to another life company. Two

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new companies were registered under the Life Insurance Act, namely AM Life Limited and NRG Victory Australia Life Reinsurance Limited.

Chart 3.1 shows a decline in the number of life companies since 1990, although there has been no change in the last twelve months. Changes in industry structure are expected to continue as some foreign insurers exit the Australian marketplace and mergers occur between small and medium sized life companies seeking to achieve better economies of scale and scope. Whether this results in a net decline in the number of companies depends on the number of new organisations which obtain

registration to enter the industry.

During the year there were three applications under the Insurance Acquisitions and Takeovers Act 1991 to allow for changes in ultimate ownership of the NRG Victory Australia Reinsurance Limited, Mercantile Mutual Life Insurance Company Limited and Friends Provident Life Assurance Company Limited. Two applications were approved by the Treasurer and one by the Commission under delegation.

Number of life companies at 30 June

Chart 3.1

Industry concentration

Historically, the life insurance industry in Australia has been dominated by large mutual life offices selling products through tied agency networks. At March 1994, the three largest life insurance groups accounted for 54 per cent of the industry’s Australian assets. The remainder of the industry includes a number o f smaller foreign owned and Australian owned companies, many of which distribute products

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through multi-agents. The industry is quite concentrated with the top 10 groups of companies accounting for about 82 per cent of industry assets.

Share of life company Australian assets at 31 March 1994

Other

Banks 12%

Three largest groups 54%

Chart 3.2

Over the past decade, banking groups have emerged as an important segment of the industry. They have formed life company subsidiaries which have gained 11.5 per cent of the market, mainly by marketing single premium products (for example, superannuation rollovers) 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.

State government insurers are regulated by the States and are not supervised by the Commission. State government involvement in the life insurance sector has declined over the past three years with the privatisation of the GIO of NSW, and the SGIO of Western Australia, and the sale of the life business of SIO of Victoria to the

new GIO Australia. Friendly societies offer life insurance products but are not supervised by the Commission since they also come within the jurisdiction of the States.

Involvement o f Australian life insurance companies overseas

Based on quarterly returns for March 1994, only 15.51 per cent of statutory fund assets for all companies are invested overseas. Most of this is portfolio investment in the form of equities and fixed interest securities.

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Involvement o f overseas life insurance companies in Australia

While nearly half of all life insurance companies are ultimately foreign owned, many of these are relatively small. As a result, only 21.13 per cent of all statutory fund assets are held by foreign owned companies.

Assets

In the year to March 1994, total assets of the life industry, including overseas assets, increased by around 16 per cent to around $116 billion. Australian assets in statutory funds increased at a rate of 8.1 per cent to about $98 billion, following a year of decline in 1992-93. The A ustralian asset growth was due in part to the

strong performance o f the A ustralian sharemarket early in the financial year which increased the value of the equity holdings of statutory funds, and the turnaround in parts of the property sector, including the office market. Some of these gains were eroded during the second half of the year by falls, first in the bond market and then in the sharemarket. The industry experienced a period of high volatility in investment conditions. For statutory funds with investment linked business, volatility in the markets is directly reflected in unit values and policy returns.

Life company assets in Australia at 31 December

100.00

90.00

80.00

70.00

60.00

50.00

40.00

30.00

20.00 10.00

0.00

Chart 3.3

Life companies' investments in Australian property, equities and fixed interest securities totalled about $91 billion at March 1994. The composition of life company assets has changed little in recent years. The major trend has been a gradual long term decline in property and fixed asset holdings to roughly 8.5 per cent of total assets, partly due in recent years to downward revaluations in the soft

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I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 Ί - Q 4

commercial property market. Equity holdings account for about 34 per cent of total assets.

Market Developments

Premiums

The industry experienced growth during 1993-94, with total new premium increasing by 26 per cent. The main source of growth was superannuation business, for example, 80 per cent of the total new premium growth of $15.9 billion in the year to March 1994 represented single premium superannuation business.

At March 1994, non-annuity new single premium business written totalled $7.5 billion, annuity new single premium business totalled $6.5 billion, and single and annual in-force premiums totalled $22.5 billion.

Most (88 per cent) of the new premium inflow was in single premium business which rose 30.7 per cent from $10.8 billion to $14.1 billion. This was partly due to a high rate of growth of superannuation business (36 per cent) which can probably be attributed to compulsory superannuation contributions and rollover investments.

Total business - new premiums

E

9000

8000 |

7000 ]

6000 -

5000 ,

4000 -

3000

2000

1000 '

0 -

89 90 91

---- ■----- New Single

Premiums

---- D----- New Annual

Premiums

-----*----- Total Annual

Premiums (Discontinued)

-----°----- Annual Premiums

in Force at End of Year

Chart 3.4

In 1993, annual premium business fell for the second year in succession as shown in Chart 3.4. Discontinuances of $2.2 billion more than offset new annual premiums of $1.8 billion. As a result, total annual premiums in force declined to $8.3 billion. This trend has been a concern for the industry because annual premium products

have traditionally supported a large part of the operation of most life companies and their distribution networks. The continuation of this trend means that life companies

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I N S U R A N C E A N D S I 1 P E B A N N I I A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 3 - 9 4

need to have operational structures which can quickly adapt as the composition of their new business changes.

New annuity business increased at a rate of 37 per cent from $4.8 billion in March 1993 to $6.6 billion at March 1994 with 99 per cent of the business written in single premiums. The year also saw a large increase in annual premiums in force for this class of business, (albeit from a very low base) from $65 million at March 1993 to

$89 million at March 1994. It is expected that the growth of annuity business will continue.

Classes o f business

The type of business written in 1993 reflected the continuation of trends that have been evident for some years.

The majority of premiums (about two-thirds) received by life companies are now single premium business such as insurance or superannuation bonds and deferred annuities.

Around three-quarters of this single premium business was written as investment linked superannuation policies structured to entitle policyholders to superannuation taxation concessions. The remainder was mostly investment linked ordinary (non­ superannuation) business. Total superannuation assets (in Australia and overseas) of life companies represented 70.6 per cent of their total assets and constituted 43 per cent of total superannuation industry assets.

Composition of regular premium business

year ending 31 December 1993

Ordinary Investment

Superannuation Linked

Investment Linked 5%

17%

Ordinary Term Life & Disability 17%

Superannuation Term Life & Disability 7%

Superannuation Other 54%

Chart 3.5

I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 3 - 9 4

In the annual premium category, investment linked superannuation is also the largest class of business accounting for about three-quarters of premiums received (see Chart 3.5). This is continuing the trend seen in previous years. Term, accident and disability insurance is continuing to increase its share of the business, having grown

from 14 per cent in 1992 to 17 per cent in 1993. Conventional whole of life and endowment insurances continue to decline in significance, reflecting changes in customer preferences which have occurred in the industry in the last decade.

Life companies have substantially reduced their crediting rates on investment account policies. This was largely due to significantly lower investment returns received by companies. Other factors influencing the net earnings available were the increase in company expenses attributable to this type of business and the need to

strengthen reserves. At the same time, there has been a move by consumers to purchase investment linked business in preference to capital guaranteed business and this has alleviated to some extent the strain on companies’ reserves from the capital requirements for the latter type of business. -"

Discontinuances

The continuing high discontinuance rates are a concern to the Commission. As shown in Chart 3.6, the rise in discontinuances was caused by a continuing increase in the surrender of policies. This reflected, at least in part, the effects of financial hardship as Australians drew on life policy savings to meet living expenses.

However, it is also likely that a number of policyholders surrendered their policies on becoming aware that they may not have chosen the most appropriate product for their particular circumstances. An indication that discontinuance rates may be

bottoming can be seen in the fact that 1993 witnessed a doubling o f terminations at maturity, the highest level experienced since at least 1988. Similarly, 1993 also witnessed the lowest forfeiture level since 1988.

Discontinuances - year ending 31 December

1989 1990 1991 1992 1993

■ S u rren d er ----- ° ----- F orfeiture ----- ♦----- M aturity

Chart 3.6

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I N S U R A N C E A N D S 1) P F. R A N N U A T I Ο N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 3 - 9 4

OUTLOOK

The new regulatory regime presents the life insurance industry with two significant challenges. The first is to offer a range o f products which meet customer needs and represent good value for money. This pressure arises in part from the new, stronger disclosure requirements for life insurance products which are comparable to those for managed investment products, and in part from improved financial reporting which will enable more direct comparisons between life insurance products and other financial products. Comparability o f disclosure, particularly in respect o f fees and charges, would lead to a more ‘level playing field’ for single premium life insurance products, public offer superannuation products and certain public unit trusts products, all of which have some functional similarities and could be seen as

competing in the market place.

The second challenge is to offer a higher quality of service to consumers consistent with provisions in the proposed new Life Insurance legislation and Code of Practice for the industry, which will set minimum standards for fair dealing between companies and consumers.

These challenges present an opportunity for companies to re-establish trust and confidence among consumers and should encourage a more competitive, innovative, prudentially sound and growing life insurance industry. Successful companies will move to address consumer concerns by tailoring products, pricing structures and distribution systems to more closely meet the needs and budgets of consumers.

As the shift to investment linked products continues, investment performance will become a key consideration in the choice of companies by many consumers. An important factor in good net returns will be efficient distribution and management systems. Life companies are likely to develop new systems for monitoring the efficiency of their distribution network, their agents, and management structure.

The key issues for the Commission in the coming year arise from the introduction and implementation o f the new life insurance regulatory framework. These issues will include:

• further work on legislative consumer protection measures, that is, developing disclosure requirements and the Code o f Practice;

• establishing the Life Insurance Actuarial Standards Board for the development and promulgation o f the detailed solvency and capital adequacy standards;

• finalising the format of financial statements for life companies being developed by the Commission's Taskforce on Financial Reporting; and •

• developing the internal administrative capacities and systems to supervise new capital adequacy and solvency requirements.

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CHAPTER 4 - SUPERANNUATION

Demographic trends towards an ageing Australian population and a higher aged dependency ratio in the twenty-first century, and the need to boost national savings, have shaped the Government's policy of encouraging greater self-provision of retirement income through superannuation. The outcome o f Government policy

changes in recent years is a three tiered approach to retirement income provision: access to a means-tested age pension; tax-assisted compulsory superannuation through the Superannuation Guarantee Charge (SGC) scheme; and taxation incentives to encourage voluntary superannuation savings. The age pension and

social security systems will interact with the compulsory and voluntary superannuation tiers to ensure higher standards of living in retirement for Australians in the twenty-first century.

Superannuation savings are managed, by and large, in the private sector consistent with the notion that competition will maximise returns, and ultimately retirement benefits for members. Crucial to the effectiveness of the Government's retirement

incomes policy, therefore, is an appropriate framework o f prudential supervision. Key principles underlying the Government's approach to prudential supervision of the superannuation industry are:

• to increase - but not guarantee or underwrite - the security of members' benefits;

• to ensure that primary responsibility for the viability and prudent operation of superannuation funds rests with trustees and fund managers; and •

• to allow trustees maximum commercial autonomy in making investment decisions.

OBJECTIVES

The Commission's supervisory objectives in relation to superannuation are to:

• promote the sound growth and prudent management of retirement income savings through superannuation;

• provide protection for fund members' superannuation benefits; and

• check that tax concessions for superannuation are used for genuine retirement income purposes.

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OPERATIONAL APPROACH

The number of superannuation funds means that supervision is based primarily on a ‘self assessment’ regime of annual reporting to the Commission, supplemented by an extensive Commission audit program.

The Commission's supervisory responsibilities in relation to superannuation are carried out primarily by the Superannuation Group. In the 1993-94 income year, the Group’s regulatory activities included:

• supervising superannuation funds, approved deposit funds and pooled superannuation trusts in accordance with the Occupational Superannuation Standards Act 1987 (hereafter referred to as the OSS Act) and the Occupational Superannuation Standards Regulations;

• monitoring developments in the superannuation industry and providing advice to the Government on the effectiveness o f the regulatory system and legislation;

• providing information on the regulatory regime to superannuation fund members, trustees and others concerned with superannuation savings;

• maintaining close contact with the superannuation industry, consumer bodies and other interested groups on policy issues affecting the industry and fund members; and

• preparing for the introduction of the Superannuation Industry (Supervision) Act 1993 (hereafter referred to as the SIS Act) beginning on 1 July 1994.

The Superannuation Group comprises three branches in the Commission's Canberra office, together with the Commission's regional offices in Sydney, Melbourne, Brisbane, Adelaide and Perth. The Brisbane, Adelaide and Perth offices commenced operations during the latter part of 1993. The Sydney and Brisbane offices form a northern region (headed by Sydney); while the Melbourne, Adelaide and Perth offices form a southern region (headed by Melbourne which also has responsibility for the Northern Territory and Tasmania).

The regional offices are primarily engaged in auditing of superannuation funds, providing information in response to enquiries from the public and from superannuation funds, examination of requests for early release of preserved benefits, technical advisings and public education. Canberra has overall responsibility for guiding the Group's operations, handling amendments to

legislation, planning the audit program in conjunction with the regional offices and processing fund annual returns and superannuation supervisory levy payments.

The Superannuation Supervision Levy Act 1991 provides for the funding of the Commission's superannuation program through an annual levy on superannuation entities. The level and structure of the levy were unchanged in the 1993-94 income year: each fund was required to pay a minimum of $200 with an additional $200 per

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$500 000 of assets thereafter, up to a ceiling of $14 000. The levy is determined each year by the Treasurer, following consultations between the Commission and industry representative bodies, namely, the Association of Superannuation Funds of

Australia, the Life Insurance Federation of Australia and the Joint Superannuation Committee of the Australian Society of Certified Practising Accountants and the Institute of Chartered Accountants in Australia.

The Superannuation Group had 289 staff in Canberra and the regions at June 1994.

Canberra officers o f the Superannuation Group engaged in ‘teleconferencing' ‘Teleconferencing ’ is an important means o f communication between Canberra and the regional offices.

OVERVIEW

Public discussion o f superannuation during 1993-94 focussed on issues arising from Dr Vince FitzGerald's May 1993 report National Saving. The problem of small superannuation accounts being eroded by fees and charges was also of widespread concern. On 28 June 1994 the Treasurer announced a package of measures to

address the 'small amounts' problem and respond to outstanding issues raised in the FitzGerald report (some issues were addressed in the context of the 1993-94 Budget).

For the Commission, the 1993-94 income year was one of transition as it prepared for the introduction of the SIS Act. At the same activities associated with the OSS

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I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 3 - 9 4

Act and Regulations continued. The new SIS legislation will generally apply to funds and trusts from the beginning of their 1994-95 income year and beyond (the OSS regime 'cuts out' for funds and trusts from the end of their 1993-94 year of income).

OUTCOMES

The Commission's outcomes for 1993-94 in respect of its superannuation objectives may conveniently be discussed under the following headings: policy and legislation; industry supervision and services to the community.

Policy and legislation

The Commission's capacity to fulfil its supervisory objectives has been significantly enhanced by the enactment of the SIS Act. The legislation increases the Commission’s investigation powers and access to information about funds in financial difficulties. It enables the Commission to take action directly against those responsible for deliberate and serious breaches of requirements.

The drafting of the SIS Act and Regulations was undertaken in close consultation with industry associations, professional bodies and copsumer groups. Steps were taken to minimise compliance costs and complexity by:

• streamlining and simplifying the rules which differentiate superannuation funds from approved deposit funds (ADFs), in particular by removing the restrictions which previously applied to superannuation fund members' access to unpreserved benefits (thus bringing superannuation funds more into line with the main operational requirements for ADFs);

• reducing incorporation fees for trustees and moving to streamline and simplify reporting requirements. (The incorporation fee for superannuation trustee companies was reduced to $100 instead of the usual fee of $550, and the ASC annual return fee was reduced to $30 which is substantially less than the fee which applies to trading companies).

- This will reduce compliance costs for the many thousands of funds which will incorporate as a means of becoming eligible for concessional taxation treatment under the SIS regime; •

• recognising the growing interest in ‘beneficiary investment choice’ by allowing trustees to offer members a menu of investment strategies, backed by strict disclosure requirements. This achieves an appropriate accommodation between the principle that trustees retain responsibility for the overall management of the fund, while at the same time giving members some flexibility and choice in relation to strategies for the investment of fund assets on their behalf;

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I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N I I AI . R E P O R T 1 9 9 1 - 9 4

• simplifying and enhancing the rules for disclosure to members; and

• introducing solvency standards for regulated superannuation funds, whereby circumstances which could lead to difficulties in future payment of benefits require that an appropriate program of corrective action be put in place.

Contributions to inquiries by the Senate Select Committee on Superannuation

At a broader level, the Commission contributed to the development of a number of significant policy decisions and debates during 1993-94. The Commission lodged submissions and appeared before the Senate Select Committee on Superannuation in relation to several o f its major inquiries in 1993-94 including:

• the Ninth report - Super Supervision Bills',

• the Tenth report - Super Complaints Tribunal, and

• the Twelfth report - Super fo r Housing.

The ‘small amounts ’ problem

During 1993-94 the Government undertook an extensive round of consultations with industry groups and consumer organisations to develop a response to the problem of small superannuation accounts being eroded by fees and charges. The problem is widespread amongst part-time and casual workers (many of whom are women) whose employers are only required to contribute relatively small amounts on their behalf under the SGC scheme. The Commission contributed to the development of the Government's Superannuation Policy Statement of 28 June 1994 - which

contained a number of significant measures to address the problem - through the provision of advice to the Government, participation in industry consultations and liaison with other Commonwealth government agencies.

Included in the package were measures to protect the capital balances of the 'small amounts', an Australian Taxation Office collection mechanism to hold and manage small contributions up to a specified dollar threshold, and support for the development of industry 'transfer protocol' arrangements to facilitate the consolidation of multiple accounts.

Superannuation and women

The Commission co-sponsored a ‘Women and Super’ seminar at the Hyatt Hotel in Canberra on 24-25 February 1994 with the Office of the Status of Women, the Sex Discrimination Commissioner and the Association of Superannuation Funds of Australia. Officers from the Commission presented papers and contributed to debate

on the wide range o f topics covered, which included the adequacy of superannuation benefits for women, the impact of fees and charges and the implications of women's workforce patterns for superannuation benefit accruals.

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The SIS regime

In brief, the SIS regime aims to make trustees more accountable to fund members; enhance the scope for member participation in the management of funds; strengthen the supervisory powers o f the Commission and ensure that superannuation funds are used for genuine retirement income purposes. The main features o f the new

supervisory regime are as follows:

• the Commission to have effective powers to enforce the prudential requirements, including power to suspend or remove trustees in special circumstances;

• the basic duties and responsibilities of trustees for the operation of funds to be explicitly specified;

• the main duties of trustees to be included in governing rules of all

superannuation funds, with members to have a statutory right to recover from trustees where they suffer loss or damage as a result of a breach of those duties;

• trustees to be in full control of funds and, apart from some limited exceptions, to not be subject to direction from employers (or any other persons);

• trustees and investment managers to be subject to legislated sanctions if they fail in their fiduciary responsibilities to beneficiaries; '

• unsuitable persons to be prohibited from being trustees or investment managers;

• tighter restrictions to apply on borrowings for superannuation funds and, for employer-sponsored funds, tighter restrictions on investment in 'in-house' assets (that is, loans to or investments in the employer-sponsor);

• increased scope for members to participate in the management of the fund;

• the Treasurer to have the power to determine, on public interest grounds, whether financial assistance should be provided to a fund that suffers loss due to fraudulent conduct or theft;

• auditors and actuaries to be required to notify the Commission if they are concerned about the financial position of a superannuation entity or its compliance with the prudential supervision legislation; and •

• extensive rules to apply to invitations and offers to subscribe for interests in, and disclosure by, public offer superannuation funds, ADFs and Pooled Superannuation Trusts.

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I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 Ί - 9 4

During 1993-94 the Government announced that amendments would be made to the SIS Regulations to allow superannuation funds to accept contributions from persons who are on leave without pay for the purposes of childrearing for a period of up to seven years, where the person retains the right to return to work.

Surveys o f Superannuation Funds

During 1993-94 the Commission agreed in principle with the Australian Bureau of Statistics (ABS) to conduct quarterly statistical surveys of superannuation funds on a cost sharing basis. The surveys are planned to commence from June 1995 and to cover approximately 90 per cent of the industry by assets, members, total income, benefits and total expenses. The survey results will be an invaluable resource for research and policy making and for monitoring industry trends and developments,

and will significantly improve and rationalise existing Commission and ABS superannuation data collection arrangements.

Superannuation Consultative Committee

The Superannuation Consultative Committee met twice during 1993-94 (on 26 July 1993 and 16 March 1994) to advise the Government on aspects of superannuation and retirement incomes policy. The purpose of the Committee, formed in 1987, is to provide a confidential forum where the Government can seek expert advice on

matters relating to superannuation legislation, policy proposals and developments within the superannuation industry.

Current members o f the committee are Mr Rob Ferguson, Dr Vince FitzGerald, Mr Jim Hoggett, Mr Tony Killen, Mr Ken Lockery, Mr Graham Rogers, Mr Iain Ross, Dr Don Stammer, Mr Laurie Willett, Ms Louise Sylvan and Professor Julian Disney. There is no set term of appointment, however membership is reviewed from time to

time to ensure that the composition of the Committee remains appropriate. No sitting fees are paid to members.

Social justice, access and equity

The Commission, in conjunction with the Special Broadcasting Service (SBS), has produced a short video explaining superannuation issues. The video will be screened through SBS in five languages (Arabic, Chinese, English, Spanish and Vietnamese) and will also be used by the Commission for seminars and

presentations. Preparations were also made for the translation of information booklets explaining superannuation into Arabic, Chinese, Greek, Italian, Spanish and Vietnamese.

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Industry Supervision

Compliance and audit

Trustees seeking concessional taxation treatment for their fund or trust must lodge an annual return with the Commission certifying compliance (during the 1993-94 income year) with the standards set out in the OSS Act and Regulations and a certificate from an approved auditor. Complying superannuation funds are entitled to receive taxation concessions and accept SG contributions.

During 1993-94, the Commission received 91 085 annual returns. A sizeable proportion of these returns related to the 1992-93 year of income. During the year the Commission sent out 99 489 notices of compliance and 1 478 notices of non­

compliance, which related to the 1991-92 and 1992-93 years of income.

Exercise o f discretions/appeals

Under the OSS Act, the Commissioner has discretionary power to treat a fund as complying with the superannuation operating standards, notwithstanding a breach, in special circumstances. During 1993-94. 7 590 requests for the exercise of discretion were granted and 1 666 were denied.

Trustees of superannuation funds who receive a notice of non-compliance in respect of a particular year of income are able to seek reconsideration of the Commission’s decision. Seventy nine reconsideration requests were decided in 1993-94. Ten of these requests resulted in revocation of the notice of non-compliance.

Audits

The Commission's audit program is fundamentally oriented towards checking that superannuation funds are operating in a manner consistent with their long term purpose of providing retirement income. Audit teams and specialist staff from the Commission do not seek to penalise trustees, but rather to help them comply with the standards by providing advice on the rules and assistance in organising internal systems. In many cases, funds committing minor, technical breaches of the standards were given the opportunity to rectify the breach and retain their complying status.

The Commission conducts its audit program primarily through the regional offices, although the Canberra office is responsible for auditing superannuation funds based in the ACT Region. The Commission audited some 1 238 funds during 1993-94. which involved checking compliance with the superannuation standards, and monitoring prudential matters such as the quality of investments, management controls and systems. Table 4.1 shows the breakdown of the audits by size of fund and State.

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Of the 1 238 superannuation funds audited during the year, 16 per cent were found to be in breach of one or more of the operational standards. Breaches were detected in the small and medium sized funds across the full range of requirements, however,

the information disclosure and member reporting standards received particular attention and accounted for 63 per cent of breaches (non-compliance by small funds in respect of the 'in-house asset' rules was another area of concern). For large funds, the key area of concern was the disclosure and reporting requirements.

The Commission moves to quickly investigate any concerns brought to its attention which indicate management shortcomings or administrative limitations. Naturally, there are resource constraints on the ability of the Commission to respond to all such matters but every effort is made to appropriately examine the circumstances of each

concern raised. Often it is found that administration problems are attributable to computer or administration system failures due to rapid growth in fund membership. This can lead to the inability to process member accounts quickly and accurately and to prepare information for members or prospective members in a timely fashion.

Breakdown of Commission audits by size of fund and State

Large funds1 Medium funds' Small funds3 Total

ACT 1 5 38 44

NSW 4 32 464 500

VIC 26 68 287 381

QLD 1 5 67 73

SA 8 10 119 137

WA 6 13 84 103

TOTAL 46 133 1 059 1 238

Table 4.1

The experience gained in monitoring large master funds and a subsequent internal review of the master trust industry had an important role in the development of the Commission's guidelines for the approval of trustees of public offer superannuation

1 Large funds:

2 Medium funds:

J Small funds:

having more than $10 million in assets,

having between $1 m and $10 million in assets,

having less than $1 million in assets.

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entities under the SIS legislation. Among other things, the criteria for approval include assessments of the information systems and management expertise of the applicant company.

In February 1994, the Commission declared the Beneflex Retirement Plan to be non­ complying under the OSS legislation for its 1991-92 and 1992-93 income years following a detailed investigation which revealed multiple serious breaches of the superannuation standards.

After further investigations, the Commission advised employer-sponsors to make no further contributions to the fund and a receiver was appointed to Corplan Nominees Pty Ltd, the trustee of Beneflex, in May 1994 by the Federal Court. The Commission and the ASC worked in close cooperation.

The Beneflex case highlighted the limitations o f the OSS supervisory regime. The only sanction at the Commission's disposal was to withdraw the plan's tax concessions. Under the new SIS regime, the Commission can initiate court action to have civil and criminal penalties imposed on trustees who deliberately and seriously contravene important fiduciary duties.

Examination o f prospectuses

Superannuation funds that invite members of the public to subscribe for interests in the fund (public offer funds) must make those invitations through a prospectus or regulated document. Prospectuses have an important role in informing prospective members about the operation and performance of the fund, and are subject to extensive disclosure requirements. During 1993-94, prospectuses were required to be lodged with the Commission under the OSS legislation to ensure compliance with the disclosure requirements.

During the period to June 1994, a total of 49 public offer funds lodged 115 prospectuses with the Commission for examination and registration before issue to the public. Under the Commission's prospectus exemption and modification powers, a further 29 funds were granted an exemption from the prospectus requirements, the life of 20 registered prospectuses was extended beyond the six month statutory period, and one prospectus was permitted to incorporate extraneous material by

reference.

O f the 115 prospectuses lodged in 1993-94, 92 were registered, 16 rejected and 7 withdrawn by funds before registration. The average time taken by the Commission to reach a decision on a prospectus was 8 calendar days from lodgement.

The requirement for prospectuses to be lodged with the Commission is currently under review, as part of a broader Commission review of information disclosure rules for certain insurance and superannuation products (which includes the proposed market research survey referred to in Chapter 3). The findings from the

market research will help the Government ascertain the most appropriate format for

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information disclosure to prospective members. Until the survey is completed, public offer funds must comply with the disclosure requirements of the SIS legislation, but will not normally be obliged to lodge their ‘pre-sale’ documents with the Commission.

Approval o f trustees ofpublic offer superannuation entities

A key difference between the supervision of employer-sponsored funds and public offer superannuation entities is reliance in the former case on equal numbers of employee and employer representatives on trustee boards. In contrast, equal representation on trustee boards of public offer entities is not required because their trustees are generally professionals, managing the fund for a profit, and there is less

scope for members to take collective action since they lack a common employer or industry. Instead, the main accountability mechanism is a requirement that (from 1 July 1994) the trustee be approved by the Commission.

To obtain approval the trustee must meet certain minimum capital requirements or have an equivalent bank guarantee, or have a custodian which meets such requirements. In addition, the Commissioner must be satisfied that the applicant can be relied on to perform, in a proper manner, its trustee duties. During the year the

Commission developed guidelines setting out the criteria which will guide the Commissioner in the exercise of these approval powers. These include the applicant's ability to carry out investment and administration functions, to provide adequate resources including staffing, computer and financial resources, and to have

in place adequate contingency plans to deal with unforeseen events such as systems failures.

The Commission granted approval to 124 trustees in 1993-94.

Exemptions and Modification Orders

Part 29 of the SIS Act gives the Commissioner the power to modify provisions of the legislation either temporarily or permanently. These powers provide the Commission with an important degree of flexibility in the enforcement of the SIS

regime and helped to smooth the transition.

During 1993-94 the Commissioner signed one permanent and three temporary modification orders. The majority of modifications to the legislation have been temporary technical changes and are generally applicable to all superannuation

funds. A small proportion of exemptions from certain provisions have been provided to individual funds and trustees where circumstances are such that it would otherwise be impossible for the fund to comply with the legislation in its entirety. The orders were as follows:

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• Modification Declaration No. 1, signed on 1 June 1994, to change the definition of an independent trustee so that ten per cent of the fund’s membership or assets may be held by parties related to the trustee;

• Temporary Modification Declaration No. 1, signed on 18 February 1994, to enable certain ADFs (whose fundamental structure would otherwise prevent compliance with the SIS legislation) to comply with the SIS legislation;

• Temporary Modification Declaration No. 2, signed on 24 June 1994, to extend to six months the time that a disqualified person, currently acting as a fund trustee, has to resign from the fund; and

• Temporary Modification Declaration No. 3, signed on 24 June 1994, to allow approved trustees of superannuation entities to meet minimum net tangible asset requirements by holding a combination of net tangible assets and approved guarantees totalling at least $5 million.

Services to the community

The Commission provides a variety of services to the community to improve public understanding of superannuation and to assist individual superannuation fund trustees and members. During 1993-94 the Commission also finalised preparations for the provision of new services under the SIS regime from 1 July 1994.

SGC initiatives

Under the Superannuation Guarantee arrangements, employers must pay a prescribed minimum level of superannuation during the income year for their employees to avoid liability for the payment of a SGC to the Australian Taxation Office. The SGC amounts, net of Tax Office administration fees, are paid into a complying fund chosen by the employees concerned.

The role of the Commission is to determine whether funds comply with the superannuation standards, thereby qualifying as 'complying funds' for Superannuation Guarantee purposes. The Commission maintains a database of complying superannuation funds and responds to public enquiries about the compliance status of individual funds.

Early release o f preserved superannuation benefits

Under the OSS Regulations, superannuation benefits are normally required to be preserved until retirement age. However, the Commissioner may agree to funds paying out benefits early, in certain circumstances, without the funds losing their concessional tax treatment.

The administrative guidelines used by the Commission basically restrict the waiver of the preservation requirement to situations where the member is suffering severe

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financial hardship or in exceptional circumstances, on the basis of compassionate grounds and where the member would not otherwise be able to meet ordinary living expenses. The guidelines are applied flexibly, particularly where the family home may be in peril.

Requests for early release of benefits totalled 36 184 in 1993-94, up from 32 922 in the previous year. The commission approved 72 per cent of these applications in full, 12 per cent in part and rejected 16 per cent.

Public education and enquiries

The Commission has, since its inception, placed considerable emphasis on public and industry education on superannuation. The explanation of how sometimes complex rules apply to different situations ensures greater levels of compliance. At a more general level, a broader awareness of the regime for prudentially supervising

superannuation funds should instil greater public confidence in the concept of saving during one's working lifetime for income in retirement.

The Commission's involvement in community education includes:

• presentations by officers at industry seminars;

• responding to written and oral enquiries by members of the public; and

• the publication o f 'technical' circulars, brochures and booklets.

Some public education highlights during 1993-94 included:

• a half-day presentation in each State capital city on the implications of the SIS Act for the superannuation industry during the period from June to September 1993 (including a keynote address delivered by the then Parliamentary Secretary to the Treasurer, the Hon. Gary Johns, MP);

• a half-day presentation in each State capital city on the implications of the SIS Regulations for the superannuation industry during the period from March to May 1994 (including a keynote address delivered by the Parliamentary Secretary to the Treasurer, the Hon. Paul Elliott, MP); and

• publication of a booklet on How to Become a Regulated Superannuation Fund.

The presentations on the SIS legislation attracted large audiences, gained fairly extensive media exposure and provoked numerous questions which were answered by Commission officers.

The Commission's public education campaign will be upgraded following the Government's announcement in the May 1994 Budget Statement of $3 million funding for a three year campaign to improve knowledge of the benefits of the SIS regime. The campaign will focus on informing members of their rights, indicating the measures funds must take to prudently manage superannuation savings, and

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publicising the role and functions of the Superannuation Complaints Tribunal. In managing the moneys, consultations will be held with an Education Focus Group, formed in late 1993, comprising representatives from the Association of Superannuation Funds of Australia, Life Insurance Federation of Australia, Australian Council of Trade Unions, Australian Federation of Consumer

Organisations, Australian Taxation Office, Office of the Status of Women, Office of Government Information and Advertising, Department of Industrial Relations, Federal Bureau of Consumer Affairs, Department of Social Security, and chaired by the Parliamentary Secretary to the Treasurer, the Hon. Paul Elliott, MP.

The Commission handled 129 069 telephone calls relating to superannuation during the 1993-94 income year. The Commission received 77 246 written enquiries.

Superannuation Complaints Tribunal

A major innovation under the SIS regime is the establishment of an independent, external, statutory Superannuation Complaints Tribunal. The aim of the Tribunal is to provide a mechanism for the conciliation and review of complaints which is fair, economical, informal and quick. The Tribunal is based in Melbourne and is supported by a full-time secretariat.

During 1993-94, the Commission appointed staff to thp secretariat and assisted in preparations for the commencement of operations, which occurred on 1 July 1994.

Mr Neil Wilkinson, a former member o f the Administrative Appeals Tribunal of Victoria, was appointed as the permanent Tribunal Chair on 1 September 1994. He replaced Ms Jill Cardiff who had been acting in the position. Seven part-time members have also been appointed. They are Mr Joe Berinson, Ms Marita Wall, Mr

Robert Drake, Mr Bob Putnam, Ms Gillian Moon, Ms Jill Cardiff and Mr Robert Davies.

Lost members

The SIS Act contains provisions which address the problem of Tost members’, that is, fund members whose superannuation accounts are not closed but whose whereabouts are unknown to the trustees or fund administrators. However, at the time of writing, the arrangements for dealing with lost members were under review.

The SIS legislation provides for the establishment of Eligible Rollover Funds (ERFs) to receive and manage Tost member’ moneys subject to protection of their balances. In addition, consideration is being given to allowing funds to retain Tost members’ subject to certain conditions, including protection of their balances from erosion by fees and charges. The Commission granted approval to seven ERFs in

1993-94.

Where the Tost member’ has reached eligibility age for the age pension, the amount must be transferred to Consolidated Revenue. As part of the arrangements to help

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The Superannuation Complaints Tribunal

• The Superannuation Complaints Tribunal has been established under the Superannuation (Resolution o f Complaints) Act 1993 as an independent statutory body to help resolve complaints members may have in relation to superannuation funds and approved deposit funds (ADFs).

• Under the Superannuation Industry (Supervision) Act 1993, superannuation funds with more than four members and ADFs with at least two beneficiaries are required to set up internal arrangements for handling member complaints.

- If the complaint is not resolved to the member’s satisfaction within 90 days, then he or she may submit it to the Tribunal.

• The Tribunal will generally cover complaints over a decision (or lack of a decision) by the trustee in relation to a particular individual.

- The formal terms of the complaint would be that the decision of the trustee was either in excess of, or an improper exercise of, the trustee’s powers, or unfair or unreasonable.

- Certain kinds of complaints are excluded from the Tribunal’s jurisdiction but, at the time of writing, these are under review.

• Complaints should be lodged with the Tribunal on a special ‘Registration of Complaint’ form, which can be obtained from the fund, the Commission or the Tribunal.

- The Tribunal or regional offices of the Commission will assist persons who need help to put their complaint in writing. The Tribunal will also provide an interpreter service for complainants if necessary.

• The Tribunal will initially attempt to resolve complaints by conciliation with the parties involved (by letter or telephone). If the complaint is not resolved by conciliation, the Tribunal will review the issue and may change the fund’s decision. However, if the Tribunal is satisfied that the fund’s decision was fair and reasonable, it must affirm that

decision.

• There is no application fee for lodging a complaint with the Tribunal, and no costs are charged to the member or the fund.

Further information may be obtained by telephoning the Superannuation Complaints Tribunal on 13 14 34 or the State Offices of the Commission on 13 10 60 (both for the cost of a local call anywhere in Australia).

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‘lost members’, a central register will be maintained to enable persons to trace lost amounts. Preparation of the development of this system commenced in late 1993.

INDUSTRY AND MARKET DEVELOPMENTS

Industry Structure

Number and types o f superannuation entities

There is considerable diversity in the types of superannuation entities operating in the industry. These include:

• funds established under State and federal legislation for public sector employees;

• single and multi-employer funds established in the corporate sector;

• multi-employer 'industry' funds established by the trade union movement in the late 1980s after the former Commonwealth Conciliation and Arbitration Commission decided, in 1986, to grant a 3 per cent wage increase to employees covered by awards, which was to be paid in the form of a contribution to a superannuation fund;

• 'master trust' funds, generally marketed and administered by life offices, banks and professional firms to employers and individuals, consisting of a number of sub-plans operating under a single trust deed;

• small 'family' funds, usually set up by the proprietors of small business and consisting of non-arm's length members;

• 'rollover funds', which are retail unit trusts that can hold and manage in a concessionally taxed enviromnent superannuation payments made to a person after leaving employment, but before age 65; and

• pooled superannuation trusts, which are wholesale unit trusts that accept investments from superannuation funds and other concessionally taxed bodies.

Superannuation funds totalled 78 456 as at June 1993 compared with 2 275 ADFs and 164 PSTs.

Assets

Growth in superannuation assets continued their long-term upward trend, although the downturn in bond and equity markets in the first half of calendar year 1994, which affected fund earnings, resulted in a slight decrease in fund assets from the December quarter 1993 to the June quarter 1994. Total superannuation assets as at 30 June 1994 were $183 billion. The rapid growth in superannuation assets over the last five years, is illustrated in Chart 4.1.

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Assets of Superannuation Funds

Jun-89 Jun-90 Jun-91 Jun-92 Jun-93 Jun-94

E 3 Superannuation funds H Approved deposit funds

Chart 4.1

Industry concentration

Over 50 per cent o f superannuation funds are very small in size, having less than $100 000 in assets. Less than 1 per cent of superannuation funds have assets over $1 million. The largest 2 000 funds cover approximately 90 per cent of the industry by assets and by members. Charts 4.2 and 4.3 graphically illustrate the disparity

between the largest and smallest funds in terms of total asset level and number of members.

Life insurance companies are significant players in the superannuation industry, particularly through the sale of personal superannuation policies to self-employed persons and those who want to supplement their employer-supported superannuation savings, and through the extensive funds management and administration services

they provide to funds in the corporate and industry sectors. The superannuation business of life insurance companies amounted to around $80 billion worth of assets, or 43 per cent of total superannuation assets in June 1994.

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Comparison of the number of superannuation funds and their asset levels

60,000

50.000

« 40,000 C £ 30,000

I 20,000

10.000

0 x—

LHS

0 to 250k

250k to lm

lm to 10m

10m to 100m

. 120,000

; 1 0 0 ,0 0 0

. 80,000 a r

- 60,000 1

1 40,000 3^

20,000

0

more than 100m

$ Asset range of individual fund at June 1993

Chart 4.2

Membership level and Number of Superannuation Funds

60,000 -

50,000

40,000

30,000

z 20,000

10,000

1 to 2 3 to 5 6 to 10 11 to 50 51 to 200 to 501 to 1,001 to 10,000

199 500 1,000 10,000 +

10,000

8,000

6,000

4.000

2.000

0

Member range of individual fund at June 1993

Chart 4.3

Investment o f fund assets

Superannuation funds are major investors in the Australian economy with 83 per cent of their assets invested in Australian assets such as equities, property and bonds. Chart 4.4 shows the composition of superannuation fund assets by asset class.

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Asset Allocation of Superannuation Funds at March 1994

Chart 4.4

The decline in property values in the early 1990s has seen the proportion of superannuation fund assets invested in property fall to 7 per cent of total assets.

Growth in superannuation coverage

Growth in superannuation coverage

I I

II

Ό

100% 90% 80% 70% 3

60% |

50% I

40% ^

30% <

20% |

10% 0%

(TO

Chart 4.5

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Award superannuation and the SG continue to increase the coverage of superannuation in the workforce, and this is expected to rise to include virtually all employees in the next few years. Coverage of employees rose from 42 per cent to 87 per cent in the five years ending August 1993 as shown in Chart 4.5. There has been significant growth in the coverage of employee groups that have had limited access to superannuation: by August 1993, 61 per cent of part time employees and 78.2 per cent of female employees had superannuation.

OUTLOOK

The superannuation industry continues to grow.

The introduction of allocated pensions, master trusts and pooled superannuation trusts in recent years has increased competition and product innovation within the industry. In addition, major financial institutions promote superannuation savings vehicles to assist workers receiving irregular superannuation contributions.

Competitive pressures, together with the Commission's rules requiring greater disclosure to fund members, are increasing downward pressure on fees and charges.

The transition to the new prudential framework in the coming year will provide major challenges for the Commission, including:

• working with other agencies to implement the measures contained in the Treasurer’s 28 June 1994 statement to address the ‘small amounts’ problem;

• putting in place systems and resources to administer the new SIS regime;

• increasing the emphasis in the Commission's audit activities on prudential supervision and the security of fund members’ savings; and •

• educating trustees, members and the general public about the superannuation supervisory regime and the Superannuation Complaints Tribunal.

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CHAPTER 5 - ACTUARIAL SERVICES

OBJECTIVES

The Commission's objectives with regard to actuarial services are to provide actuarial and related policy advice to Government departments and authorities and to the Commission.

OPERATIONAL APPROACH

The Commission's actuarial activities are carried out by the Actuarial Branch, one of the three Branches making up the Policy, Legal and Actuarial Group.

The Actuarial Branch provides a high quality and competitive service to meet the needs of those Commonwealth departments and agencies that require actuarial advice.

Specifically, the functions of the Branch are to:

• provide actuarial advice and related policy advice (including assistance with financial modelling);

• audit superannuation fund applications for pre 1 July 1988 funding credits (PJFCs) - that is, tax deductible amounts granted to eligible superannuation funds to prevent the retrospective application of the 15 per cent tax on the assessable income of funds (including deductible contributions) which was introduced on 1

July 1988; and

• conduct actuarial research and publish papers for the benefit of the wider community.

These functions are undertaken in order to support the responsibilities of the Treasurer, the Minister for Finance, the Minister for Defence Science and Personnel, the Minister for Health, Housing and Community Services and the Commission.

The Branch receives a budget allocation for its work within the Commission but maintains a fee recovery system for services provided to external clients. In addition, a fee payment accompanies each application for a PJFC to provide for the auditing costs.

The charge-for-service approach enables:

• maintenance o f staffing levels consistent with demand for Branch advice;

• accurate cost attribution of actuarial advice by user clients; and

• maintenance o f computer hardware and software in line with developments in the actuarial profession.

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At June 1994 the Branch had nine staff including three actuaries. Consulting actuaries were engaged at various times during 1993-94, but to a lesser extent than in previous years. As the Commission expects to continue to be able to meet its working requirements with internal resources, the need to engage private sector consultants will probably continue to decline in 1994-95.

OVERVIEW

The services of the Actuarial Branch were in high demand during 1993-94. Notable achievements included the completion of actuarial reviews on the long term costs of the Public Sector Superannuation Scheme (PSS), the Commonwealth Superannuation

Scheme (CSS), the Military Superannuation and Benefits Scheme (MSBS) and the Defence Force Retirement and Death Benefits Scheme (DFRDB). The Branch also assisted in the implementation of the new prudential arrangements for superannuation, through the provision of advice on, inter alia, actuarial and solvency aspects of the regime.

OUTCOMES

The Commission's outcomes with respect to the actuarial sub-program element may be grouped under two headings: work within the Commission and advice provided to external clients.

Work within the Commission

The Actuarial Branch assisted in a range of policy and operational matters handled by other Groups within the Commission during 1993-94. These included:

• contributing to the SIS education program for Commission staff in central and regional offices and the general public;

• advising the Superannuation Group on how to audit actuarial reviews undertaken by defined benefit superannuation plans;

• advising the General Insurance Group on the scope for using actuaries to estimate outstanding claims reserves; and •

• advising Groups on quantitative analysis and financial modelling techniques relating to various policy issues.

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Advice provided to external clients

Department o f Finance

The outstanding achievement of the Actuarial Branch during 1993-94 was the preparation of a report on the long term costs of the PSS and the CSS. The report projects Commonwealth superannuation outlays for the next 40 years using data to 30 June 1993, projects the trend in unfunded superannuation liabilities for the same period

and analyses effects on these projections of recent changes in public sector superannuation arrangements, namely the introduction of the PSS and the establishment of a number of Government Business Enterprise (GBE) schemes. The report was tabled in Parliament on 30 June 1994 along with a paper by the Australian Government Actuary, Mr Donald Duval, entitled The Financing and Costing o f

Government Superannuation Schemes.

Under section 159 of the Superannuation Act 1976 and section 19 of the Superannuation Act 1990, Commonwealth agencies are required to compensate or reimburse the Commonwealth for the accruing superannuation costs of their employees. To this end, the Branch conducts regular actuarial reviews of the

payments made by agencies, on a rolling three year basis, and recommends the level at which payments can be made in the future in order to meet the accruing costs. The agencies are broadly divided in two categories: those which have in excess of three hundred employees (Category A agencies), and those which have fewer than three

hundred employees (Category B agencies). The review of payments made by Category A agencies continued during 1993-94 and is expected to be completed early in 1994-95.

The Branch conducted a review of public service invalidity retirement experience since 1 July 1990. The review was conducted against the background of new assessment procedures for invalidity retirement of public servants, introduced by the Commonwealth on 1 July 1990, which aim to reduce rates of invalidity retirement of

public servants towards the total and permanent disability (TPD) rates which occur in the private sector. The results of the actuarial review demonstrated that invalidity retirement rates were roughly the same as private sector TPD rates and were well within the guidelines set down for improvement in the rates.

Other tasks undertaken for the Department of Finance included:

• preparation of Superannuation Guarantee benefit certificates for the PSS and CSS (that is, actuarial statements that the scheme in question has benefits which meet the SG required minimum); •

• actuarial calculation of schedules of Deferred Transfer Value payments to a number of GBEs. These payments are made by the Commonwealth in respect of former CSS members who transferred to the GBEs. The timing of the payments is intended to approximately match the exit of transferred members from the

GBEs; and

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• actuarial examination of various options under the CSS and PSS, for example, the option to take a lower initial pension together with a higher reversionary pension.

Department o f Defence

A report on the long term costs of the MSBS and the DFRDB was completed during the year using data to 30 June 1993. The report projects Commonwealth superannuation outlays for the next 40 years, and also projects the trend in unfunded superannuation liabilities for the same period. The report was tabled in Parliament on

30 June 1994.

Commonwealth Superannuation Administration

The major task was calculation of the vested benefits of the CSS, PSS and the MSBS. These amounts are required to be published in the accounts for Commonwealth Superannuation Administration under Australian Accounting Standard No 25.

The Branch also provided advice in respect of a compensation claim against the Commonwealth.

Department o f Education, Employment, and Training

The Higher Education Contributions Scheme (HECS) was introduced by the Government in 1989. Under HECS, payments are made by former tertiary students to repay the Government part of the costs of their higher education. The Branch provided advice on the HECS doubtful debt provision - the amount owed to the Government

that is unlikely to be paid under the existing rules for repayment.

Other activities

Other work included:

• a comparison of the effective costs o f State and Commonwealth judicial pension arrangements;

• a report which set out the effective cost of benefits provided under the Judges' Pension Act 1968 and also commented on the appropriateness of the benefit design;

• advice on loss of superannuation entitlements likely to be incurred as a result of the sale of Repatriation General Hospital Hollywood;

• actuarial advice to the Department o f Social Security on Age Pension means test cases; •

• initial processing and system development in respect of superannuation fund applications for PJFCs;

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• actuarial review of the Australian National University Commonwealth Superannuation Account, and of the 1966 Supplementary Superannuation Fund; and

• contribution to the production of a number of Guidance Notes by the Institute of Actuaries of Australia.

OUTLOOK

Major tasks during 1994-95 will include:

• review of superannuation payments to the Commonwealth by Category B agencies (that is, those with fewer than three hundred employees);

• actuarial calculation of the CSS PJFC and the proportional share of that amount for transfer to the PSS and to each of the GBEs to which CSS members transferred;

• audit of superannuation fund applications for PJFCs;

• preparation of Superannuation Guarantee benefit certificates for the CSS, PSS, MSBS, and DFRDB;

• work on preparing the Australian Life Tables based on mortality experienced in the years 1990-92;

• actuarial valuation of MSBS retention benefit;

• work with the Superannuation and General Insurance Groups on the actuarial aspects of those industries; and •

• actuarial support to the Life Insurance Actuarial Standards Board.

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CHAPTER 6 - CORPORATE SERVICES

The diverse range of activities undertaken by the Commission demands a wide range of human skills as well as technological and office support services. The Corporate Services Group provides services encompassing financial planning, financial control and accounting, personnel operations and recruitment, human resource development

and management, strategic planning and evaluation, accommodation planning and property management, information technology systems, and information management systems.

OBJECTIVES

The Commission's objectives in relation to corporate services are to:

• provide high quality and effective leadership and strategic direction in corporate management to better enable the Commission to meet its responsibilities;

• provide the financial and human resource management information necessary to enable managers to make effective and timely decisions;

• meet the accommodation and office services needs o f the Commission in an efficient and cost effective manner;

• ensure the Commission complies with all statutory and administrative requirements in accordance with Government policy;

• assist in obtaining high quality staff; and

• provide opportunities to staff for their personal and professional development.

OPERATIONAL APPROACH

The Commission's corporate management activities are provided by the Corporate Services Group which is arranged into five sections as follows:

• the Computer Services and Communications Section, which is responsible for the development and maintenance of network support and office systems, computer applications and database administration;

• the Corporate Planning and Strategies Section, which is responsible for corporate planning, management review and evaluation, and accommodation planning; •

• the Financial Management Section, which is responsible for financial administration and support and external financial reporting;

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• the Human Resource Strategies Section, which implements Commission and service-wide policies in the areas of occupational health and safety, equal employment opportunity, industrial relations, training and development of staff, performance appraisal of the Senior Executive Service and senior officers, and enterprise bargaining; and

• the Resource Management Section, which has responsibility for meeting personnel administration, staff recruitment, and property and office services requirements (including the purchase and maintenance of office equipment, property and accommodation management, building security, parliamentary liaison and information services).

The Group had 94 staff members at the end of June 1994, 92 of whom were located in Canberra (one officer is located in each of the Sydney and Melbourne regional offices providing computer support services).

OVERVIEW

In 1993-94 the Corporate Services Group continued to co-ordinate, develop and implement corporate management policies and practices, and human resource strategies and programs, appropriate to a rapidly expanding organisation. The Commission capitalised on the initiatives commenced in 1992-93 to provide a comprehensive range of human resource management programs for its staff and continued to provide the organisation with support services in the information technology, financial management and corporate planning areas.

OUTCOMES

Group Operational Plan

The Corporate Services Group’s first Operational Plan was finalised and implemented during the year. Against the background of the Commission’s corporate mission, the Plan sets out Corporate Services Group’s vision, objectives and functions, and sets out for each Section the strategies for achieving Group objectives and how performance will be monitored and evaluated. Staff of the Group were consulted in development of the Plan, and were provided with the opportunity to contribute ideas and suggestions.

Staffing

The Commission continued to expand during 1993-94 in response to enhanced supervisory responsibilities under Government policy and legislation. At the end of June 1994, the Commission employed 502 staff of which 454 were permanent and 48 temporary staff (representing a net increase of 122 staff over 1992-93). This increase is largely due to the employment of staff needed:

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• to service the Superannuation Complaints Tribunal in Melbourne;

• in the Superannuation Group with the enhancement of its superannuation audit capabilities;

• in the Life Insurance Group with its expanded role in the area o f consumer issues; and

• to bring the regional offices up to proposed staffing levels.

The Commission's staff profile is detailed at Appendix 2.

Human resource management

The Commission's Human Resources Executive Committee continues to provide the focus for human resource management throughout the organisation. The Committee is a management decision-making body which consists o f the Commissioner, the Heads of all operational groups and a number of staff-elected members, including

two from regional offices. Key issues on the Committee's work program during the year included:

• staff development (including management development);

• equal employment opportunity;

• staff attitude survey;

• recruitment and development of graduate administrative assistants;

• occupational health and safety;

• workplace bargaining; and

• performance appraisal.

The Commission's Employee Assistance Program (which is a professional counselling service available to help all staff with any work or personal problems) was extended to all Offices. In addition, Occupational Health and Safety workplace representatives were nominated and trained as necessary (with the cooperation of the

Public Sector Union) and Equal Employment Opportunity contact officers were established in all regional offices. The Commission's Staff Development Planning Program was extended to all regional offices and key training programs were delivered according to Commission-wide priorities.

The Commission engaged the consulting firm Towers Perrin to undertake a Staff Attitude Survey in the second half of 1993. All staff were given the opportunity to respond and ensuing comments provided valuable information about the Commission's performance, as perceived by staff. Improvements were noted against

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eight out of ten key indicators which measured the capacity of staff to take effective action to improve their working environment and optimise their work performance.

In 1994 the Commission appointed ten Graduate Administrative Assistants (GAAs) from across Australia. These graduates participate in a year long program which includes work rotations in three different areas of the Commission and a range of training and development activities. This year, the Commission made a number of the GAA training activities open to other members of staff who had relevant development needs.

The Commission made good progress in implementing its plans on equal employment opportunity and industrial democracy and in fulfilling its occupational health and safety responsibilities. Further details on these issues are set out in Appendix 3

Senior Executive and Senior Officer performance appraisal programs proceeded as scheduled. Further details are set out at Appendix 3.

Training and development

During the year the Commission put into place a coordinated approach to training and development, with direction provided by a Commission-wide Human Resource Development Plan, Group and State Training Coordinators and a Staff Development Committee.

All new staff in 1993-94 were encouraged to participate in the Commission's orientation program. The program was conducted each month and consisted of a seminar and distribution of a comprehensive Commission Resources Kit.

A number of comprehensive training programs were conducted. Groups began to place more emphasis on 'technical' training, for example, on the new superannuation legislation and administrative law. A large training effort also occurred in relation to the Commission's computer-based systems. The Commission also provided training programs in a number of areas identified as priorities through the Staff Development Planning Program, including writing skills, time management, presentation skills and staff selection skills.

In 1993-94, training and development expenditure continued at approximately 8 per cent of total salaries, which illustrates the Commission's continued commitment to invest in its staff. Training statistics are set out at Appendix 4.

Resources management

During the year the Commission's staff selection procedures and guidelines were reviewed with the object of streamlining them, and producing a new comprehensive

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HUMAN RESOURCE DEVELOPMENT PLAN

During the year the Commission put into place a coordinated approach to training and development, with direction provided by a Commission-wide Human Resource Development Plan. The Plan was developed by Staff Development Committee with input from staff through their Staff Development Plans.

The Plan’s objective is to develop and train staff so that the best skills, knowledge and attitudes are available to the Commission. This will best enable the Commission to effectively meet its obligations to the community as a whole. The objectives of training and development in the Commission are therefore not only

about performance, but also about personal and career development. Within the constraints of funds available, the Commission aims to:

• identify development needs from a Commission-wide perspective and provide training corporately to address the Commission’s highest priorities;

• assist all staff to identify their development needs and get access to appropriate and cost effective training;

• encourage staff to plan their own career and personal development; and

• support development which enhances the capacity of staff to contribute to the objectives of the Commission.

The Plan provides a focus for all training and development in the Commission for the next two to three years and will be revised and extended annually. It draws together a number of training activities that are currently operating and provides a framework for future administration and delivery of training and development.

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I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 3 - 9 4

and up-to-date Staff Selection Manual which reflected Australian Public Service reform issues and Commission priorities. The review was undertaken against a background of existing procedures and practices that were taken over from the

Commonwealth Department of the Treasury on the Commission's establishment in late 1987 and which had been used largely unchanged since. The review also had regard to some concerns raised by Promotions Appeal Committees and the Merit Protection Review Agency in the context of appeal hearings.

Commission staff and the Public Sector Union were consulted in the development of the new revised Staff Selection Manual, and seminars to release/promote it to staff were arranged in the Canberra and regional offices for July 1994.

As part of the process of implementing the Government's decision to expand the audit programme for superannuation funds, the Commission opened new offices in Adelaide on 13 October 1993, Perth on 15 October 1993 and Brisbane on 1 November 1993. The Melbourne office accommodation requirements were

reviewed and alternative office arrangements aimed at meeting the long term staffing and operational needs o f the Commission were negotiated. The Melbourne office was relocated in December 1993. The space requirements of the Sydney office were also reviewed and negotiations finalised to lease more suitable accommodation.

Staff from the Corporate Services Group

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I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 3 - 9 4

The fit-out of the new Sydney office accommodation was completed in August 1994. Arrangements to accommodate the newly established Superannuation Complaints Tribunal were also finalised and the Tribunal commenced operations in Melbourne on 1 July 1994.

Computer services and communication

During 1993-94, a number of significant changes occurred in the Computer Services and Communications Section of the Commission. First, an external review of the technology in use and the operating environment was undertaken. The review identified that the existing technology base could no longer adequately support the

requirements of the Commission and that the Commission should move to more mainstream state-of-the-art technologies. These recommendations formed the basis of the Commission’s Information Technology Strategic Plan, which is currently being implemented with the assistance of external resources.

Second, work commenced on redeveloping the computer systems in the Superannuation Group and General Insurance Group to accommodate increased processing loads and data storage requirements as well as improved user operation and convenience.

Finally, a number of major new software and hardware technology acquisitions were made to meet the accommodation and office service needs of the Commission. These include the purchase of:

• the ORACLE Database as the standard database for future systems;

• the GUPTA Windows/Client Server toolset for all future systems development; and

• the CASE tool, System Architect.

The Commission purchased information technology equipment in accordance with the IT Buyer's Handbook published by the Department of Administrative Services, and the provisions of the Audit Act 1901. The Information Technology Steering Committee considers information technology purchases on behalf of the

Commissioner.

In addition, a fully managed and routed enterprise wide network was installed, an enterprise wide Network Operating system was piloted and standards were established for all the computing equipment.

The Commission relies heavily on efficient and effective information technology to store and analyse financial information supplied by the supervised industries and it is expected that the Commission will reap benefits from the process of upgrading that technology during 1993-94 for many years to come.

83

I N S I) R A N T F. A N D S I I P F . R A N N H A T I Q N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 3 - 9 4

Financial management

During 1993-94, the Financial Management Section continued to develop the FINEST financial processing and information software package by extending access to the Commission's regional offices and introducing new modules to streamline budget administration. The Section also undertook a major review of the Commissioner's Directions which were updated in order to incorporate changes to improve the efficiency of financial operations in the Commission. Financial delegations were also updated as part o f a cyclical review process.

The most significant development during 1993-94 was the Commission's participation in a pilot scheme to introduce accrual reporting into Commonwealth Government departments. The Commission and the Australian National Audit

Office undertook a project to put in place a system that would allow the preparation of interim financial statements to the end of December 1993. The project's principal focus was on the development of policy issues in regard to reporting items, refining o f the Commission's financial management information system to provide reports on an accrual basis, designing appropriate schedules for the collection of data, and importantly, training of staff in accrual concepts.

The successful completion of the project was followed by the use of the accrual method to prepare the financial statements forming part of this annual report. The Financial Management Section is embracing full accrual accounting and reporting in order to provide management with a complete range of accounting systems to

support day-to-day decision making progressively from in the future.

Fraud control and security arrangements

The Attorney-General's Department was commissioned to carry out a Protective Security Risk Review of Commission operations. A physical security system to ensure a safer working environment for Canberra staff of the Commission was implemented as a result of the review. Training programs and information sessions to heighten the security awareness of staff have also been introduced on an ongoing basis.

OUTLOOK

The Corporate Services Group will continue to build on the achievements and gains of 1993-94.

The Commission is continuing to implement the Information Technology Strategic Plan, which involves, among other things, the redevelopment of computer systems to meet new responsibilities of the Superannuation and General Insurance Groups.

The emphasis in Financial Management will be to continue to refine financial information on FINEST, in particular, to meet the financial reporting needs of the

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regional offices. Similarly, with respect to human resources development, the Commission will build on 1993-94 initiatives, particularly the implementation of the Human Resources Development Plan.

There will be a strong emphasis in Canberra on maintaining close links with the regional offices to ensure the development of a strong sense o f corporate mission, culture and identity.

It is expected that agreement will be reached with relevant departments and agencies on new office accomodation for the Canberra office of the Commission during the latter part of 1994. A new building in which the Commission will be a major tenant is the likely outcome of relocation options being actively pursued, with occupancy

of the new accommodation expected to be taken up in late 1996 or early 1997.

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I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 1 - 9 4

Appendix 1

FINANCIAL STATEMENTS

• Auditors Report 88

• Certificate of financial statements 90

• Operating statement 91

• Statement of assets and liabilities 92

• Program statement 93

• Statement of cash flows 94

• Statement of transactions by fund 95

• Notes to the financial statement 96

87

A

AUSTRALIAN NATIONAL AUDIT OFFK

Centenary Hou 19 National ( Barton ACT 26

our ref;

INSURANCE AND SUPERANNUATION COMMISSION INDEPENDENT AUDIT REPORT

Scope

I have audited the financial statem ent o f the Insurance and Superannuation C o m m issio n fo r

the y e a r ended 3 0 June 1994.

T h e statem ent com prises:

. Statem ent by the Insurance and S uperannuation C o m m is sio n e r and P rin cipal

A cco un ting O ffic e r

. O pe ra tin g Statem ent

. S tatem ent o f Assets and L ia b ilitie s

. P ro g ram S tatem ent ·

. Statem ent o f Cash F lo w s

. Statem ent o f T ransactions by F und, and

. N o tes to and fo rm in g part o f the F in an cial Statem ent.

T h e Insurance and Superannuation C o m m is sio n e r and P rincipal A c co u n tin g O ffic e r are

responsible fo r the preparation and presentation o f the financial statem ent and the info rm atio n

contained therein. I have conducted an independent au d it o f the financial statem ent in o rd er

to express an o pin io n on it.

T h e au d it has been conducted in accordance w ith the A u stralian N a tio n a l A u d it O ffic e

A u d itin g Standards, w hich incorporate the A u stralia n A u d itin g Standards, to p rovide

reasonable assurance as to w hether the financial statem ent is free o f m aterial m isstatem ent.

A u d it procedures included e x am in atio n , on a test basis, o f evidence supporting the am ounts

and o th e r disclosures in the fin a n c ia l statem ent, and the evaluation o f accounting p olicies and

sig n ific a n t accounting estim ates. These procedures have been undertaken to fo rm an o pin io n

w h e th e r, in all m aterial respects, the financial statem ent is presented fa irly in accordance

w ith A u stralia n accounting concepts and standards and statutory requirem ents so as to present

a v ie w o f the C om m ission w hich is consistent w ith m y understanding o f its fin a n c ia l position,

its operations and its cash flo w s .

T h e au d it o pin io n expressed in this report has been fo rm ed on the above basis.

GPO Box 707 Canberra Australian Capital Territory 2601 Telephone (06) 203 7300 Facsimile (06) 203 7777

Audit Opinion

In accordance w ith sub-section 5 1 (1 ) o f the A u d it A c t, I n o w repo rt that in m y o p in io n , the

fin a n c ia l statem ent:

. is in ag re em en t w ith the accounts and records kept in accordance w ith section 4 0 o f

the A c t;

. is in accordance w ith the F in an cial Statem ents G u id elin es fo r D epa rtm e n ta l

S ecretaries (A c c ru a l R e p o rtin g ), and

. presents fa ir ly in accordance w ith Statem ents o f A cco un ting C oncepts and ap p licable

A c c o u n tin g Standards the in fo rm a tio n required b y the G u id elin es in c lu d in g the

C o m m is s io n ’ s d ep artm en tal and ad m in istered fin a n c ia l transactions and its cash flo w s

fo r the y e a r ended 3 0 June 1 9 94 and d epartm ental and ad m inistered assets and

lia b ilitie s as at that date.

C . M . M cP h erso n

E xecu tive D ire c to r

C a n b e rra

^ > S ep tem be r 1 9 94

INSURANCE AND SUPERANNUATION COMMISSION STATEMENT BY THE COMMISSIONER AND PRINCIPAL ACCOUNTING OFFICER

CERTIFICATE

We certify that the attached financial statements are in agreement with the Commission's accounts and records and, in our opinion, the financial statements presents fairly the information required by the Financial Statement Guidelines for Departmental Secretaries (Accrual Reporting), including the Commission's departmental and administered financial transactions for the year ended 30 June 1994 and departmental and administered assets and liabilities as at 30 June 1994.

Insurance and Superannuation Commissioner

Signed Principal Accounting Officer (Assistant Commissioner Corporate Services)

Date Date

INSURANCE AND SUPERANNUATION COMMISSION OPERATING STATEMENT for the year ended 30 June 1994

Note 1993-94

$'000

COST OF SERVICES Operating expenses 33

Employee expenses 20,319

Other administrative expenses 16,446

Total operating expenses 36,765

Operating revenues from independent sources 15

Section 35 receipts 1,041

Total operating revenues from independent sources 1,041

NET COST OF SERVICES 35,724

REVENUES FROM GOVERNMENT Parliamentary appropriations used for: 15 Ordinary annual services 34,539

Other services 829

Liability assumed by government 2,368

Resources received free of charge 13 28

TOTAL REVENUES FROM GOVERNMENT 37,764

Operating result 2,040

Accumulated operating results at 1 July 1993 (836)

Accumulated operating results at 30 June 1994 1.204

ADMINISTERED ITEMS

Administered Revenues Levies 32 37,294

Life Unclaimed Monies 25 2,560

Compensation & Legal- Appropriation 15 27

Other 148

Total administered Revenues ~ 40,029

Administered Expenses V' ·â–  „

Life Unclaimed Monies 25 860

Provision for Doubtful Debts 4 189

Compensation & Legal 15 27

Other 3

Total administered Expenses 1,079

The above Operating Statement should be read in conjunction with the accompanying notes.

91

INSURANCE AND SUPERANNUATION COMMISSION STATEMENT OF ASSETS AND LIABILITIES as at 30 June 1994

Note 1993-94 1992-93

$'000 $'000

CURRENT ASSETS

Cash 3 16 17

Receivables 4 151 235

Prepayments 5 1,329 584

Other 6

Total current assets 1,502 836

NON-CURRENT ASSETS

Property, plant & equipment 6 4,340 2,345

Intangibles 7 403 227

Total non-current assets 4,743 2,572

TOTAL ASSETS 6,245 3,408

CURRENT LIABILITIES

Creditors 8 360 703

Provisions 9 1,006 -

Total current liabilities ■ 1,366 703

NON-CURRENT LIABILITIES

Provisions 9 3,675 3,541

TOTAL NON-CURRENT LIABILITIES 3,675 3,541

Total liabilities 5,041 4,244

NET ASSETS OR LIABILITIES 1,204 (836)

ADMINISTERED ITEMS

Administered Assets Levy Debtors 4 287 1,174

Cash

Ifj 1 131

Total administered assets

* * ** -

418 1,174

Administered liabilities 1 . - :

Creditors 8 317 117

Life Unclaimed Monies 25 16,498 14,797

Other 3

Total administered liabilities 16,818 14,915

The above Statement of Assets & Liabilities should be read in conjunction with the accompanying notes.

92

INSURANCE AND SUPERANNUATION COMMISSION STATEMENT OF CASH FLOWS for the year ended 30 June 1994

Note 1993-4

$'000

CASH FLOWS FROM OPERATING ACTIVITIES

Inflows (Outflows)

Inflows Appropriation Receipts 35,361

Outflows Appropriation Expenditure

35,361

(31,632)

Net Cash provided by Operating Activities 14 3,729

CASH FLOWS FROM INVESTING ACTIVITIES

Inflows Proceeds from the Sale of Assets 7

Outflows Expenditure on Non-Current Assets 34

7

(3.737)

(3.737)

Net Cash used in Investing Activities (3,730)

Net increase or decrease in cash (1)

Cash at 1 July 1993 17

Cash at 30 June 1994 3 16

CASH FLOWS FROM ADMINISTERED TRANSACTION ...... ' '

Inflows: Total Administered Revenues 29 40,029

Outflows: Total Administered Expenses 28 (1,079)

Net cash inflows/outflows from administered transactions 38,950

The above Statement of Cash Flows should be read in conjunction with the accompanying notes.

94

INSURANCE AND SUPERANNUATION COMMISSION STATEMENT OF TRANSACTIONS BY FUND for the year ended 30 June 1994

1993-94 1993-94 1992-93

Note

CONSOLIDATED REVENUE FUND

RECEIPTS

Budget Actual Actual

Section 35 of the A u d it A c t 1901 948,000 1,053,117 526,869

Miscellaneous Revenue 10,000 195,476 7,030

Other - Levies/unclaimed moneys 33,161,000 40,644,246 33,478,956

Total Receipts

EXPENDITURE

34,119,000 41,892,839 34,012,855

Expenditure from Special Appropriations 600,000 898,679 608,758

Expenditure from Annual Appropriations 15 41,322,000 35,395,145 26,009,093

Total Expenditure

LOAN FUND

41,922,000 36,293,824 26,617,851

Receipts Nil Nil Nil

Expenditure Nil Nil Nil

TRUST FUND

Head of Trust ( Private Monies): 16

Nil Nil Nil

Notional Balance as at 1 July 1993 _ - 4,762 8,662

Receipts 63,000 48,677 30,141

Expenditure 63,000 48,677 34,041

Notional Balance as at 30 June 1994

Trust Account (Commonwealth Activities): 16

' ~ 4,762 4,762

Notional Balance as at 1 July 1993 - 569,930 555,024

Receipts - 1,834 14,906

Expenditure - (20,606) -

Notional Balance as at 30 June 1994 - 592,370 569,930

The above Statement of Transaction by Fund should be read in conjunction with the accompanying notes.

95

INSURANCE AND SUPERANNUATION COMMISSION Notes to and forming part of the Financial Statements for the year ended 30 June 1994.

NOTE 1 - INSURANCE AND SUPERANNUATION COMMISSION

- MISSION STATEMENT

The Insurance and Superannuation Commission's (ISC) mission is to promote:

• public confidence in the insurance and superannuation industries by protecting the interests o f

insurance policyholders and superannuation fund members; • Government initiatives to encourage saving fo r retirement and capita! formation through insurance and superannuation; and • fa ir and open dealing between the insurance and superannuation industries and their customers.

SUB PROGRAM OBJECTIVES:

Corporate Services

To provide high quality and effective leadership and strategic direction in corporate management to better enable the Commission to meet its responsibilities.

Life Insurance

To protect policyholders and promote financial system stability and efficiency by encouraging a viable, competitive and dynamic life insurance industry with financially sound participants.

Actuarial ·

To provide actuarial and related policy advice to Government departments and authorities and to the Commission.

Superannuation

To promote the sound growth and prudent management of retirement income savings through superannuation; provide some degree of protection for fund members’ superannuation benefits; and check that tax concessions for superannuation are used for that purpose.

General Insurance

To promote the interests of insurance policyholders, in particular, through the development of a well managed, competitive and financially sound general insurance industry.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Accounting

The financial statements have been prepared in accordance with the Financial Statement Guidelines for Departmental Secretaries (Accrual Reporting) issued by the Minister for Finance (hereinafter referred to as 'the Guidelines') which require compliance with Statements of Accounting Concepts and relevant Australian Accounting Standards.

The financial statements have been prepared on an accrual basis, are in accordance with the historical cost convention and do not take account of changing money values, except where stated.

96

The continued existence of the Insurance and Superannuation Commission (ISC) in its present form, and with its present programs, is dependent on Government policy on the organisation of its administration and on continuing appropriations by the Parliament for its administration and programs.

(b) Rounding

Amounts have been rounded to the nearest $1000, except in relation to the following items:

. Statement of Transaction by Fund (or notes relating to that statement); . Act of grace payments, waivers and write-offs; . Auditor's remuneration, and . Remuneration o f executives.

(c) Comparative figures

Comparative figures for the year ended 30 June 1993 have not been included in the various statements, except for the Statement of Transaction by Fund and Statement of Assets and Liabilities. The accounts for the period ending 30 June 1994 are the initial accounts prepared by the Commission under accmal accounting and it was either not feasible or not possible to obtain information for prior periods.

(d) Assets Title

The Commission has title to all assets, and further there are no liens, encumbrances, or security interests imposed on any of those assets as disclosed in the statements.

(e) Asset capitalisation threshold

In accordance with the Commission’s policy, all non-current depreciable assets (property plant and equipment) in excess o f $2000 are capitalised in the year of acquisition and included on the Commission’s asset register. Items below this threshold, but greater than $500 may be considered as portable and

attractive, and whilst they are recorded as an asset in the assets register, are not viewed as depreciable assets. These items will not form part of non-current assets in the financial statements - unless in accordance with Australian Accounting Standard (AAS) 5 they are viewed as material.

(f) Valuation policy

Items of property, plant and equipment purchased during the reporting year have been valued at the cost of acquisition based on invoice prices or vendors’ price lists.

(g) Depreciation of non-current assets

All depreciable non-current assets are written off over their estimated useful life’s in a manner which reflects the consumption of their service potential. Depreciation/Amortisation is provided for on a straight­ line basis. Residual values are estimated at zero.

Software capitalisation policy

The Commission, where feasible, has brought to account externally generated software. Internally generated software has not been brought to account as related costs cannot be reliably measured.

(h) Inventories

The Insurance and Superannuation Commission has no inventory that is considered to be of a material nature. Consumable stores are not recognised as assets and are fully expensed in the year of operation.

97

(i) Employee entitlements

All vesting employee entitlements (including annual leave and long service leave) are recognised as liabilities.

Long service leave is calculated having regard to the probability that long service leave will, in the future, either be taken or have to be paid. Long service leave is recognised after staff have completed three years service. The determination of current and non-current long service leave is based on past history or known payments. Annual recreation leave liability is regarded as current.

(j) Superannuation payments

The liability for superannuation payments (other than the productivity contribution) is assumed by the Commonwealth. The notional value of employer contributions for the year is recorded as part of employee expenses and an equal amount is recorded as part of'liabilities assumed by government' (revenue) in the Operating Statement. The amounts have been calculated after actuarial advice as 13.81% of total salary and allowances for superannuation purposes of all Commonwealth Superannuation Scheme (CSS) and Public Sector Superannuation (PSS) members employed by ISC.

(k) Taxation

The Commission’s activities are exempt from all forms of taxation, except for Fringe Benefit Taxation.

(l) Insurance

The Commission pays an annual premium to Comcare which assumes liability in respect of payments under the Commonwealth Employees Rehabilitation and Compensation Act 1988, otherwise the Commission in accordance with Government policy carries no insurance.

(m) Foreign currency ·

Transactions denominated in a foreign currency are converted at the exchange rate at the date of transaction. Foreign currency receivables and payables are translated at the exchange rates current as at balance date.

(n) Finance leases

The Commission has not financed any purchases with a finance lease. The Commission does have operating lease payments which are treated as expenses in the accounting period in which they are incurred.

(o) Provision for doubtful debts.

A provision is raised for any doubtful debts based on a review of all outstanding amounts as at year end. Bad debts are written off during the year in which they are identified.

(p) Prepayments

Prepayments include amounts paid by the Commission in respect of goods and services that have not been received at 30 June. Where an amount has been prepaid in respect of a period which has partially lapsed at 30 June, that part of the amount which relates to the part of the period occurring after 30 June is disclosed.

(q) Resources received free o f charge

Resources received free of charge are recognised as revenue where values have been provided by the supplier.

98

(r) Trust Fund - COMCARE

This Trust Fund operates for the purpose o f receiving from Comcare amounts payable to employees under the Commonwealth Employees Rehabilitation and Compensation Act 1988. Until a determination is made by Comcare, the department makes payments in the nature of salary to the employee and upon receiving a determination and funds from Comcare, recredits that amount to salary expenditure.

(s) Allocation of Corporate overheads to Commission sub-programs (Groups)

The revenues, expenses, assets, and liabilities of the Corporate Services Group are not allocated to the other sub-programs (Groups).

NOTE 3 - CASH

1992-93 $’000

17

CASH AT BANK Departmental Petty cash advances

1993-94 $’000

16

17 16

Nil

Administered Amounts held outside the CPA Nil

Nil Nil

NOTE 4 - RECEIVABLES v ' ' ^ | l ’| \ - \ ' 1

Accounts receivable as at 30 June.

235 Departmental 151

1,174 Administered 287

The ageing of accounts receivable as at 30 June 1994 was as follows:-

1994 $’000

Departmental

Current 124

Less than 30 days 24

Later than 30 days but less than 60 days 2 Later than 60 days 27

Gross Receivables 177

less Doubtful Debts 26

Net Receivables 151

99

1993-94 $’000

Administered

Current 82

Less than 30 days 53

Later than 30 days but less than 60 days 35 Later than 60 days 2Q6

Gross Receivables 476

less Doubtful Debts 182

Net Receivables 287

NOTE 5 - PREPAYMENTS

1993-94

Prepayments were as follows:-

$’000

Australian Property Group 276

Comcare 178

Fitout 397

Maintenance 127

Computing 293

Other 58

1,329

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Categories

1993-94 $’000

Computing 4,409

Accumulated Depreciation 11.0461 3,363

Furniture & Fittings 80

Accumulated Depreciation not

70

Office Equipment 960

Accumulated Depreciation 12541

706

Fitout 284

Accumulated Depreciation 1831

201

Net Assets 4,340

100

NOTE 7 - INTANGIBLES

1993-94 $’000

Intangibles 577

Amortisation (174)

Net Intangibles 403

NOTE 8 - CREDITORS

As at 30 June the Commission had creditors totalling $360,478. There were no overdue amounts as at 30 June. Creditors were classified as follows:-

Departmental

Administered

1993-94 1992-93

$’000 $’000

Trade Creditors 186 664

ANAO 41 39

Other Creditors 133 -

360 703

Levy Refunds 239 -

Life Unclaimed Monies 78 117

317 117

NOTE 9 - PROVISION FOR EMPLOYEE ENTITLEMENT

Current:

1993-94 1992-93

$’000 $’000

Recreation Leave Long Service Leave

908 Nil

98 Nil

1,006 Nil

Non-Current: Long Service Leave 3.675 3,541

3.675 3,541

101

NOTE 10 - ITEMS OF EXPENSES AND REVENUES

The following classes o f expenses and revenues are included in the aggregate amounts shown in the Operating and Program Statements.

1993-94 $’000

Expenses

Bad Debts 44

Provision for Doubtful Debts 26

Losses from sale or disposal of non-current assets 3

Provision for depreciation on plant and equipment 1,393

Provision for amortisation of intangible assets 174

Provision for employee benefits 1,139

Provision for unfunded superannuation 2,368

Accrual for 1 day salaries and allowances (Pay 1 1994/95) 70

Revenue ^ ", ,

Carry forward 1,600

Resources provided free of charge 28

Liabilities assumed by Government 2,368

NOTE 11 - DEPRECIATION/AMORTISATION EXPENSE

Depreciation for the reporting period was charged as follows:

1993-94

' ■ 'iJ 7 ' ; '

$’000

Hardware 1,046

Furniture & Fittings 10

Office Equipment 254

Fitout 83

Intangibles 174

TOTAL 1,567

NOTE 12 - AUDITORS’ REMUNERATION

Total remuneration paid, or due and payable to the Australian National Audit Office (ANAO) for th Financial Statements 1993-94 audit is $41,5000. In addition, $7,500 has been paid to the ANAO for assistance (by arrangement) in reviewing policies and procedures in regard to the Commission’s move to accrual accounting.

102

NOTE 13 - MATERIAL RESOURCES RECEIVED FREE OF CHARGE

During the financial year, a number of Commonwealth Departments and agencies provided services to the Commission without charge. Expenditure for these services was met from those departments’ appropriations. The services received were as follows:

Department of Finance

. Management Review, Evaluation and Security Section provided Internal Audit services to the Commission during the year. Estimated cost of services - $3,726

. FIRM/Finance ledger and payroll systems, Australian and Overseas - cost of services are estimated at $24,640.

NOTE 14 - CASH RECONCILIATION - CASHFLOW STATEMENT

Reconciliation of net cash provided by operating activities to operating results.

1993-94 $’000

Operating results 2,040

Less: Resources provided free of charge (28)

Section 35 receipts for investing activities (7)

Add: Depreciation - property, plant and equipment 1,567

Employee entitlements 1,139

Loss on sale of non-current assets 3

Provision for doubtful debts 26

Change in operating assets and liabilities Increase in prepayments (745)

Decrease in trade creditors (344)

Decrease in receivables 84

Increase in other current assets (6)

Net cash used by operating activities 3,729

103

NOTE 15 - DETAIL OF EXPENDITURE FROM ANNUAL APPROPRIATIONS

O rdinary Annual Services

1993-4

Appropriation $

1993-4

Expenditure $

1992-3

Expenditure $

Appropriation Act 1

Division 674 Section 35 receipts deemed to be appropriated in accordance with sub-section 35(3) of the Audit Act 1901

39,545,000 *1,053,117

34,566,145 25,759,093

Other Annual Services

Appropriation Act 2 'l l i K i f F · :

Division 981-01 829,000 829,000 250,000

41,427,117 35,395,145 26,009,093

*N.B - The amount of Section 35 receipts reflected in the Finance Ledger System is lower than the amount reflected in the FINEST system by $6,941. This was due to a correcting journal not posted after the cut-off period.

NOTE 16 - RECEIPTS AND EXPENDITURE O F THE TRUST FUND

This Note discloses details of each Head of trust Fund and Trust Account administered by the Commission. It provides a break-down of the information relating to the Trust Fund contained in the Statement of Transactions by Fund. All are Group 1 Trust Funds under Section 60 of A u d it A c t 1901.

O ther Trust Moneys

. Purpose - for the receipt of money temporarily held in trust for other persons.

1993-94 $

1992-93 $

Receipts and expenditure -

Opening cash balance 4,762 4,762

Receipts Payments

Closing cash balance

250 (250)

4,762

Nil Nil

4,762

Investments Nil Nil

104

Services for other governm ent and non-departm ental bodies

. Purpose - payment of costs in connection with services performed on behalf of other governments and non-departmental bodies.

1993-94 1992-93

$ $

Receipts and expenditure -

Opening cash balance Nil 3,900

Receipts 48,427 30,141

Payments (48,427) (34,041)

Closing cash balance Nil Nil

Investments Nil Nil

General Insurance Deposit T rust Account

. Purpose - recording deposits made in accordance with the Insurance (Deposits) Act 1932 and Insurance Act 1973.

(a) Receipts and expenditure -

Notional Balance at 1 July 1993 69,929 55,023

Receipts 21,641 14,906

Payments Nil Nil

Notional closing balance 91,570 69,929

Investments Transactions Accounts Invested Balance at 1 July 1993 Nil Nil

Purchase of Investments Nil Nil

Realisation of Investments Nil Nil

Invested Balance at 30 June 1994 Nil Nil

Cash Balance at 30 June 1994 91,570 69,929

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Lloyd’s Deposit Trust Fund

Purpose - recording deposits made in accordance with the provisions of the Insurance Act 1973.

1993-94 1992-93

;;||#!!: jJJJ·: ■ f Ί..;· ': j ■ $ $

(a) Receipts and expenditure -

Notional Balance at 1 July 1993 500,000 500,000

Receipts 1,834 Nil

Payments (1,035) Nil

Notional closing balance 500,799 500,000

(b) Investments Transactions Accounts

Invested Balance at 1 July 1993 500,000 500,000

Purchase of Investments 425,799 Nil

Realisation of Investments 425,000 Nil

Invested Balance at 30 June 1994 500,000 500,000

Cash Balance at 30 June 1994 799 Nil

NOTE 17 - AMOUNTS WRITTEN OFF

1993-94 1992-93

$ $

Amounts written off in accordance with Section 70C(1) of the Audit Act 1901 were:-

- Losses or deficiencies in public monies Nil Nil

- Irrecoverable amounts of revenue Nil Nil

- Irrecoverable debts and overpayments 43,653 Nil

- Amounts of revenue and debts, the recovery of which has been determined to be uneconomical Nil Nil

- Value of lost, deficient, condemned, unserviceable or obsolete stores Nil Nil

NOTE 18 - WAIVER OF RIGHTS TO PAYMENT OF MONEYS

No payments were waived during 1993/94 under subsection 70C(2) of the Audit Act 1901 (1992/93: nil). However, an amount of $1,200 was remitted under the Occupational Superannuation Standards Act in respect of late penalty payment.

NOTE 19 - ACT OF GRACE PAYMENTS

The total number of payments made during 1993/94 pursuant to authorisations given under section 34A of the Audit Act 1901 was nil (1992/93: nil)

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NOTE 20 - LOSSES AND DEFICIENCIES ETC IN PUBLIC MONEY AND OTHER PROPERTY

No action was taken during the financial year 1993/94 under Part XII of the Audit Act 1901.

NOTE 21 - CONTINGENT LIABILITIES

At 30 June 1994 the Commission had a contingent liability, whose value cannot be determined reliably, relating to a claim by a former employee.

NOTE 22 - GUARANTEES AND UNDERTAKINGS BY THE COMMONWEALTH

The Commission has not provided any guarantees or undertakings in respect of any loans, interest payments, advances or overdrafts during the financial year.

NOTE 23 - COMMITMENTS

Listed below are the commitments entered into by or on behalf of the Commission and the expected timing.

Operating Lease committments

$’000

(i) not later than one year 13,807

(ii) later than one year but not later than two years 2,775

(iii) later than two years but not later than five years; and 11,032 (iv) later than five years -

Other committments

(i) not later than one year 2,908

(ii) later than one year but not later than two years 2,358

(iii) later than two years but not later than five years; and 550

(iv) later than five years -

NOTE 24 - REMUNERATION OF EXECUTIVES

The aggregate amount o f fixed remuneration received, or due and receivable, by all executives officers of the Commission for the financial year ended 30 June 1994 was $1,388,511. The number of executive officers whose total fixed remuneration fell within the following bands were as follows:

$100,000-$ 110,000 2

$120,000-$130,000 1

The aggregate amount o f performance pay paid to all executive officers of the Commission for the financial year ended 30 June 1994 was $68,127.

NOTE 25 - UNCLAIMED MONIES

The 1992-93 audited figure of $14,796,776 for Unclaimed Monies under the Life Insurance Act 1945, was increased during 1993-94 by $1,700,978 (after payment of $859,431). The liability figure reflected in the statements is $16,497,754. A current liability of $900,000 reflects likely payments in 1994/95.

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NOTE 26 - DEPARTMENTAL ASSETS

The Program Statement comprised Departmental Assets of;

1993-94 $’000

Cash on hand 16

Prepayments 1,329

Debtors 151

Pre-paid Postage 6

Property, Plant & Equipment 4,139

Fitout 201

Intangibles 403

Total Assets 6,245

NOTE 27- DEPARTMENTAL LIABILITIES

The Program Statement comprised Departmental Liabilities of;

1993-94 $’000

Creditors 360

Provisions 4,681

Total Liabilities 5,041

NOTE 28 - ADMINISTERED EXPENSES

The Program Statement comprised Administered Expenses of;

1993-94 $ ’000

Life Unclaimed Monies 860

Levy Expense 3

Provision for Doubtful Debts 189

Compensation & Legal 27

Total Expenses 1,079

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NOTE 2 9 - ADMINISTERED REVENUES

The Program Statement comprised Administered Revenues of;

1993-94 $’000

Levies 37,294

Life Unclaimed Monies 2,560

Miscellaneous Receipts 148

Compensation & Legal 27

Total Revenues 40,029

NOTE 30 - ADMINISTERED ASSETS

The Program Statement comprised Administered Assets of;

1993-94 $’000

Levy Debtors 287

Cash 131

Total Assets 418

NOTE 31 - ADMINISTERED LIABILITIES

The Program Statement comprised Administered Liabilities of;

1993-94 $’000

Life Unclaimed Monies 16,498

Creditors 317

Overdraft 3

Total Liabilities 16,818

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NOTE 32 - LEVIES

The Operating Statement comprised Levies of;

1993-94 $’000

Insurance Supervision Fee 3,623

Occupational Super Registration Fee 73

Insurance Agents & Brokers 808

Super Supervisory Levy 32,790

Total Levies 37,294

NOTE 33 - OPERATING EXPENSES

The Program Statement comprised Operating expenses of;

1993-94 $’000

Administrative expenses 8,887

Salary expenses 20,319

Unfunded Superannuation 2,367

Legal Services 88

Property Operating expenses 3,349

Plant & Equipment 162

Depreciation expense 1,393

Amortisation of Intangibles 174

Provision for Doubtful Debts 26

Total Operating Expenses 36,765

NOTE 34 - EXPENDITURE ON NON-CURRENT ASSETS

The Cash Flow Statement comprises expenditure on non-current assets as follows;

1993-94 $’000

Gross asset value as at 30 June 1994 6,309

Written down asset value as at 30 June 1993 (2,572)

Total Expenditure on non-current assets 3,737

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Appendix 2

STAFF PROFILE

At June 1994, the Commission employed a total of 502 staff of which 482 were full­ time staff and 20 part-time staff representing a full-time equivalent staffing level of 494.5.

The following charts show the staff profile (including 9 inoperative staff) at June 1994.

Staff numbers for the Commission

Classification Total Permanent Temporary

Staff

Female Male Female Male

Commissioner 1 1

SES Band 3 2 2

SES Band 2 4 4

SES Band 1 14 1 13

Senior officers

Grade A 2 2

Grade B 32 7 24 1

Grade C 65 20 44 1

Administrative Service Officers

Class 6 80 31 47 1 1

Class 5 72 34 37 1

Class 4 71 38 28 1 4

Class 3 46 20 14 9 3

Class 2 59 38 4 12 5

Class 1 13 5 1 4 3

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Classification Total

Staff

Permanent Temporary

Female Male Female Male

Information Technology Officers

Grade B 3 1 2

Grade C 9 2 7

Class 2 11 3 8

Class 1 2 2

Legal Officers

Legal 2 4 1 3

Research Officer 2 3 1 1 1

Graduate Administrative Assistants

8 3 5

General Services Officer Level 3 1 1

TOTALS 502 207 247 28 20

Staff movements within the Commission during 1993-94

Total Staff Temnorarv Staff

Number Recruited 286 Number Recruited 70

Number of cessations 164 Number of cessations 79

Net increase 122 Net decrease 9

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Staff numbers by Group

Group Total Staff Temnorarv Staff

Corporate Services and Executive 94 8

General Insurance 37 1

Life Insurance 29

Superannuation 289 30

Policy, Legal and Actuarial 48

Superannuation Complaints Tribunal 5

(Continuing Temporary Employees)* 9

Total 502 48

* 5 of whom are part time

Staff numbers by State and Territory

State Full-time Part-time Total

Australian Capital Territory 300 16 316

New South Wales 72 3 75

South Australia 9 9

Queensland 15 15

Victoria 75 1 76

Western Australia 11 11

Total 482 20 502

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Appendix 3

INTERNAL PROGRAMS

Occupational Health and Safety

The Commission continued its commitment during 1993-94 to the health, safety and welfare of its employees.

A network of trained occupational health and safety workplace representatives was maintained during 1993-94 and an Occupational Health and Safety (OH&S) Committee was established. The Committee has responsibility for providing advice to the Commission's executive and for developing policy positions on occupational health and safety matters. Terms o f reference were agreed with the Public Sector Union (PSU) and similar committees were established in Melbourne and Sydney to handle local OH&S issues.

During 1993-94, a review of the Commission's security arrangements was undertaken. As a result of the review, security arrangements in all the Commission's offices were substantially upgraded early in 1994-95.

First Aid Officers were appointed and trained for all work areas o f the Commission.

No accidents or dangerous incidents were reported as required under section 68 of the Occupational Health and Safety (Commonwealth Employment) Act 1990.

Employee Assistance Program

The Commission's Employee Assistance Program (which is a professional counselling service available to help all staff with any work or personal problems) was extended to all offices during the year. Staff and supervisors were briefed on the use of the program.

Equal Employment Opportunity

1993-94 saw the implementation of many of the activities outlined in the Commission's Equal Employment Opportunity Program (EEO). Although the Program has not yet received the endorsement of the Public Service Commission (PSC), the PSC was supportive of putting the Program's priority into practice.

As part of the implementation of the Commission's new personnel information system, staff were given the opportunity to update EEO details for the Commission's records. This resulted in an improved data base of EEO information. The following table sets out the number of Commission staff in EEO target groups as at 30 June

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1994, by staffing level, using EEO data volunteered by the permanent staff who participated in the survey.

Level of officer

NESB11 NESB22 ATSI3 PWD4 TOTAL

STAFF

ASO 1 2 (22.2%) 3 (33.3%) 0 (0%) 2 (22.2%) 9

ASO 2 8(19.5%) 6 (14.6%) 0 (0%) 0 (0%) 41

ASO 3 1 (3.57%) 3 (10.7%) 0 (0%) 0 (0%) 28

ASO 4 7(10.2%) 13(19.1%) 0 (0%) 1 (1.47%) 68

ASO 5 6 (8%) 13(17.3%) 0 (0%) 2 (2.66%) 75

ASO 6 1 (1.63%) 9 (14.7%) 0 (0%) 0 (0%) 61

SOGC 2 (4.25%) 7 (14.8%) 0 (0%) 0 (0%) 47

SOGB 2 (8.69%) 4(17.3%) 0 (0%) 0 (0%) 23

SOGA 0 (0%) 0 (0%) 0 (0%) 0 (0%) 3

SES 1 (5.55%) 1 (5.55%) 0 (0%) 0 (0%) 18

TOTAL 30 59 0 5 373

1 Non-English Speaking Background 1

2 Non-English Speaking Background 2

3 Aboriginal and Torres Strait Islanders

4 People with Disabilities

During the year, Harassment Contact Officers were appointed throughout the Commission and appropriate training was provided.

An appointment was made to the Commission under the Intellectual Disability Access Program, and preliminary work began on the development of an Aboriginal and Torres Strait Islander Recruitment and Career Development Strategy.

The Commission's Recruitment and Selection Procedures were reviewed to ensure that they observed the employment equity principles.

Industrial Democracy

The Commission's National Consultative Council (NCC) is the main mechanism for regular consultation with the PSU on Commission-wide policy issues. The Council continued to meet twice per year, with each meeting being preceded by forums in the Sydney and Melbourne Offices. These forums enabled the State office staff to

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provide input to the NCC agenda items and to raise any separate issues of Commission-wide relevance.

The Commission proceeded to implement most of the activities set down in the report A Better Commission for Staff and All Australians, which had been adopted as its Industrial Democracy Plan. While the PSU supported these activities, it did not endorse the Plan formally. The Plan is in the process of being reviewed in consultation

with the PSU.

The Commission continues to promote the principles of industrial democracy through its human resource management programs. Examples are:

• formal arrangements such as the Commission's Occupational Health and Safety Committees;

• emphasis on better feedback and planning in the Commission's performance appraisal program; and

• promotion of participative management practices in relevant training and development programs.

Performance Pay

Performance appraisal cycles for both Senior Officers and members of the Senior Executive Service were completed on schedule during 1993-94. The number of officers and aggregate amounts of pay were as follows:

SES

SOGC SOG A & B SES Band 1 Bands 2 & 3 Total

67 officers

$67 380

39 officers

$134 360

11 officers

$37 500

5 officers

$30 625

122 officers

$269 865

The charts show the numbers of officers receiving performance payments at different ratings.

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Performance Pay - Senior Officers Grade C

Chart A4.1

Rating Maximum amount payable Number o f officers

1 (unsatisfactory) $0 1

2 (satisfactory) $0 10

3 (fully effective) $1 564 39

4 (superior) $2 346 17

5 (outstanding) not applicable 0

Performance Pay - Senior Officers Grades A&B

0-20 20-40 40-60 60-80 80-100

P erform ance pay as a percentage of the m axim um am o u n t payable

Chart A4.2

Rating Maximum amount payable Number of officers

1 (unsatisfactory) $0 0

2 (satisfactory) $0 5

3 (fully effective) $3 766 19

4 (superior) $5 649 13

5 (outstanding) $7 532 2

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Performance Pay - Senior Executive Service Band 1

Chart A 4.3

Rating Maximum amount payable Number of officers

1 (unsatisfactory) $0 0

2 (satisfactory) $0 2

3 (fully effective) $4 308 4 ·

4 (superior) $6 462 5

5 (outstanding) not applicable 0

Performance Pay - Senior Executive Service Bands 2&3

0 - 20 2 0 - 4 0 40 - 60 60 - 80 80 -100

Performance pay as a percentage of the maximum amount payable

ChartΛ4. 4

(Performance Pay figures not quoted as they would enable identification of individuals).

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Appendix 4

STAFF TRAINING

The Commission met its requirements under the Training Guarantee (Administration) Act 1990 and provided additional training to staff in 1993-94 as follows:

• the Commission's total payroll was approximately $19.1 million;

• the Commission's minimum expenditure required under the Training Guarantee rules was approximately $286 700;

• the net eligible training expenditure by the Commission was $1 538 905 representing 8 per cent o f its annual payroll;

• the Commission exceeded its minimum expenditure by approximately $1 252 209

The substantial expenditure on training was a function o f a large influx of new staff and the new responsibilities placed on the ISC.

Eligible training programs

There were 380 staff in the Commission at 30 June 1993 and 502 staff at 30 June 1994. A total o f 509 spent approximately 2 447 days in eligible training programs. Categories of eligible training included:

• senior executive development programs;

• management training;

• professional and technical courses;

• clerical and administrative training;

• information technology training; and

• personal development programs.

• O f a total of 2 599 staff attendees at training activities, 45 per cent were women, 16 per cent were from non-English speaking backgrounds and 1 per cent were disabled.

• Staff also participated in part-time formal studies through educational institutions. In accordance with Studybank principles, the Commission approved a study program for 136 students during the year and reimbursed approximately $40 890 for HECS and compulsory fees.

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Appendix 5

SOCIAL JUSTICE, ACCESS AND EQUITY

Access and Equity Plan

The Commission's mission involves, in part, promoting public confidence in the insurance and superannuation industries by protecting the interests of insurance policyholders and superannuation fund members, and promoting fair and open dealing between the insurance and superannuation industries and their customers. In achieving these goals, the Commission is responsive to community expectations and changing social conditions.

The Commission is supportive o f the Access and Equity strategy of adjusting organisational activities to ensure that staff and clients who may face barriers such as language, culture, race or religion, obtain full access and equity in the formulation of policies and programs, and in their dealings with the organisation.

The Commission's Access and Equity Plan is currently part of the Treasury portfolio plan. The Commission reviews its programs and consideration is given to improvements in access to, and use of, its services by different cultural groups. In 1993-94, the Commission commenced work on its own EEO program. The possibility of incorporating an access and equity strategy within this program may be addressed as the program develops.

Language Services

Against the background of the SIS legislation becoming operational on 1 July 1994, the Commission considered measures to give a broad community education focus on superannuation issues relating to the legislation. As a result, the Commission developed and commenced work on a four minute video on superannuation issues which will be screened through SBS Broadcasting in five languages: English, Vietnamese, Spanish, Arabic and Chinese. It is anticipated that the videos will also be available for loan to assist Commission staff in presentations and seminars. The video was produced during the 1993-94 reporting period and should be completed within the next year.

Planning, and initial background work, was commenced on a detailed investigation of back translation of draft Trustee and Member booklets. It is proposed to have these booklets translated into Italian, Chinese, Greek, Arabic, Vietnamese and

Spanish and made available through Commission’s regional offices.

As a result of these education strategies, it is possible that telephone, counter and written enquiries from people of non-English speaking backgrounds may increase. As such, the Commission is aware that public education officers may need to

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establish links with cultural groups. It may also be necessary to increase staff awareness of cross-cultural issues and develop communication strategies, possibly through the use o f interpreter services and/or recruitment policies.

Consumer Protection

Social Justice was promoted by the Commission during 1993-94 through the implementation of a variety of consumer protection initiatives. Substantial progress was made on the development o f Codes of Practice for the general and life insurance

industries. In addition, the Commission assumed responsibility for administering the Insurance Contracts Act, advised the Government on insurance legislation amendments to enhance fair dealing with respect to consumer credit insurance and improved the disclosure of information for prospective consumers of life insurance

products (see chapters 2 and 3 for further details).

The establishment of the Superannuation Complaints Tribunal on 1 July 1994 will significantly improve the administration of justice in respect o f fund members who are aggrieved by tmstee decisions by providing a fair, low cost, informal and quick dispute resolution mechanism.

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Appendix 6

EXTERNAL SCRUTINY AND REVIEW OF THE COMMISSION'S DECISION-MAKING PROCESSES

Decisions of Courts and Tribunals

In the case of Tefonu Pty Limited v Insurance and Superannuation Commissioner (1993) 93 ATC 4727, the Federal Court upheld a decision of the Administrative Appeals Tribunal which had affirmed decisions of a delegate of the Commissioner not to give notices under subsection 13(1) of the Occupational Superannuation Standards Act 1987, the effect of which would have been to treat a fund which was

in breach of the superannuation standards as though it had complied with those standards. Before granting a certificate under subsection 13(1), the Commissioner must be satisfied by the trustees of a fund that special circumstances exist in relation to the fund during the relevant year of income. In Tefonu, the Federal Court confirmed the decision of the Administrative Appeals Tribunal that each o f the following on its own or in combination with the others did not give rise to a finding of special circumstances on the facts before it:

• trustee’s ignorance of changes to the law; ·

• the retrospectivity o f the legislation;

• the transitional nature of the legislation;

• the reasonableness o f the trustee's actions; and

• prejudice to fund members if the fund does not receive a notice under subsection 13(1).

During the year, there were 32 applications before the Administrative Appeals Tribunal seeking review of decisions made by the Commissioner under section 16 of the Occupational Superannuation Standards Act 1987. The Tribunal process was concluded for 13 of these applications during the year. Of these, six were settled between the Commissioner and the applicant and five were withdrawal by the applicant. In one case, following a hearing, the Tribunal affirmed the

Commissioner’s decision. In another, the Tribunal affirmed the Commissioner's decision in respect of two years of income and reversed the Commissioner’s decision in respect of one year of income. The remaining applications have yet to be heard.

Ombudsman

During the year, there were no formal investigations or reports made by the Ombudsman under sections 15, 16, 17 or 19 o f the Ombudsman Act 1976.

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Auditor-General’s reports

During the year the Auditor-General conducted the following two reports on Commission’s financial statements:

• Audit Report No. 1

Report on Ministerial Portfolios

Budget Sittings 1993 - Vol 7

• Audit Report No. 27 1993-94

Report on Ministerial Portfolios

Autumn Sittings 1994

Neither report qualified the Commission’s financial statements and

recommendations made by the Auditor-General have been acted upon.

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Appendix 7

FREEDOM OF INFORMATION

On 23 November 1987, the Commission became an agency for the purposes of the Freedom o f Information Act 1982. Deputy Commissioners, Assistant Commissioners and the Australian Government Actuary, all have authorisation under section 23 of the Act to grant or refuse access to documents.

During the year, the Commission received four requests for access to documents. Access was granted in full in one matter, refused in part in one other and in full in one matter. The fourth matter was transferred to another agency for processing.

Organisation and functions of the Commission

Chapter One of this report outlined the Commission's broad functional responsibilities. In brief, the Commission's main functions in 1993-94 were to:

• supervise insurance companies, insurance brokers and superannuation funds in accordance with the requirements of relevant legislation;

• provide advice to the Treasurer and the Government on matters pertaining to insurance and superannuation;

• consider issues of relevance to the insurance and superannuation industries as well as to consumers and beneficiaries of services provided by those industries; and

• provide actuarial advice to Commonwealth departments, statutory authorities and other agencies.

Chapter One also contains an outline of the top structure of the Commission.

The Commission's decision-making powers primarily affect insurance companies, insurance brokers and superannuation entities, and therefore affect members of the public only indirectly. Two legislative powers administered by the Commission that do directly affect individual members of the public are:

• the granting of an early release o f preserved superannuation benefits in cases of severe financial hardship; and

• the administering of the recording and payment of monies from life insurance policies which became payable to policy holders, but were not claimed within seven years.

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Arrangements for outside participation

Persons or organisations may make representations to the Treasurer, the Parliamentary Secretary to the Treasurer, and to the Commission, about the formulation of policy or the administration by the Commission of any enactment or scheme.

Categories of documents held by the Commission

Appendices 9 and 10 outline a number of publications, papers and presentations produced by the Commission, that may be purchased from the Commission or from Commonwealth Government Bookshops.

In addition, the Commission makes available a number of documents to the public, free o f charge, upon request. These documents include:

• application forms and information kits for becoming an insurance broker;

• application forms and information kits for becoming a life insurance company;

• application forms and information kits for becoming a general insurance company;

• application forms and information kits for becoming a superannuation trustee; and

• copies of speeches made by the Parliamentary Secretary to the Treasurer.

Access to documents

The Commission makes available to the public a wide range of information, on request, for a small charge. This information includes public contact information and compliance information.

Information and procedures for Freedom of Information requests

Requests under this Act should be made in writing in accordance with the Act's provisions, accompanied by a $30 application fee and directed to:

• The FOI Coordinator (Legal Branch)

Insurance and Superannuation Commission

GPO Box 9836

CANBERRA ACT 2600

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Arrangements may be made to inspect documents at:

Level 2

Australian Automobile Association Building

212 Northboume Avenue

BRADDON ACT 2601

Level 21, Casselden Place

2 Lonsdale Street

MELBOURNE VIC 3000

Level 11

Piccadilly Towers

222 Pitt Street

SYDNEY NSW 2000

Level 7, Reserve Bank Building

King George Square

BRISBANE QLD 4000

Level 5, MLC Building

100 Pirie Street

ADELAIDE SA 5000

Level 9, QV1 Building

250 St Georges Terrace

PERTH WA 6000

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Appendix 8

CONSULTANTS

The Commission engaged external consultants, in accordance with Commonwealth Procurement Guideline No. 13 Contracting fo r Consultancy Services, to gain research, professional and academic expertise. The majority o f consultants assisted with the Commission's Information Technology requirements. The justification for consultant use is that the skills are not normally available within the Commission, or the resources are not cost-efficient for the Commission to provide.

A total of 57 consultants were engaged during the period at a cost of $1 775 382.

Consultancy costs were shared amongst the following categories:

• General consultants $491 707

• Information Technology consultants $1168 480

• Training/Development consultants $115 195

$ 1 775 382

The following list, sorted by Group, gives details o f major consultancies (over $2 000) undertaken on behalf of the Commission in 1993-94. A complete list of all consultancies, including those valued at less than $2 000, is available from the Commission on request.

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CONSULTANT PROJECT COST

Australian Government Actuary

Edsell Kilvington Actuarial Services $16 119

John Ford & Associates Actuarial Services $15 194

Kevin Beeves Actuarial Services $37 957

Michael Burt Actuarial Services $42 858

Corporate Services jjjj m 1 j

Computer Power Pty Ltd Scribing Services $3 300

Aspect Computing Pty Ltd Operating Systems Support $814 515

Australian Technology Resources Operating Systems Support $29 297

Charles Robinson Management Property Consultancy $9 793

Dorothy Outram and Associates Writing Skills Seminars $27 160

Health Access Pty Ltd Occupational, Health & Safety

Services

$4 294

Industrial Programs Service Employee Assistance Program $8 000

Legal Brief Legal Seminar $2 800

Letoh Pty Ltd Information Technology Manager $45 830

Management Solutions Pty Ltd FINEST Facilities Management $73 024

Maura Fay Workshops Presentation Skills Workshop $17413

Maxwell Consulting Time Management Training $6 060

Openware Pty Ltd Operating Systems Support $54 040

PB Industrial Relations Consultants

Workplace Bargaining Seminars $10 196

Peter Leonard Presentation Skills Workshop $10 600

Rayndawn Pty Ltd Operating Systems Support $26 180

Strategix Australia Pty Ltd Time Management Training $10 983

Towers Perrin Staff Attitude Survey $22 300

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CONSULTANT PROJECT COST

General Insurance

Computer Power Pty Ltd Scribing Services $2 599

Life Insurance

Towbridge Consulting Industry Disclosure Requirements $21 561

Superannuation Group

Business Directions Pty Ltd Planning Seminar $4 364

Computer Power Pty Ltd Scribing Services $41 287

Computer Sciences of Aust. Pty Ltd System Modifications to ROB $57 971

Ernst & Young SIS Training $7 800

Huston Consulting Group Scribing Services $5 394

John Wilson Consulting Services Scribing Services $6 235

Robyn Rennenberg Scribing Services $3 159

Scrivener Personnel Services Scribing Services $4 770

Superannuation Complaints Tribunal

Customised Software Solutions Design and Modifications o f Case System for Superannuation Complaints Tribunal

$17 600

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Appendix 9

ADVERTISING AND MARKET RESEARCH

Two direct mail organisations were used by the Commission during 1993-94. First, R L Polk was used to distribute 76 900 ‘Applications to become a regulated superannuation fund’ forms to superannuation funds. The seven page form, which included an optional questionnaire for statistical purposes, must be completed and lodged with the Commission for the fund to be regulated under the SIS Act and thereby obtain concessional taxation treatment for the 1994-95 year of income and beyond. The amount paid to the agency sas $32 696, which covered searching

Commission records for fund contact addresses, the prepartaion of the form for mailing and lodgement and mailout through Australia Post.

Secondly, the Practical Group was engaged to distribute 99 489 notices of compliance to superannuation entities around Australia, at a cost to the Commission of $12 339.

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PUBLICATIONS

Appendix 10

The following publications were released by the Commission in 1993-94 and are available from Commonwealth Government Bookshops.

General Insurance Group

Selected Statistics on the General Insurance Industry - Year Ended 31 December 1992

Selected Statistics on the General Insurance Industry - Year Ended 30 June 1993

Life Insurance Group

Quarterly Statistical Bulletin - March 1993

Quarterly Statistical Bulletin - June 1993

Quarterly Statistical Bulletin - September 1993

Quarterly Statistical Bulletin - December 1993

Half Yearly Financial Bulletin on Life Insurance - June 1992

Half Yearly Financial Bulletin on Life Insurance - December 1992

Superannuation Group

Circular No. 34 - July 1993, Reasonable Benefit Limits, Salary Thresholds and Base Reasonable Benefit Limits 1993/94 Financial Year

Circular No. 35 - July 1993, Pre 1 July 1988 Funding Credits

Circular No. 36 - August 1993,1992/93 Annual Returns fo r Superannuation Funds, Approved Deposit Funds and Pooled Superannuation Trusts

Circular No. 37 - August 1993, Prospectus Requirements fo r Publicly Offered Superannuation Funds

Circular No. 38 - September 1993, Recent Amendments to the Occupational Superannuation Standards Legislation

Circular No. 39 - November 1993, Commercial Rates o f Interest on In-house Asset Loans

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Circular No. 40 - November 1993, New Ancillary Purpose Payment o f Small Death Benefits with Probate

Circular No. 41 - April 1994, Final OSG Information Circular

Superannuation Circular III.A.l - April 1994, Notification to the Commissioner to become a Regulated Superannuation Fund under the Superannuation Industry (Supervision) Act 1993

Superannuation Circular V.E.l - May 1994, Pre 1 July 1988 Funding Credits

Superannuation Circular V.A.l - June 1994, Annual Returns fo r 1993/94

Policy, Legal and Actuarial Group

Duval, D.B., The Financing and Costing o f Government Superannuation Schemes, June 1994.

Military Superannuation and Benefits Scheme and Defence Force Retirement and Death Benefits Scheme (MSBS and DFRDB) - a report on long term costs carried out by the Australian Government Actuary using data to 30 June 1993

Public Sector Superannuation Scheme (PSS) and the Commonwealth Superannuation Scheme (CSS) - a report on long term costs carried out by the Australian Government Actuary using data to 30 June 1993

Superannuation Bulletin 1990-91 - Statistics for Superannuation Funds, Approved Deposit Funds and Pooled Superannuation Trusts for the 1990-91 Financial Year

The following publications are available from the Insurance and Superannuation Commission.

General Insurance Group

Circular No. G2/93 - to all General Insurance Companies - July 1993:

Circular No. G3/93 - October 1993, Insurance Act 1973 (The Act), Approval o f Reinsurance Arrangements, New Administrative Arrangements

Circular No. Gl/94 - March 1994, Insurance Contracts Act, Consumer Credit Insurance Reforms

Circular No. G2/94 - March 1994, Insurance Act 1973, Revised Statutory Reporting Forms

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Circular No. G3/94 - April 1994, Insurance Act 1973, Financial/Finite Reinsurance

Circular No. G4/94 - April 1994, Amendments to Insurance Legislation

Circular No. G5/94 - June 1994, Insurance Act 1973, Process o f Reinsurance Advice

Broker Circular No. 1AB/94, Amendments to Insurance Legislation

A Guide to the Insurance Act 1973

A Guide to the Insurance (Agents and Brokers) Act 1984

Life Insurance Group

Circular No. 302 - July 1993, Management o f investment risk exposures

Circular No. 303 - July 1993, Availability o f CCI Working Party report

Circular No. 304 - August 1993, Disclosure requirements fo r all policies including an investment element

Circular No. 305 - October 1993, Disclosure requirements fo r risk cover only policies

Circular No. 306 - January 1994, Property Valuations; minimum standards to be followed in obtaining and disclosing the value ofproperties held by statutory funds

Circular No. 307 - April 1994, Disclosure requirements fo r CCI insurance

Superannuation Group

How to become a regulated superannuation fund under new Commonwealth superannuation legislation

Information Sheet 1 - The Superannuation Functions o f the Insurance and Superannuation Commission, October 1993

Information Sheet 2 - Commission Audit Program, October 1993

Information Sheet 3 - How to become a Regulated Fund, October 1993

Information Sheet 4 - Who can be a Trustee, October 1993

The Superannuation Complaints Tribunal, May 1994

Superannuation Fund Trustees' Crucial Decision, May 1994

Fund Trustees will have crucial decisions to make, May 1994

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Appendix 11

PAPERS AND PRESENTATIONS

During 1993-94 senior Commission officers gave presentations to a wide variety of industry groups and organisations. The following papers are available on request from the Commission for a fee o f $10.00 each.

Chalmers, E., Progress with the Review o f the Commission's Statutory Forms, Commission/AIA Seminar, Canberra, 26 August 1993

Chalmers, E., Reinsurance and Solvency in the 1990's, - Reinsurance Rendezvous, Ballarat, 20 October 1993

Chalmers, E., An Actuary’s Role in the Supervision o f General Insurance, 9th General Insurance Seminar o f the Institute of Actuaries of Australia, Gold Coast, 1 June 1994

Chalmers, E., Insurance Supervision - Continuing Change in the 1990's, AAIA Seminar, Sydney, 2 June 1994

Colley, G., How do the New Superannuation Industry (Supervision) Act and Regulations apply to Small Superannuation Funds, Sydney, 1 February 1994

Colley, G., Preparing fo r the New World o f SIS Conference - Countdown to July 1994, Sydney, 23 February 1994

Colley, G., Investment Powers and Responsibilities, Association o f Superannuation Funds of Australia, Sydney, 25 February 1994

Colley, G., Trustee Training, Association of Superannuation Funds of Australia, Sydney, 22 April 1994

Colley, G., How Do The New Superannuation Industry (Supervision) Act and Regulations Apply to Superannuation funds, Sydney, 16 May 1994

Colley, G., Superannuation Funds - Up to Standard or Down the Drain, Lend Lease Corporate Services Club, Sydney, 24 May 1994

Colley, G., Investment, Satellite Seminar, Australian Society o f Certified Practising Accountants, Sydney, 24 June 1994

Dean, R., The Government’s Strategy fo r the Future o f Australian Superannuation, Superannuation Fund Investment Strategies Seminar, Boulevard Flotel, Sydney, 28 March 1994

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Dean, R., A Commission Perspective on the Issues - Industry Working Party on Investment Performance Measurement, Sydney, 9 June 1994

Duval, D., The Changing Role o f the Insurance and Superannuation Commission, Retirement Benefits Office, Canberra, 29 September 1993

Duval, D., The Objectives o f the Superannuation Supervisory Legislation, Superannuation 1994 - A Conference for Prudent Lawyers, Gold Coast, 24 February 1994

Duval, D., The Objectives o f the Superannuation Supervisory Legislation, Financial Planning Association - SIS Legislation, 14 March 1994

Duval, D., The Objectives o f the Superannuation Supervisory Legislation, Address to the Australian Superannuation Industry Forum - Formulating an Investment Strategy, Sydney, 16-17 March 94

Duval, D., The Objectives o f the Superannuation Supervisory Legislation, Address to Conference o f Major Superannuation Funds, Canberra, 25 March 94

Freney, R., The New Complaints Tribunal - Is it adequate and how viable is the current concept?, Association of Superannuation Funds of Australia National Conference, Adelaide, 29 October 1993

Freney, R., ISC's New Disclosure Requirements fo r Superannuation Funds, IIR conferences, Sydney, 8 December 1993

Freney, R., Address to ASFA Luncheon, Association o f Superannuation Funds of Australia, Canberra, 29 April 1994

Freney, R., SIS Tips on Compliance, Association o f Superannuation Funds of Australia Luncheon, 29 April 1994

Glading, R., The Financial Management o f a Life Office, Munich Re Seminars, Melbourne, 20 August 1993 and 23 August 1993

Glading, R., Luncheon Address, Asia Pacific Conference of Insurance Taxation, Canberra, 7 September 1993

Glading, R., Life Discussion Group Seminar, Insurance Institute of NSW, 23 September 1993

Glading, R„ Lunch Address, UFA - SA Branch, Adelaide, 22 October 1993

Glading, R„ LIFA Systems Group - Wollongong Seminar, 25 October 1993

Glading, R., Life Insurance Industry - The ISC Perspective, Coopers & Lybrand National Insurance Staff Conference, Wollongong, 5 November 1993

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Glading, R., Sharing the Future with Regulators, Norwich Union Business Conference, Melbourne, 10 November 1993

Glading, R., Breakfast Address, LIFA, Hobart, 12 November 1993

Glading, R., Luncheon Address, LIFA, Launceston, 12 November 1993

Glading, R., The Year that Was - the Year Ahead, The Insurance Institute of New South Wales, 9 December 1993

Glading, R., The Life Insurance Act and the Code o f Practice, Opening Address - Associated Planners Ltd Conference - Consumer Protection, Sydney, 2 February 1994

Glading, R., National Mutual - Actuarial Information Session, 28 March 1994

Glading, R., An Overview o f ISC Circulars 304 and 305: Recent Developments, The Society of Fellows o f the Institute o f Actuaries of Australia Seminar, 19 May 1994

Glading, R., Due Diligence, LADG Conference - Hyatt Hotel Canberra, 30 May 1994

Glading, R., Financial Reporting, LADG Conference - 'Hyatt Hotel Canberra, 1 June 1994

Gruber, D., Agents and Brokers, Commission/Insurance Institute o f NSW Seminar, Canberra, 27 August 1993

Gruber, D., The General Insurance Industry Code o f Practice - How will it affect you!, IIR Conference on New Developments in Insurance Law and Litigation, Sydney, 23-24 March 1994

Gruber, D., Administration o f the Contracts Act, ICA Conference on Insurance Laws Amendment Bills 1993 - New Impact, Sydney, 28 March 1994

Heyworth, A., Trends in Financial Sector Regulation, Securities Institute of Australia, Sydney, 16 February 1994

Heyworth, A., Trends in Financial Sector Regulation - An Insurance and Superannuation Perspective, University o f Melbourne Financial Markets Forum, Melbourne, 20 April 1994

Karp, T., The Government Agenda fo r the Life Insurance Industry, IBC Conference, Sydney, 30 November 1993

Karp, T., Life Insurance Reform, NSW Commercial Law Association, Sydney, 11 March 1994

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Karp, T., The New Regulatory Environment, LIFA Briefing, Australian Insurance Institute 1994 Annual Conference, Gold Coast, 20 April 1994

Kriz, G., Prosecutions under SIS, Law Council Conference, 24 February 1994

Larkin, J., Occupational Link - Eligibility and the ‘Two Year Rule’, Women and Superannuation Seminar, Hyatt Hotel, Canberra, 24-25 February 1994

Paine, B., Trustee Issues Around the World - How does the SIS compare, 1 October 1993

Pooley, G., SIS: The Benefits fo r all Australians, 4 August 1993

Pooley, G., Standards - The Perspective o f the Regulator, ASFA Conference, Adelaide, October 1993.

Pooley, G., Insurance Regulation - how fa r have we moved over the past five years?, 19 April 1994

Smith, R., Consumerism, Reinsurance and Privatisation in the General Insurance Industry, (Speaking Notes) Luncheon Address to the Society of Fellows o f the Australian Insurance Institute (Victorian Branch), Melbourne, 15 July 1993

Smith, R., Pressure on Capital and the Emergence o f Financial and Finite Reinsurance - A Practical Alternative, Australian Society of CPAs (NSW Division), Sydney, 29 July 1993

Smith, R., Insurance Legislation; An Update from the Insurance and Superannuation Commission, (speaking notes) The Insurance Institute o f NSW, Newcastle, 18 August 1993

Smith, R„ Increasing Professionalism - What Should the Insurance Industry Be Doing, Third Sterling National Seminar on Hazards, Disasters and Reinsurance, Gold Coast, 19-21 September 1993

Smith, R., Trends and Legislative Changes - The Supervisor's View, Sydney Motor Underwriters Group, Sydney, 11 October 1993

Smith, R., Trends and Legislative Changes, (speaking notes) Australian Insurance Association, Canberra, 14 October 1993

Smith, R„ Insurance Legislation - An Update from the Insurance and Superannuation Commission, The Insurance Institute of NSW, Parramatta, 19 November 1993

Smith, R., Converging on the Core Issues and Activities, AIC Conference, Sydney, February 1994.

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Smith, R., Capital Requirements and Solvency Standards fo r the Australian Life and General Insurance Industries, Paper presented to the Insurance Committee of the Organisation for Economic Cooperation and Development, Paris, France, 28-29 April 1994

Smith, R., Market and Regulatory Developments in the Australian Insurance and Superannuation Sector, Paper presented to the Insurance Committee o f the Organisation for Economic Cooperation and Development, Paris, France, 28-29 April 1994.

Smith, R., Reinsurance Discussion Panel - Australian Discussion Paper, First Conference of the International Association of Insurance Supervisors, Baltimore, Maryland, USA, 13-16 June 1994

Tratt, P., The New Commission, 22 July 1993

Tratt, P., Superannuation Audit - New Prudential Arrangements fo r Superannuation, 17 November 1993

Tratt, P., General Supervision o f Superannuation and the role o f the Insurance and Superannuation Commission, 22 February 1994

Tratt, P., Superannuation Update, 31 March 1994 '

Tratt, P., AAS Trustee Training Seminar on the Superannuation Industry Supervision (SIS) Legislation, 31 May 1994

Tratt, P., SIS Flying Circus II - Superannuation Industry (Supervision) Seminar - Objectives of SIS, 6 May 1994

Wilson, A., Education, Women and Superannuation Seminar - Consumer Education, 24 February 1994

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Appendix 12

GLOSSARY OF INSURANCE AND SUPERANNUATION TERMS

Actuarial report: a financial report prepared by an actuary, typically on the financial condition o f an insurance company or superannuation fund.

Actuary: a person trained to solve mathematical and statistical

problems that arise in the insurance, superannuation and investment areas. In Australia, a qualified actuary is a Fellow or an accredited member of the Institute of Actuaries of Australia.

Agent (insurance): a representative of an insurance company who acts as an intermediary between the company and the policyholder.

Allocated pension: a pension where a member has his or her own account against which variable pension payments are debited and to which any investment earnings are credited. The pension continues until the death of the pensioner, or

until the account is exhausted. Upon death, any balance remaining in the account will be paid to a designated beneficiary as a lump sum or further pension payments.

Annuity: a regular periodic payment to a person, usually made in

exchange for an initial lump sum payment. This may also be called a pension when regular payments from a superannuation fund are involved.

Approved auditor: the person who countersigns the superannuation fund trustee's annual to the Commission.

Approved Deposit Fund (ADF): a retail trust fund that accepts superannuation payments made to a fund member after leaving employment, but

before age 65. This allows rolled over lump sum superannuation benefits to continue to receive concessional taxation treatment.

Bancassurance a financial group which does banking and insurance or a joint venture between a banking and an insurance group.

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Benefit:

Broker (insurance):

Capital adequacy standards:

Capital guarantee:

Catastrophe reserves:

Certificate of currency:

Collective investment:

Commission payment:

Complying superannuation fund:

Compulsory third party insurance (CTP):

a superannuation benefit which may take the form of a single lump sum and/or pension from a superannuation fund.

a person who acts as an intermediary with an insurance company on behalf of the consumer. Brokers are registered by the Commission under the Insurance (Agents and Brokers) Act 1984.

a requirement that an insurance company maintain a prescribed level of capital.

a guarantee that the realisable value o f an investment will not fall below the value of the initial sum invested.

reserves set aside by general insurance companies in order to meet claims arising from future catastrophes.

documents containing specific information on the nature and characteristics of the insurance

a class of investments where investors' subscriptions are typically pooled and managed by a fund manager. Collective investments are generally regulated by the Australian Securities Commission as prescribed investments under the Corporations Law. The Insurance and Superannuation Commission regulates public offer superannuation funds which may be considered to be a form of collective investment eligible for superannuation taxation concessions.

a payment made by a company or fund to an agent or broker for selling an insurance policy or a

superannuation agreement.

a superannuation fund or trust that satisfies, or is treated as satisfying, the superannuation standards set out in the Occupational Superannuation Standards Act 1987 and Regulations. They are taxed at concessional taxation rates.

compulsory insurance that protects owners and drivers of motor vehicles against injury claims caused by their motor vehicles.

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Concessional taxation treatment:

Consumer credit insurance:

Cooling off period:

Deferred annuity:

Defined benefit fund:

Demutualisation:

Discretionary powers:

Early discontinuance:

Employer-sponsor:

Endowment insurance:

taxation treatment which is less than the marginal rates of taxation applied to ordinary income. The assessable income o f superannuation funds, which includes investment earnings and deductible contributions, is

taxed concessionally.

insurance covering repayment o f loan instalments that are unable to be paid by a borrower. This helps protect borrowers against claims from banks or lending institutions for non-payment of loans.

a period of fourteen days after receipt of policy documentation during which an insurance policy may be cancelled without penalty. This may also be called a free look period.

an annuity under which periodic payments do not commence until a future date or event (eg retirement age).

a superannuation fund which defines the benefits payable, usually in terms o f salary near retirement and years o f membership.

the conversion of a life insurance company which has no share capital and in which the members have a prescribed liability (a mutual company), into one which has share capital and in which the members liability is

limited to their unpaid share capital.

powers given to trustees under a fund's governing rules or powers given to statutory office-holders under legislation enabling or requiring them to make a decision.

the discontinuance of a life insurance policy at the request o f the policyholder before its contracted maturity day.

an employer who makes contributions on behalf of employees to a superannuation fund.

a contract made by a life insurance company to pay the insured a sum of money at the end of a fixed period or death, whichever is the earlier.

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Excess:

Fiduciary duty:

Friendly society:

General insurance company:

In-house asset:

Insurance intermediary:

Life office:

Managed funds:

Master trust:

Multi-agents:

Net tangible assets:

Pension:

the amount of any loss that is normally absorbed by the policyholder when a general insurance claim is paid.

a duty o f trust and confidence owed by the tmstee to the members and other beneficiaries of the fund to act in good faith and in their best interests.

a type of mutual organisation regulated by State legislation that offers products similar to life insurance products and other services to members.

a company authorised by the Commission to conduct general insurance business in Australia under the Insurance Act 1973.

an asset of a superannuation fund that consists of a loan to, or an investment in, an employer-sponsor or an associate of an employer-sponsor of the fund.

an insurance agent or broker.

a company registered by the Commission to conduct life insurance business in Australia under the Life Insurance Act 1945.

investment funds that invest in a variety of major asset classes. They use a medium risk/retum strategy and aim to produce high rates of return over the medium to long term.

a trust arrangement which allows a single trustee operating under an 'umbrella' trust deed to administer and manage the superannuation funds of a number of employers or individuals.

persons who are agents of several insurance companies.

the sum of tangible or fixed assets (such as plant and property, but not including intangible assets such as goodwill) less liabilities.

a regular periodic payment to a person (for example, a stream of payments rather than a lump sum).

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Personal superannuation products:

Policy:

Pooled Superannuation Trust (PST):

Premium:

Pre 1 July 1988 funding credit (PJFC):

Preservation:

Professional indemnity insurance:

Prospectus:

products offered by life offices or other financial institutions to individuals who fund superannuation benefits from their own contributions.

a contractual document issued by an insurance company stating the terms and conditions o f its contract with the policyholder.

a unit trust which can only accept investments from complying superannuation funds and other

concessionally taxed bodies. PSTs receive

concessional taxation treatment.

the amount paid by a policyholder for an insurance policy either as a single payment, or as a stream of regular payments.

a PJFC is a tax deductible amount granted to an eligible superannuation fund to prevent the retrospective application of the 15 per cent tax on the assessable income of funds (including deductible contributions)

which was introduced on 1 July 1988. PJFCs will be approved for liabilities which accrued prior to 1 July 1988 to be met by contributions made after that date. A PJFC may arise either as a result of a late payment of contributions that are for service prior to 1 July 1988 or, for defined benefit funds, a shortfall in fund assets

needed to meet a liability which accrued prior to that date.

the requirement under which a member's benefit is retained in a superannuation fund until retirement after the attainment of preservation age (currently 55). The benefit will only be paid before this age if the member

dies, becomes disabled, is leaving Australia

permanently, or is experiencing financial hardship.

insurance taken out by insurance brokers that offers protection against claims for error or neglect.

an information document which is required for capital raisings under the Corporations Law. The Commission regulates prospectuses issued by public offer superannuation entities (called 'regulated documents’).

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Public offer superannuation fund: a superannuation fund which is open to subscriptions from members of the public.

Reinsurance: the process where an insurance company insures some of its risks with another insurer (the reinsurer).

Related Body Assets: assets held by general insurance companies in bodies such as subsidiary companies, which cannot be counted for solvency purposes, unless approved by the Commissioner.

Rollover: the transfer of a superannuation benefit to an approved

deposit fund, deferred annuity, or other superannuation fund so as to retain concessional taxation treatment.

Self-insurance: the process in which a company pays insurance

premiums into an insurance fund which it directly controls for its own insurance needs, rather than using an insurance company.

Solvency: the ability of a company to meet its liabilities as they

fall due. General and life insurance companies must meet minimum solvency standards set out in pmdential legislation which aim to ensure that policy liabilities will be met.

Statutory fund: a fund where each life company must write life

insurance business. This protects policyholders by separating the assets backing policyholder liabilities from other assets of the company. Statutory fund assets are owned by the company as statutory funds and are not a separate legal entity.

Statutory returns: forms containing financial, pmdential and statistical information which the Commission requires from supervised general and life insurance companies.

Superannuation fund: an indefinitely continuing fund providing retirement and death benefits to fund members, and ancillary benefits (such as disability benefits) as approved in writing by the Commissioner.

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Superannuation Guarantee Charge: a non-deductible charge levied by the Tax Office on employers who do not meet the minimum

Superannuation Guarantee (SG) requirements for employees and which consists of the employee's SG entitlements, interest on those entitlements and an administration charge.

Superannuation standards:

legislative requirements set out in Occupational Superannuation Standards Act 1987 and Regulations which a fund must meet in order to receive

concessional taxation treatment.

Surety: a person or entity who makes themselves responsible

for another person's or entity's debt repayments or other undertakings.

Tax concessions: see 'Concessional taxation treatment' above.

Trust: a fiduciary relationship in which one person (the

trustee) holds the title to property for the benefit of another (the beneficiary).

Trust deed: a formal legal document that constitutes a trust fund

and governs its operation.

Trustee: a person or body corporate bound to carry out the terms

o f a trust deed for the benefit of beneficiaries.

Underwriting: the process by which an insurance company determines whether to accept the level of risk associated with a proposed policy, and the appropriate level of premium to cover that risk.

Unit trust: a form of collective investment that is usually a trust

fund divided into a large number of equal parts called 'units'. The price of these units is dependent on the total assets of the trust fund.

Vesting: the rate at which an employee becomes entitled to

benefits in their superannuation fund. A resignation benefit is fully vested if it represents the individual's total accrual up to the time of leaving, including all employee and employer contributions. Member

contributions, award contributions and SG

contributions are required to be fully and immediately vested.

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Appendix 13

SUMMARY OF REPORTING REQUIREMENTS

This report complies with the ‘Requirements for Departmental Annual Reports’ approved by the Joint Committee of Public Accounts on 17 March 1994, and summarised in a memorandum from the Department of Prime Minister and Cabinet of 18 March 1994. The following index sets out the minimum annual reporting requirements listed in those documents and the page(s) in this report which addresses those requirements.

Subject Page

Commissioner’s letter of transmission iii

Aids to access

Table of contents ix

Alphabetical index ' 148-153

Contact details X

Glossary 139-145

Corporate overview

Overview 1-15

Organisation chart 12

Social justice, access and equity 22, 40, 57, 120

Portfolio legislation and statutory authorities 8-9

Non-statutory bodies 25-26,41,57

Internal and external scrutiny 122-123

Freedom of information 124-126

Advertising and market research 130

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Program reporting

Objectives 17,3 5 ,5 1 ,7 1 ,7 7

Strategies 17-18, 35-37, 52-53,

72, 77-78

Outcomes 19-26, 37-43, 54-66,

75, 78-84

Human resources

Staffing overview 111-113

Staff managment 9-11,78-81

Performance Pay 116-118

Training 80, 119

Equal Employment Opportunity 79-80, 114-115

Industrial Democracy 80, 115-116

Occupational Health and Safety 80, 114

Financial

Financial and staffing resources summary xiii

Financial statements 87

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INDEX

A

Access, equity and social justice, 120 General insurance, 22 Life insurance, 40 Superannuation, 57 Accounting standards

General insurance, 21 Life insurance, 37-38 Accrual Accounting, 84 Actuarial advice, highlights, 71-75 Address of the Commission, x Advertising and Market Research, 130 Agent, 4, 14, 18-20, 40, 45,50 Annual premium, 14, 47-48 Appeals, 58, 122 Approaches to supervision, 4 Approval of trustees, 59-61 Approved Deposit Funds (ADFs), 52, 54,

56,61,65-66 Assets (Industry) General insurance, 28-29 Life insurance, 44-45

Superannuation, 66-69 Audit/inspections General insurance, 23 Life insurance, 41

Superannuation, 58-60 Audited Accounts (Commission), 87 Auditor-General’s reports, 123 Australian Financial Institutions

Commission, 7 Australian National University Commonwealth Superannuation Account, 75

Australian Securities Commission, 7, 39

B

Banks, 1, 11, 14,45,66 Beneficiary investment choice, 54 Brokers (insurance), 4, 17-18, 24-25, 33­ 34, 40

C

Capital adequacy standards, 37, 39, 50 Circulars, 35, 38, 40-42, 63 Classes of business, 28,48 Code of Practice

General insurance, 20, 33 Life insurance, 36-37, 40, 50 Commission highlights, vi-vii Commission (role), 1 Commissioner’s letter of transmission, iii Commonwealth Superannuation

Administration (Actuarial advice), 74 Commonwealth Superannuation Scheme (CSS), vii, 72-75 Community services, 43, 54, 62 Complaints schemes

General insurance, 24 Life insurance, 43 Superannuation, 64-65 Complaints Tribunal (Superannuation),

64-65

Compliance and audit of superannuation

funds, 58-60 Compliance index, 146-147 Complying superannuation fund, 9, 58. 65 Compulsory third party insurance, 31

148

L N J i U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N I I A T . R E P O R T 1 9 9 1 - 9 4

Computer services and communication, 83

Consultants, 127-129 Consultation General insurance, 25 Life insurance, 40

Superannuation, 55, 63-64 Consultative Committees General insurance, 25-26

Life insurance, 41 Superannuation, 57 Consumer credit insurance, 19-20, 121 Consumer complaints

General insurance, 24 Life insurance, 43 Superannuation, 64-65 Consumer protection, 22, 33, 37, 50, 121 Contact points within the Commission, x Contents page, ix Council of Financial Supervisors, 7, 13 Counselling service (Employees), 114 Courts and Tribunals, 33, 60, 64-65, 70,

122

Coverage (superannuation), 15, 69-70

D

Defence (Actuarial advice to Department of), 74 Defence Force Retirement and Death Benefit Scheme (DFRDB), 72, 74-75

Department of Education, Employment and Training (Actuarial advice to), 74 Disclosure, 4 General insurance, 20, 25, 33

Life insurance, 37-42, 50 Superannuation, 54-56, 59-61, 70 Discontinuances, 13,47,49 Dispute resolution

General insurance, 20

Life insurance, 40 Superannuation, 64

E

Early release of benefits, 52,62-63 Education, Employment and Training, (Actuarial advice to Department of), 74

Education (public), 52, 63-64 Eligible rollover funds, 64 Employee assistance program, 79, 114

Employer-sponsored superannuation funds, 4, 61 Equal employment opportunity, 79, 114­ 115 European Community, 26, 32

Examination of prospectuses, 60 Exemptions and Modification orders, 60­ 61 Exercise of discretion, 58

External scrutiny, 122

F

Finance (actuarial advice to the Department of), 73-74 Financial conglomerates, 7 Financial management, 84 Financial reinsurance, 21 Financial statements (Commission), 87 Finite reinsurance (financial reinsurance),

21

FitzGerald Report on National Saving, 53 Foreign general insurance companies, 26 Foreign life insurance companies, 44, 46 Fraud control, 84

Freedom of information, 124-126 Friendly societies, 45 Fund managers, 51

149

I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 ^ - 9 4

G

General insurance assets, 21, 23-24, 28-30 number of insurers, 26-27 premiums, 24, 27, 29, 31-33 profitability, 27, 30, 33 underwriting performance, 27, 31

General Insurance Supervisory Levy Act 1989, 8 Glossary of terms, 139-145 Government Business Enterprises (GBEs),

73,75

Graduate program, 79-80

H

Human resource management, 79 Human resource development plan, 80-81

I

In-house assets, 56 Industrial democracy, 80, 115-116 Industry assets General insurance, 28

Life insurance, 46 Superannuation, 66 Industry structure General insurance, 26-29

Life insurance, 43-47 Superannuation, 66-70 Information technology, 10,83-84 Inspections/audits General insurance, 23 Life insurance, 41 Superannuation, 58-60 Institute of Actuaries of Australia, 75 Insurance acquisitions and takeovers General insurance, 27-28 Life insurance, 43-44

Insurance Acquisitions and Takeovers A 1991, 8, 18,27,44 Insurance Act 1973, 8, 18, 21, 24, 28-2‘ 33 Insurance (Agents and Brokers) Act 198

vi, 8, 18-19, 24-25 Insurance and Superannuation Commissioner Act 1987, 1 Insurance brokers, 24-25 Insurance Contracts Act 1984, vi, 8, 17­

20, 22, 25, 34 Insurance (Deposits) Act 1932, 8 Insurance Supervisory Levies Collectior

Act 1989, 8, 18, 36 Intermediaries, vi, 7, 17-20, 25, 38, 40 International Association of Insurance

Supervisors, 13

L

Language services, 120-121 Legislation administered Summary, 8-9 General insurance, 18

Life insurance, 35-37 Superannuation, 52, 54 Levies, 18,36

Life insurance accounting/actuarial standards, 37-3! assets, 44-48 classes of business, 48 information disclosure, 38, 40, 42 number of insurers registered, 14, 43-44 premiums, 47

Life Insurance Act 1945, 8, 14, 35, 37, 44 Life Insurance Actuarial Standards Boar 38-39, 50, 75 Life Insurance Policyholders’ Protectior

Levies Act 1991, 8,42

150

I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N I I A I , R E P O R T 1 9 9 3 - 9 4

Life Insurance Policyholders’ Protection Levies Collection Act 1991, 8,42 Life Insurance Supervisory Levy Act 1989, 8,36 Lloyd's of London, 29 Lost fund members, 64

M

Market research and advertising, 130 Military Superannuation and Benefits Scheme, 72,74-75 Modification and Exemption orders, 61

Mortality tables, 75 Multi-agents, 45

N

Non-statutory bodies General insurance, 25 Life insurance, 40 Superannuation, 57

O

Objectives General insurance, 17 Life insurance, 35 Superannuation, 51

Actuarial, 71 Corporate services, 77 Occidental and Regal, 42 Occupational health and safety, 80, 114

Occupational Superannuation Standards Act 1987, 8,9, 52, 53-54, 58, 60, 62 Ombudsman, 122 Organisation chart, 12

Outcomes General insurance, 19-26 Life insurance, 37-43 Superannuation, 54-66

Actuarial, 72-75 Corporate services, 78-84 Overview of the Commission, 1-15

P

Papers (Commission), 134-138 Performance pay, 116-118 Policies (insurance) with an investment element, vii, 37-38

Policies (insurance) providing risk cover only, vii, 38 Policy objectives of the Commission, 1 Pooled Superannuation Funds (PSTs), 66

Portfolio legislation, 8-9 Pre-1 July Funding Credits (PJFCs), 71 Premiums General insurance, 31

Life insurance, 47 Presentations (Commission), 134-138 Preserved benefits, 52, 62 Privatisation, 28, 45 Promotional material (life insurance), 36,

41

Prospectus examination, 60 Public education, 52, 63-64 Public offer superannuation entities, 59, 61

Public Sector Superannuation Scheme (PSS), vii, 72-75 Publications (Commission), 131-133

R

Regional offices, 52-53, 58, 78-79, 82, 84-85, 120 Reinsurance, 17-18, 23 approval processes, 20-21

financial, 21 market developments, 31-32

151

I

I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 ^ - 9 4

recoveries, 21 structure, 26-28 Related body assets, 23. 24 Release of benefits, 63 Reporting requirements, 146-147 Reserve Bank of Australia, 7 Resources management, 80 Retirement incomes policy, 51, 57 Review of decision making processes, 122 Role of the Commission, 1

S

Security arrangements, 84 Senate Select Committee on Superannuation, 55 Services to the community, 4, 43, 46, 54,

57, 62-63, 65 Single premium, 14, 45, 47-48, 50 Small superannuation accounts, 53, 55, 70 Social justice, access and equity, 120

General insurance, 22 Life insurance, 40 Superannuation, 57 Social Security (Actuarial advice to the Department of), 74 Staff development plan, 79-81 Staff profile, 111-113 Staff survey, 79 Staff training, 119 Staffing issues, 78-79 State offices (see regional offices), 52-53, 58, 78-79, 82, 84-85, 120 Statutory authorities, 9 Strategies General insurance, 17-18 Life insurance, 35-37 Superannuation, 52-53 Actuarial, 71-72 Corporate services, 77-78

Structure of the Commission, 9-12 Superannuation assets, 66-69 growth in coverage, 69-70

investment of assets, 68-69 membership level, 68 number of funds, 68 Superannuation Complaints Tribunal,

64-65

Superannuation Entities (Taxation) Ac Superannuation (Financial Assistance Funding) Levy Act 1993, 9 Superannuation Guarantee, 2, 13,51, Superannuation Industry (Supervision

1993, vi, 4, 9, 52-54, 56-57, 60-64. Superannuation (Resolution of Complaints) Act 1993, vi, 9 Superannuation (Rolled-Over Benefits

Levy Act 1993, 9 Superannuation Supervisory Levy Act

1991, 9 Surveys o f superannuation funds, 57

T

Table of contents, ix Taskforce on Financial Reporting, 37 Tied agents, 44 Trade Practices Act, 20 Trade Practices Commission, 10, 19,

38,40

Training and development of staff, 80 119 Trustees (approval processes), commission highlights, 59-61

U

Unclaimed moneys, 43 Underwriting performance, 27, 31

152

I N S U R A N C E A N D S U P E R A N N U A T I O N C O M M I S S I O N A N N U A L R E P O R T 1 9 9 3 - 9 4

Unit trusts, 13,66

W

Women and superannuation, 55, 64