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Life Insurance Act - Life Insurance Commissioner - Report - Year - 1981 (36th)


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The Parliament of the Commonwealth of Australia

LIFE INSURANCE COMMISSIONER

Thirty-Sixth Annual Report

1981

Presented pursuant to Statute 6 May 1982 Ordered to be printed 27 May 1982

Parliamentary Paper No. 148/1982

LIFE INSURANCE COMMISSIONER 36th Annual Report

I l l

Office of the Life Insurance Commissioner

LIFE INSURANCE COMMISSIONER

ANNUAL REPORT 1981

Australian Government Publishing Service Canberra 1982

© Commonwealth of Australia 1982 ISSN 0312-8040

Printed by Union Offset Co, Pty Ltd, Canberra

CONTENTS

Page

1. Introduction 1

2. Registration of Companies 1

3. Transfers of Business 1

4. Unclaimed Moneys 1

5. Complaints and Enquiries 2

6. The Trend of Life Insurance Business in Australia 3

(a) Growth of Business in Force (b) New Business and Discontinuances (c) Type of Policy (d) Surrenders

(e) Forfeitures 7. Investments of Statutory Funds 9

8. Other Assets of Life Companies 13

9. Earned Interest Rates 13

10. Expense Rates 14

11. Annuities 18

12. Overseas-controlled Companies 18

13. Equitable Treatment of Policyholders 19

14. Other Matters 22

APPENDIX I Life Insurance Commissioner’s Office Organisation Chart APPENDIX II Companies Registered under the Life Insur­ ance Act 1945 APPENDIX III Summary of the Life Insurance Act 1945 APPENDIX IV Definitions APPENDIX V Life Insurance Companies which have

changed name or ceased transacting Life Insurance Business in Australia APPENDIX VI Bonus Rate Indices

The Honourable John Howard, MP Treasurer Canberra, ACT 2600

1. In accordance with the requirements of section 11 of the Life Insurance Act 1945, I have the honour to submit, for presentation to the Parliament, the Thirty-sixth Annual Report on the workings of the Act during the year ended 31 December 1981.

1. INTRODUCTION

2. During the period covered by this Report the changes in product mix observed in recent years, have continued. Unbundled type policies in particular have shown substantial growth and it seems that this trend will continue in the future.

3. The growing diversity of policy types and the consequent decline in commonalty of interest between policyholders has made the problem of preserving equity amongst competing interests of vital importance. In Section 13 of this Report under the heading Equitable Treatment of Policyholders I have examined some aspects of the problem and future Reports will continue this

theme.

4. As indicated in last year’s Report it is intended that this and future annual reports will deal mainly with the industry as a whole with separate publications providing information by individual company. This latter material is available in the Half Yearly Financial and Statistical Bulletins and the Quarterly Statistical Bulletins also produced by this office.

5. It is pleasing that the introduction of new publications and more rapid processing of data has permitted a much speedier dissemination of industry statistics. I am continuing to seek ways of improving the content and timing of such material.

2. REGISTRATION OF COMPANIES

6. During the year H.C.F. Life Insurance Company Limited was granted registration in accordance with section 19 of the Act.

7. The registration of Shield Life Assurance Limited, whose life insurance business was transferred to Commonwealth General Assurance Corporation Limited, was cancelled in accord­ ance with section 23A of the Act.

8. During the year the following companies changed their names — • Ajax Insurance Company Limited to Citigeneral Insurance Australia Limited.

• Surrey Insurance Company Limited to Citilife Insurance Australia Limited.

9. As at 31 December 1981 there were 45 companies (listed in Appendix II) registered under ■the Act. of which 10 were Australian controlled. During the year Mercantile Mutual Insurance Company Limited ceased being Australian controlled and H.C.F. Life Insurance Company Limited was registered as an additional Australian controlled company.

3. TRANSFERS OF BUSINESS

10. On 11 December 1981 the Federal Court of Australia confirmed a scheme for the transfer of the life insurance business of Citigeneral Insurance Australia Limited to Citilife Insurance Australia Limited with effect from that date.

4. UNCLAIMED MONEYS

11. This year $595 263.79 was received as unclaimed moneys compared with $428 264.72 in 1980.

12. As required by section 106 of the Act, details of each unclaimed amount of $20 or more were published in the Commonwealth of Australia Gazette, No P5 of 29 June 1981.

13. During the year 115 claims amounting to $31 337.40 were paid to claimants compared with 109 claims totalling $13 682.53 paid in 1980.

14. Most unclaimed moneys arise from industrial endowment insurance policies where premium payments have been discontinued during the term of the policy. In such cases the policies are made paid-up for reduced sums in accordance with the Act rather than being forfeited. The lack of contact between a company and the policy owner after such a policy has been made paid-up sometimes results in difficulty in locating the beneficiary on maturity.

15. As at 31 December 1981 the total amount of unclaimed moneys still held was $2 855 341.89.

5. COMPLAINTS AND ENQUIRIES

16. An analysis of the number of complaints and enquiries during each of the past seven years is shown in the following table:

Subject Matter 1975 1976 1977 1978 /979 1980 1981

Amount offered or available as surrender value 112 175 264 198 189 177 151

Policy lapsed because of non-payment of premiums 1 — 1 — — 3 2

Amount offered or available as paid-up policy 2 1 1 1 2 1 3

Delay in settling a claim Inquiries regarding the proper maturity value and

6 9 13 3 6 13 7

liability of a company under a policy Request for information regarding insurance of

34 42 37 50 40 35 54

insurance companies 40 43 31 48 30 48 39

Enquiries regarding superannuation policies or plans 15 17 30 32 35 40 43

Miscellaneous 15 16 24 11 10 13 10

Total 225 303 401 343 312 330 309

17. The number of complaints and enquiries in 1981 shows a small decrease over 1980. On the other hand the 270 telephone complaints and enquiries received last year were considerably in excess of the 1980 figure.

18. The main cause of complaint or enquiry in 1981 was again the amount offered or available on the surrender of a policy. However, the number received under this heading is the lowest since 1975 and I am, of course, hopeful that this very welcome trend will continue.

19. In recent reports I have detailed various initiatives that have been taken in co-operation with the industry for prospective policyholders to be better informed regarding the financial loss that can be incurred on the surrender, particularly the early surrender, of life insurance policies. It is to be hoped that these initiatives are at least partially responsible for the reduction referred to. However, from an examination of individual complaints received it is obvious that many policyholders are still not aware of the extent of the financial loss that can be incurred. The following three examples taken from actual cases investigated by my office in 1981 will help to illustrate this point.

Example I “ Unbundled” type policy in force for three years total premiums paid $310. Surrender value quoted $12.40.

Example 2 “ Unbundled” type policy in force for approximately two years two months total premiums paid $1200. Surrender value quoted $323.30.

Example 3

Conventional whole life policy in force for just over five years total premiums paid approximately $1056. Surrender value quoted $275.76 20. Surrender values can and do vary considerably from company to company. However, it is possible for prospective policyholders to obtain, preferably in writing, estimated surrender values at various durations prior to effecting a policy. This is valuable in allowing a full consideration, along with other factors, of the benefits of the policy. This may be particularly so in the case of

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conventional whole life or endowment policies which do not normally detail the minimum values available in the policy document. Of course, life insurance is essentially a long term contract and it is not normally appropriate to buy it with the intention of surrendering before maturity.

21. “ Unbundled” policies basically provide for a death benefit plus some type of identifiable “ Savings Account” or “ Investment Account” the balance of which usually becomes the benefit payable in certain circumstances, generally after a considerable number of years have elapsed and a reasonably substantial balance has accumulated in the account.

22. In March 1979 I issued Circular No 144 which set out guidelines for “ unbundled” policies. The main thrust of these guidelines was to ensure that the relevant terms and conditions, as well as policyholders entitlements, are adequately set out in the policy document. They also required

that a fully detailed statement of account be issued at regular intervals.

23. The main reason why surrender values, particularly in the early years of the term of the policy, are so much less than the premiums paid, is that a large part of the insurance agents or intermediaries remuneration is usually by way of an initial commission paid when the policy is effected and not over the duration of the contract. This commission together with the initial

administration expenses incurred by a company can be as much as and even more than the first annual premium. These initial expenses have to be recovered over the term of a policy and therefore when a policy is surrendered a company has to recover the balance of these expenses. The earlier the surrender of a policy the bigger the impact these expenses will have on the surrender value available.

24. Most companies these days provide more detailed information, particularly on request on surrender values. As with any contract a consumer should ensure that he has available all information which he considers relevant to his decision.

6. THE TREND OF LIFE INSURANCE BUSINESS IN AUSTRALIA

(a) GROWTH OF BUSINESS IN FORCE 25. The following table details the amounts of new business written, discontinued and in force in recent years. The 1979 and subsequent figures include State Government Insurance Offices for the first time. Figures for previous years do not. The figures for 12 months ended 30 September

1981 were obtained from the September Quarterly Statistical Bulletin and more up to date figures will be available in the December 1981 and subsequent editions, where details by individual company are also shown.

26. The figures show that for the 12 month period ended 30 September 1981 there was an overall growth rate of 13.2% of annual premiums in force. Ordinary business grew at only 2.3% representing a further deterioration as compared with previous years. Superannuation business, however, grew at a sharply increased rate of 23.3% reflecting in part the Government’s 1980

Budget decision to allow a maximum $1200 tax deduction for superannuation contributions of self employed persons and others not members of an employer sponsored superannuation scheme. Industrial business in force decreased by a further 7.9%.

3

NUMBER OF POLICIES, SUM INSURED AND ANNUAL PREMIUMS

Number o f Policies Sum Insured Annual Premiums

Year Annual

Ended In Force In Force In Force Rate

31 New Dis- 31 New Dis- 31 New Dis- 31 Per Cent

December Business continued December Business continued December Business continued December Increase

No *000 No *000 No *000 Sm Sm Sm Sm Sm Sm < Z

ORDINARY BUSINESS

1971 560 285 5 007 4 803 1 538 22 563 90.2 28.0 513.8 13.8

1972 568 319 5 256 5 567 1 908 26 222 99.2 33.9 579.1 12.7

1973 523 255 5 524 6 275 2 049 30 448 93.2 34.5 637.8 10.1

1974 484 407 5 601 6 694 2 689 34 453 90.3 52.0 676.1 6.0

1975 474 441 5 634 7 890 3 189 39 154 98.0 57.9 716.2 5.9

1976 456 466 5 624 9 106 4 263 43 997 99.8 67.0 749.0 4.6

1977 458 464 5 618 10 458 4 698 49 757 105.8 72.9 781.9 4.4

1978 453 148 5 923 11 790 5 069 56 478 111.3 80.2 813.0 4.0

1979 (a) 456 610 5 979 13 904 7 429 64 447 126.0 97.4 868.2 3.4

1980 (b) 425 663 5 741 13 922 8 206 70 163 130.5 102.5 896.2 3.2

12 mths ended 30-9-81 (e) 389 609 5 599 13 439 8 733 73 399 126.6 106.1 906.9 2.3

INDUSTRIAL BUSINESS

1971 136 165 2 467 233 116 1 332 8.0 4.5 52.0 7.3

1972 135 222 2 380 258 144 1 446 8.8 5.4 55.4 6.7

1973 118 198 2 300 254 161 1 539 8.5 5.5 58.4 5.5

1974 86 228 2 158 217 180 1 576 7.1 6.9 58.6 0.4

1975 62 209 2 011 188 166 1 598 6.2 6.1 58.7 0.1

1976 57 206 1 862 197 165 1 630 6.5 6.0 59.2 0.8

1977 49 205 1 706 184 188 1 626 6.1 6.8 58.5 - 1.1

1978 39 570 1 175 220 397 1 449 5.3 14.7 49.1 - 16.1

1979 (a) 34 128 1 081 220 192 1 477 5.1 6.4 47.8 - 7 . 3

1980(b) 28 119 990 193 207 1 463 4.4 6.5 45.7 - 4 . 4

12 mths ended 30-9-81 (c) 17 115 918 119 209 1 378 2.9 6.5 42.6 - 7 . 9

SUPERANNUATION BUSINESS

1971 79 81 654 2 794 1 131 9 429 72.7 29.0 252.7 20.9

1972 80 66 668 2 919 1 315 11 033 77.7 32.7 297.7 17.8

1973 69 114 623 3 792 1 801 13 024 93.8 44.0 347.5 16.7

1974 88 95 616 5 429 1 901 16 552 138.5 48.5 437.5 25.9

1975 114 71 659 6 974 2 682 20 844 177.0 66.8 547.7 25.2

1976 115 136 638 7 842 3 421 25 265 179.4 89.2 637.9 16.5

1977 108 80 666 8 443 3 799 29 909 200.7 97.3 741.3 16.2

1978 95 80 681 9 329 4 664 34 574 203.2 118.2 826.3 11.4

1979(a) 99 82 721 10 720 4 833 40 947 218.0 113.2 946.1 12.5

1980(b) 130 69 782 14 314 6 088 49 173 296.7 133.3 1 109.5 17.3

12 mths ended 30-9-81 (c) 194 74 873 19 585 6 817 59 094 395.5 151.9 1 290.3 23.3

TOTAL BUSINESS

1971 775 531 8 128 7 830 2 785 33 324 170.9 61.5 818.5 15.4

1972 783 607 8 304 8 744 3 367 38 701 185.7 72.0 932.2 13.9

1973 710 567 8 447 10 321 4 011 45 011 195.5 84.0 1 043.7 12.0

1974 658 730 8 375 12 340 4 770 52 581 235.9 107.4 1 172.2 12.3

1975 650 721 8 304 15 052 6 037 61 596 281.2 130.8 1 322.6 12.8

1976 628 808 8 124 17 145 7 849 70 892 285.7 162.2 1 446.1 9.3

1977 615 749 7 990 19 085 8 685 81 292 312.6 177.0 1 581.7 9.4

1978 587 798 7 779 21 339 10 130 92 501 319.8 213.1 1 688.4 6.8

1979(a) 589 820 7 781 24 844 12 454 106 871 349.1 217.0 1 862.1 7.6

1980(b) 583 821 7 543 28 429 14 501 120 799 431.6 242.3 2 051.4 10.2

12 mths ended 30-9-81 (c) 600 798 7 390 33 143 15 759 133 871 525.0 264.5 2 239.8 13.2

(a) Includes State Government Insurance Offices, previous years do not (b) Revised (c) Figures taken from Quarterly Statistical Bulletin for September 1981

4

(b) NEW BUSINESS AND DISCONTINUANCES

27. Total new annual premiums written in the 12 months ended 30 September 1981 amounted to $525 million an increase of 26.8% as compared with similar figures for 12 months ended 30 September 1980. The corresponding increase for Superannuation business was 43.1 % with a decrease for Ordinary business of —4.7% and industrial business — 39.8%.

28. In addition, single premiums amounting to $100.9 million (Ordinary and Industrial) and $133.1 million (Superannuation) were also written in the 12 months ended 30 September 1981. This represents a substantial increase on the figures shown in Table 4 of the Half Yearly Financial and Statistical Bulletin for December 1980. These figures were for financial years ending between

1 January and 31 December 1980 and showed single premiums written of $43.7 million (Ordinary and Industrial) and $102.9 million (Superannuation).

29. The following table gives new business and discontinuance break-downs in recent years. The growing (and very wasteful) effect of surrenders and forfeitures is particularly noticeable. For example, for the 12 months ended 30 September 1981 there was a 14.3% increase for Ordinary business by way of new business but 9.9% was discontinued by way of surrender and forfeiture and a further 2.1% for other reasons, leaving a net growth of only 2.3%. For Superannuation business there was an increase of 37.8% by way of new business with 10.6% discontinued by

way of surrender and forfeiture and a further 3.9% for other reasons, leaving a much reduced net growth of 23.3%.

5

ANNUAL PREMIUMS WRITTEN, DISCONTINUED AND IN FORCE EXPRESSED AS A PERCENTAGE OF IN FORCE AT BEGINNING OF YEAR

Discontinuances

In Force

Year Business

Death or Disability Maturity Surrender Fortfeiture Other

at End o f Period

% % % c/( °/c % c/c

ORDINARY BUSINESS

1971-72 20.0 0.5 1.0 3.1 1.7 -0 .1 1 13.8

1972-73 19.1 0.4 1.0 3.3 1.8 - 1 12.6

1973-74 16.1 0.4 1.0 3.3 1.7 - 1.1 1 10.8

1974-75 14.1 0.4 1.1 4.5 1.9 0.7 105.5

1975-76 14.3 0.4 1.1 5.1 1.9 0.1 105.7

1976-77 13.9 0.4 1.1 5.8 2.0 1.0 103.6

1977-78 14.2 0.4 1.2 6.4 2.3 - 0 . 9 104.8

1978-79 14.5 0.3 1.2 6.6 2.5 - 0.4 104.3

1979-80 15.3 0.3 1.2 7.0 2.7 0.9 103.2

1980 15.0 0.3 1.3 7.3 2.6 - 0 .3 103.8

12 mths ended 30-9-81 (a) 14.3 0.3 1.4 7.4 2.5 0.4 102.3

INDUSTRIAL BUSINESS

1971-72 16.5 0.3 1.1 3.6 4.2 0.4 106.9

1972-73 16.6 0.3 1.7 3.3 4.6 0.3 106.4

1973-74 16.1 0.3 1.7 3.3 4.7 - 0 . 6 106.7

1974-75 12.1 0.2 1.7 4.8 5.2 0.3 99.9

1975-76 10.5 0.2 1.7 4.8 3.5 0.3 100.0

1976-77 11.1 0.2 1.8 5.0 3.1 0.2 100.8

1977-78 10.4 0.3 1.9 5.7 3.4 0.2 98.9

1978-79 9.7 0.2 1.6 6.4 3.7 0.2 97.6

1979-80 9.4 0.2 1.3 5.9 4.1 9.5(b) 88.4

1980 9.3 0.2 1.5 7.1 4.5 0.3 95.7

12 mths ended 30-9-81 (a) 6.2 0.2 1.6 7.5 4.4 0.4 92.1

SUPERANNUATION BUSINESS

1971-72 34.2 0.5 0.9 9.9 0.2 2.2 120.5

1972-73 30.9 0.5 0.9 8.8 0.2 2.5 1 18.0

1973-74 31.2 0.5 0.9 10.4 0.2 2.1 1 17.1

1974-75 39.5 0.4 1.1 10.6 0.3 1.9 125.2

1975-76 40.4 0.4 1.1 11.2 0.4 2.0 125.3

1976-77 33.5 0.4 1.1 11.2 0.5 2.8 1 17.5

1977-78 31.3 0.3 1.2 11.1 0.7 2.2 1 15.8

1978-79 28.3 0.3 1.2 10.7 0.6 2.8 112.7

1979-80 25.6 0.3 1.0 9.6 0.6 2.5 111.6

1980 30.7 0.3 1.2 9.5 0.6 2.9 1 16.2

12 mths ended 30-9-81 (a) 37.8 0.4 0.9 9.9 0.7 2.6 123.3

(a) Figures taken from Quarterly Statistical Bulletin for September 1981. (b) Includes Industrial Business transferred to Ordinary Business

(c) TYPE OF POLICY

30. The following table shows, for recent years, the distribution of new policies by type of policy. The table has been extended and altered to bring it into line with the classification of new business used in the Quarterly Statistical Bulletin. The table shows that for the 12 months ended 30 September 1981 only 42.3% of Ordinary business is now being written on a conventional whole of life and endowment basis compared with 95.3% ten years ago, and only 10.1% of Superannuation business as compared with 37.8% ten years ago. The higher increase in individual investment account business is also noticeable, particularly for Superannuation business, again reflecting in part the 1980 Budget decision previously referred to. The steady growth in Accident

and Sickness business is also noticeable. 6

NEW BUSINESS BY TYPE OF POLICY

Distribution o f New Annual Premiums

Individual Whole of Life and Endowment

(I)

Individual Term (2)

Individual Investment Account and Investment-

linked (a) (3)

Individual Accident Sickness and Disability (a)

(4)

Life and

Credit Life (a) (5)

Other (6)

Total (7)

% % % % % % %

1971-72 95.3 3.3

ORDINARY BUSINESS

1.4 100.0

1972-73 94.5 3.9 — — — 1.6 100.0

1973-74 92.6 5.7 — 0.2 — 1.5 100.0

1974-75 90.2 7.4 — 0.8 — 1.6 100.0

1975-76 88.4 9.0 — 1.2 — 1.4 100.0

1976-77 80.0 14.9 — 3.7 — 1.4 100.0

1977-78 75.3 19.0 — 4.2 — 1.5 100.0

1978-79 63.3 19.9 9.3 5.8 — 1.7 100.0

1979-80 55.0 22.1 14.2 8.0 — 0.7 100.0

1980(b) 44.2 17.6 23.0 9.2 5.4 0.6 100.0

12 mths ended 30-9-8 Kb) 42.3 18.2 24.0 10.3 4.5 0.7 100.0

1971-72 99.2

INDUSTRIAL BUSINESS

0.8 100.0

1972-73 99.2 — — — — 0.8 100.0

1973-74 99.2 — — — — 0.8 100.0

1974-75 99.4 — — — — 0.6 100.0

1975-76 99.6 — — — — 0.4 100.0

1976-77 99.6 — — — — 0.4 100.0

1977-78 99.5 0.1 — — — 0.4 100.0

1978-79 97.1 2.7 — 0.1 — 0.1 100.0

1979-80 95.6 3.2 — 1.1 — 0.1 100.0

1980(b) 96.9 3.1 — — — — 100.0

12 mths ended 30-9-81 (b) 97.4 2.6 — — — — 100.0

1971-72 37.8 0.1

SUPERANNUATION BUSINESS

12.1 50.0 100.0

1972-73 35.9 0.2 — — 11.4 52.5 100.0

1973-74 35.1 0.6 — — 10.5 53.8 100.0

1974-75 31.4 0.6 — — 10.0 58.0 100.0

1975-76 28.4 0.7 — — 8.7 62.2 100.0

1976-77 27.9 1.0 — — 8.9 62.2 100.0

1977-78 26.3 1.1 — — 8.5 64.1 100.0

1978-79 21.0 1.1 4.2 — 8.0 65.7 100.0

1979-80 17.9 1.3 5.6 — 8.2 67.0 100.0

1980(b) 12.5 1.2 16.7 0.4 5.9 63.3 100.0

12 mths ended 30-9-81 (b) 10.1 1.5 25.1 0.3 5.2 57.8 100.0

(a) Not separately available for previous years. (b) Figures taken form Quarterly Statistical Bulletin for September 1981.

31. Some indication as to the response to the 1980 Budget decision can be deduced as follows— Number of Policies The number of superannuation policies issued for the 12 months ended 31 December 1979 was approximately 100 000 and has been static at approximatly this figure for a number of years. For the 12 months ended 31 December 1980, the number of superannuation

policies issued increased by approximately 30 000 to 130 000 and for the 12 months ended 30 September 1981 increased by a further 64 000 to 194 000. Most of this increase would have been due to individually issued superannuation policies for self employed persons and others not members of an employer sponsored superannuation scheme.

7

New Annual Premiums Taking the percentages for individually issued policies given in the table above and applying these to the total of new annual premiums for superannuation business given earlier, the following table can be deduced —

NEW ANNUAL PREMIUMS FOR INDIVIDUALLY ISSUED SUPERANNUATION POLICIES

12 Months Ended New Annual Premiums Increase

$m $m

31 December 1979 59.3

31 December 1980 78.3 19.0

30 September 1981 146.3 72.0

32. Most of this increase in new annual premiums written of $19 million in 1980 and $72 million in the 12 months to 30 September 1981 would have been for self-employed persons and others not members of an employers’ sponsored superannuation scheme.

(d) SURRENDERS 33. The following table shows surrender rates for Ordinary and Superannuation business in recent years. The rates for Ordinary business have been calculated as the ratio o f the total annual premiums discontinued by surrender in the year shown to the mean o f the annual premiums in force at the beginning o f the previous year and the year previous to that, thus allowing roughly

for the fact that an Ordinary policy cannot usually be surrendered until it has been in force for at least two years. The rates for Superannuation business have been calculated as the ratio o f the total annual premiums discontinued by surrender in the year shown to the total annual premiums in force at the beginning o f the year. Figures are for financial years ending from August to the following June of the years shown except for the last row of figures which have been taken from the Quarterly Statistical Bulletin for the 12 months ended 30 September 1981. The 1978-79 and

1979-80 figures include the State Government Insurance Offices. The previous years do not. For further comments concerning surrenders, reference to previous Annual Reports could be made.

SURRENDER RATES

Ordinary Business Superannuation Business

Annual Premiums Surrender Annual Premiums Surrender

Year Surrendered Rate Surrendered Rate

$'000 % $'000 %

1969-70 9 596 4.6 12 837 8.4

1970-71 11 950 3.5 18 049 10.2

1971-72 14 142 3.7 20 730 9.9

1972-73 17 262 4.0 22 242 8.8

1973-74 18 850 3.9 30 749 10.4

1974-75 29 241 5.3 36 879 10.6

1975-76 34 591 5.7 48 797 11.2

1976-77 41 362 6.2 60 820 11.2

1977-78 47 163 6.8 70 980 11.1

1978-79 53 141 7.1 80 836 10.7

1979-80 58 664 7.6 81 372 9.6

1980-81 62 322 7.6 89 975 9.5

12 months ended 30-9-81 (a) 68 966 8.2 104 089 9.9

(a) Figures taken from Quarterly Statistical Bulletin for September 1981.

(e) FORFEITURES 34. The following table shows the forfeiture rates for Ordinary and Superannuation business in recent years. The rates have been calculated as the annual premium forfeited in a year as a percentage o f the mean o f new annual premiums written in that year and the preceding year. Figures for the financial years ending from August to the following June of the years shown

8

except for the last row of figures, which have been taken from the Quarterly Statistical Bulletin for the 12 months ended 30 September 1981. For further comments concerning forfeitures, reference to previous Annual Reports could be made.

FORFEITURE RATES

Year

Ordinary Business Superannuation Business

Annual Premiums Forfeited

Forfeiture Rate

Annual Premiums Forfeited

Forfeiture Rate

$'000 % $'000 %

1969-70 5387 8.9 350 0.9

1970-71 7175 10.4 421 0.8

1971-72 8091 9.8 518 0.8

1972-73 9540 10.0 548 0.7

1973-74 9977 10.4 704 0.8

1974-75 11966 13.0 1075 0.9

1975-76 13150 14.0 1711 1.1

1976-77 14522 14.7 2707 1.5

1977-78 17297 16.9 4218 2.2

1978-79 20333 18.1 4539 2.2

1979-80 22573 18.4 5446 2.5

1980-81 22521 17.8 6101 2.4

12 months ended 30-9-81 (a) 22398 17.3 7017 2.1

(a) Figures taken from Quarterly Statistical Bulletin from September 1981.

7. INVESTMENTS OF STATUTORY FUNDS

35. Table 3 of the Half Yearly Statistical Bulletin of the Life Insurance Commissioner gives details of life office investments held by individual life companies. This analysis is based on the most recent annual balancing dates of the companies included and is well out of date by the time the Statistical Bulletin is published. A more up to date analysis of life office investments held in

Australia, giving aggregate information only, is available from an analysis of the Quarterly Form 6 returns. The latest figures shown below are as at 30 June 1981. More up to date figures as at 31 December 1981 will be provided in a circular to be issued at the same time as the Annual Report is released. The figures may differ slightly from those shown at annual balancing dates being

ledger balances without end of year adjustments and excluding certain current asset items.

9

ASSETS AND SELECTED LIABILITIES IN AUSTRALIA OF LIFE INSURANCE STATUTORY FUNDS (IN RESPECT OF ALL COMPANIES AND STATE GOVERNMENT INSURANCE OFFICES).

Assets

31 Dec 1979

30 June 1980

31 Dec 1980

30 June 1981

$m $m $m $m

Fixed Assets Property 3 124.8 3 218.6 3 527.7 3 686.6

Furniture etc 39.2 48.6 42.0 43.4

Total Fixed Assets 3 164.0 3 267.2 3 569.7 3 730.0

Loans (excluding Advances of Premiums) On Mortgage Rural 72.1 66.9 67.8 74.4

Housing 486.2 488.3 497.3 509.5

Other 673.6 689.0 692.1 708.7

On Policies 301.5 312.1 319.6 330.7

To Controlled Companies 78.3 93.2 100.4 103.4

To Building or Housing Societies 6.6 6.4 8.5 11.3

Other 49.4 64.5 83.3 82.5

Total Loans 1 667.7 1 720.4 1 769.0 1 820.5

Investments Government Securities 2 887.3 2 873.1 3 096.8 3 124.9

Local Government Securities 1 199.2 1 264.3 1 344.6 1 433.5

Debentures 827.3 819.1 794.2 765.6

Secured and Unsecured Notes 169.8 200.1 224.2 260.7

Preference Shares 70.1 63.9 68.4 62.9

Ordinary Shares 2 496.7 2 791.6 3 221.4 3 408.5

Holdings in Controlled Companies 125.2 141.8 167.1 240.1

Other 94.2 110.7 178.2 231.8

Total Investments 7 869.8 8 264.6 9 094.9 9 528.0

Cash On Deposit Banks 0.2 3.8 5.6 2.6

Official Short-term Money Market 121.9 185.1 42.3 131.7

Other 47.4 162.6 67.2 118.4

On Current Account & in Hand 51.6 48.2 92.0 127.3

Total Cash 221.1 399.7 207.1 380.0

Total Assets (a) 12 922.6 13 651.9 14 640.7 15 458.5

Selected Liabilities Bank Overdraft 111.5 145.1 124.5 205.4

Deposits 116.5 110.4 143.2 107.1

Total Selected Liabilities 228.0 255.5 267.7 312.5

(a) Excludes outstanding premiums (including advances of premiums), interest, dividends and rents accruing but not due; outstanding interest, dividends and rents; sundry debtors and miscellaneous assets.

36. The following table shows the trend in asset holdings in Australia of life insurance statutory funds since 30 June 1971. The swing away from assets such as loans on mortgage and fixed interest investments and towards equity and property investments partly reflects a changing emphasis in investment management in line with a changing market and marketing concepts and the development of new policies. Property continues to be the largest single asset category closely followed by Ordinary shares. If these two categories of investment had been valued at full market

value (which is not necessarily the case) it is probable that over 50% of investments of statutory funds can now be said to be invested in equity type investments.

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I

PERCENTAGE DISTRIBUTION OF ASSETS HELD IN AUSTRALIAN LIFE INSURANCE STATUTORY FUNDS

As at 30 June

Assets 1971 1973 1975 1977 1979 1981

% % % % % %

Fixed Assets Property 14.81 18.16 21.57 23.03 23.36 23.85

Furniture etc 0.19 0.22 0.26 0.28 0.26 0.28

Total Fixed Assets 15.00 18.38 21.83 23.31 23.62 24.13

Loans (excluding Advances of Premiums) On Mortgage Rural 2.14 1.52 1.15 0.80 0.59 0.48

Housing 7.49 6.19 5.62 4.79 4.19 3.30

Other 11.09 8.87 8.22 6.76 5.56 4.59

On Policies 4.05 3.43 3.04 2.68 2.43 2.14

To Controlled Companies 0.34 0.39 0.37 0.52 0.60 0.67

To Building or Housing Societies 0.20 0.15 0.09 0.06 0.05 0.07

Other 0.25 0.26 0.25 0.24 0.35 0.53

Total Loans 25.56 20.81 18.74 15.85 13.77 11.78

Investments Government Securities 23.73 23.59 23.10 23.42 22.34 20.22

Local Government Securities 9.19 8.70 8.78 9.26 9.51 9.27

Debentures 7.70 7.79 7.88 6.89 6.38 4.95

Secured and Unsecured Notes 1.94 1.97 1.53 1.54 1.42 1.69

Prelerence Shares 1.35 1.11 0.94 0.63 0.54 0.41

Ordinary Shares 14.83 16.24 15.53 16.96 17.55 22.05

Holdings in Controlled Companies 0.35 0.63 0.76 0.73 1.07 1.55

Other 0.02 0.06 0.04 0.82 0.93 1.50

Total Investments 59.11 60.09 58.56 60.25 59.74 61.64

Cash On Deposit Banks 0.01 0.02 0.22 0.00 0.04 0.03

Official Short Term Money Market 0.08 0.18 0.22 0.18 1.32 0.85

Other 0.20 0.45 0.36 0.35 1.19 0.75

On Current Account and in Hand 0.04 0.07 0.07 0.06 0.32 0.82

Total Cash 0.33 0.72 0.87 0.59 2.87 2.45

Grand Total 100.00 100.00 100.00 100.00 100.00 100.00

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37. An interesting comparison is that between non-investment linked and investment linked assets. This is shown in the table below.

COMPARISON OF TOTAL ASSETS AND SELECTED LIABILITIES IN AUSTRALIA OF STATUTORY FUNDS MAINTAINED IN RESPECT OF NON-INVESTMENT LINKED AND INVESTMENT LINKED BUSINESS — AS AT 30 JUNE 1981

Assets

Non Investment Linked

Investment Linked

Total

Business

$m % (a) $m % (a) $m % (a)

Fixed Assets Property 2 771.0 22.8 915.6 27.7 3 686.6 23.8

Furniture etc 42.8 0.4 0.6 0.0 43.4 0.3

Total Fixed Assets 2 813.8 23.2 916.2 27.7 3 730.0 24.1

Loans (excluding Advances of Premiums) On Mortgage Rural 74.2 0.6 0.2 0.0 74.4 0.5

Housing 509.5 4.2 — — 509.5 3.3

Other 687.8 5.7 21.0 0.7 708.8 4.6

On Policies 330.7 2.7 — — 330.7 2.1

To Controlled Companies 89.1 0.7 14.3 0.4 103.4 0.7

To Building or Housing Societies 11.3 0.1 — — 11.3 0.1

Other 79.0 0.7 3.3 0.1 82.5 0.5

Total Loans 1 781.6 14.7 38.8 1.2 1 820.5 11.8

Investments Government Securities 2 576.8 21.2 548.1 16.6 3 124.9 20.2

Local Govt Securities 1 194.3 9.8 239.1 7.2 1 433.4 9.3

Debentures 655.7 5.4 109.9 3.3 765.6 4.9

Notes 176.8 1.5 84.0 2.5 260.8 1.7

Preference Shares 61.6 0.5 1.3 0.0 62.9 0.4

Ordinary Shares 2 377.0 19.6 1 031.5 31.2 3 408.5 22.0

Holdings in Controlled Companies 171.0 1.4 69.0 2.1 240.0 1.6

Other 137.2 1.1 94.6 2.9 231.8 1.5

Total Investments 7 350.4 60.5 2 177.7 65.8 9 528.1 61.6

Cash On Deposit Banks 2.6 0.0 0.0 0.0 2.6 0.0

Official Short-term Money Market 51.5 0.4 80.1 2.4 131.6 0.9

Other 101.9 0.8 16.5 0.5 118.4 0.8

On Current Account and In Hand 49.3 0.4 78.0 2.4 127.3 0.8

Total Cash 205.3 1.6 174.6 5.3 380.0 2.5

Total Assets 12 151.2 100.0 3 307.3 100.0 15 458.5 100.0

Selected Liabilities Bank Overdraft 204.6 - 0.8 - 205.4 1.3

Deposits 106.5 - 0.6 - 107.1 0.7

Total Selected Liabilities 311.1 - 1.4 - 312.5 2.0

(a) Percentage of Total Assets

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Bank Overdrafts and Deposits 38. The following table shows bank overdrafts and deposits as percentages of total assets for the past 10 years.

As at 30 June Bank Overdrafts Deposits

% %

1972 0.59 0.48

1973 0.75 0.59

1974 0.82 0.49

1975 0.58 0.61

1976 0.84 0.35

1977 1.00 0.38

1978 1.21 0.67

1979 1.21 0.54

1980 1.06 0.81

1981 1.32 0.69

Comments 39. It needs to be emphasized that the above comparisons are based on investments at book value which, for most companies and for non-investment linked business, is at cost plus, in the case of fixed interest securities, an amortization to maturity adjustment. In general terms market values of equity type investments are presently substantially above book values and of fixed interest

securities substantially below book values. This has a number of distorting effects — • It distorts the comparison between non-investment linked and investment linked business, since the latter is valued at market value and the former is not. This is particularly noticeable for Government and Local Government securities where the percentage shown is 31.0% for

non-investment linked business and 23.8% for investment linked business; the Ordinary Shares percentage comparison of 19.6% for non-investment linked business and 31.2% for investment linked business is similarly suspect.

• The absolute increases in holdings at the various dates shown are distorted to the extent that the market value revaluations have been made in equity type securities and not in other types.

It would have been preferable (if it had been possible) for some or all of the above comparisons and trends to have been made at market value.

8. OTHER ASSETS OF LIFE COMPANIES

40. Table 13 has been included in the June 1981 Half Yearly Financial and Statistical Bulletin which shows assets and liabilities held by life companies in Australia in addition to those held in statutory funds. These represent shareholders’ funds in the main and a total of some $246 million is shown. Excluded were composite companies (i.e. non-life and life combined) to avoid duplication with statistics prepared by the Insurance Commissioner. Branches of overseas life companies were also excluded.

9. EARNED INTEREST RATES

41. The average rates of interest for each class of business and for all classes of business are given below. The rates were calculated on the basis of data supplied in the annual returns of all companies and for financial years ending from August of the year shown to June of the following year. Commencing with 1978-79 the figures include the results of State Government Insurance

Offices. Net interest rates for individual companies and State Government Insurance Offices are given in the Half Yearly Financial and Statistical Bulletin.

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NET INTEREST RATE TRENDS — ALL COMPANIES — AUSTRALIA AND OVERSEAS

Year C r o . „

Ordinary Net

Industrial

Gross Net

Superannuation Gross Net

All Classes Gross Net

% c/c % c/c c/c % % c/(

Australian Business

1964-65 6.20 5.60 6.19 5.47 6.15 6.09 6.19 5.68

1970-71 6.70 6.02 6.87 6.13 6.57 6.48 6.68 6.14

1971-72 6.75 6.11 6.62 5.95 6.64 6.51 6.71 6.20

1972-73 6.84 6.23 6.72 6.11 6.64 6.50 6.78 6.29

1973-74 6.94 5.69 6.86 5.54 6.83 6.70 6.91 5.95

1974-75 7.38 5.77 7.24 5.53 7.51 7.29 7.41 6.17

1975-76 7.52 6.03 7.45 5.96 7.77 7.54 7.59 6.46

1976-77 7.82 6.16 7.68 5.96 8.02 7.83 7.88 6.67

1977-78 8.26 6.25 7.96 6.09 8.26 8.08 8.25 6.86

1978-79 8.83 6.69 8.47 6.58 8.61 8.41 8.73 7.30

1979-80 9.14 6.93 7.64 6.65 8.75 8.66 8.93 7.55

1980-81 9.48 7.28 9.37 7.33 8.91 8.86 9.24 7.95

Overseas Business

1964-65 5.97 5.50 5.79 5.30 5.88 5.46 5.96 5.49

1970-71 6.71 6.08 6.36 5.82 6.35 5.96 6.68 6.06

1971-72 6.98 6.32 6.36 5.82 6.42 6.08 6.93 6.29

1972-73 6.87 6.26 6.46 5.92 6.31 6.02 6.82 6.24

1973-74 6.95 6.39 6.78 6.18 6.75 6.46 6.93 6.38

1974-75 7.32 6.64 6.92 6.31 7.00 6.69 7.28 6.63

1975-76 7.07 6.53 6.40 5.88 6.61 6.46 7.02 6.51

1976-77 7.98 7.30 7.44 6.88 7.68 7.55 7.94 7.31

1977-78 8.62 7.69 7.73 6.91 8.28 8.15 8.57 7.71

1978-79 8.88 7.98 7.91 7.32 8.93 8.81 8.86 8.04

1979-80 9.62 8.57 8.54 7.52 9.42 9.32 9.59 8.61

1980-81 9.95 9.17 9.37 8.10 10.11 10.05 9.96 9.23

42. The gross and net interest rate for each and all classes of business continued to rise with the higher yields available on new investments. It is interesting to note that, due to the increased tax burden placed on investment income since 1973, the net interest rate in respect of Australian Ordinary business has risen by 1.26% since 1970-71 while the gross interest rate has increased by 2.78%.

43. On the basis of the 1980-81 figures the tax burden on Australian Ordinary business represented 2.20% and on Overseas Ordinary business 0.78%.

44. Income tax for life insurance companies in Australia is assessed for the most part on the investment income of life insurance funds. Because interest earned on funds over and above that assumed in the actuarial valuation of policy liabilities is an important source of surplus produced,

the heavier income tax payable on investment earnings has had the effect of reducing the amount of surplus otherwise available for distribution to policyowners and shareholders.

45. As little, if any, income tax is payable in respect of Superannuation business there is no significant difference between the gross and net rates of interest earned for that class of business. The difference is largely attributed to taxes other than income tax.

10. EXPENSE RATES

46. Expense rates for all companies and for each class of Australian business are given in the table below. The rates were derived from the annual returns of all companies with financial years ending from August of the year shown to June of the following year. Commencing with the year 1978-79 the figures include the results of the State Government Insurance Offices. Expense rates for individual companies and State Government Insurance Offices are given in the half yearly Financial Statistical Bulletin.

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EXPENSE RATE TRENDS — ALL COMPANIES — AUSTRALIA

Year Ordinary Industrial Superannuation

All

Classes

% % % %

1964-65 22.0 32.5 12.8 20.5

1970-71 25.4 33.1 11.8 21.8

1971-72 27.5 35.6 11.9 23.2

1972-73 27.9 36.8 11.0 22.9

1973-74 28.3 37.0 11.4 23.1

1974-75 31.1 37.1 13.2 24.9

1975-76 33.3 38.0 14.0 25.6

1976-77 34.4 38.7 14.8 25.9

1977-78 36.0 39.3 14.5 26.1

1978-79 37.1 38.3 13.8 25.8

1979-80 36.8 36.4 14.6 25.8

1980-81 37.4 38.5 16.4 26.3

47. Any examination of expense rates involves consideration of a number of technical problems arising from:

(a) the general practice in Australia of paying the large part of agency commission for the introduction of a policy at commencement and not over the duration of the contract; and (b) the relatively substantial expenses incurred in issuing the policy and in establishing the necessary records.

A substantial increase in new business will therefore be likely to engender an increase in expense rates.

48. The premium formulae used in calculating the rates of premium to be charged make appropriate provision for the incidence of initial and subsequent expenses. Accordingly, any detailed analysis of expense rates requires a comparison of actual expenses incurred with the loadings assumed in the premium calculations. Nevertheless, a review of the overall expense

rates incurred by the industry or by a company in successive years is useful in a broad assessment of cost trends.

49. In 1980-81 the expense rate for Ordinary business after a small decline in 1978-80 rose to a new peak of 37.4% thus recommencing the most unsatisfactory trend which has been evident in every year since 1970-71. Since that year the rate has risen from 25.4% to its present level of 37.4%. Naturally the higher the level of expenses the less a company is able to return to

policyholders. The containment of expenses continues to be the major problem facing manage­ ment today.

50. The table below analyses changes in the components of both Ordinary and Superannuation expenses. It has been expanded from previous years with the addition of 'Contributions to Staff Superannuation Fund' and ‘Taxes (other than those charged on Interest, Dividends and Rent)’.

51. It can be seen that for Ordinary business the main component of the increase in expense rates in 1980-81 was the rise in salaries. The expense rate for Superannuation business showed a substantial rise, the main cause being the increase in commissions which at 6.0% now account for 36.8% of all Superannuation business expenses.

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EXPENSE RATE — ORDINARY BUSINESS

1969- 1970- 1971- 1972- 1973- 1974- 1975- 1976- 1977- 1978- 1979- 1980-

Item 70 71 72 73 74 75 76 77 78 79 80 81

(a) (a)

% % % % % % % % % % % %

Commission 11.3 11.8 13.1 13.2 12.8 12.8 13.4 13.3 13.6 13.7 13.7 13.6

Salaries Contributions to Staff

7.2 7.3 7.6 7.6 8.0 9.3 10.0 10.6 10.8 10.9 10.8 11.2

Superannuation Fund Taxes (other than those charged (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) 2.0 2.2

on Interest, Dividends and Rents) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) 1.7 1.5

Other Expenses 6.0 6.3 6.8 7.1 7.5 9.0 9.9 10.5 11.6 12.5 8.6 8.9

Total 24.5 25.4 27.5 27.9 28.3 31.1 33.3 34.4 36.0 37.1 36.8 37.4

(a) includes State Government Insurance Offices (b) previously included in Other Expenses

EXPENSE RATE — SUPERANNUATION BUSINESS

Item

1969­ 70 1970­ 71

1971­ 72

1972­ 73 1973­ 74

1974­ 75

1975­ 76

1976­ 77

1977­ 78 1978­ 79

1979­ 80 (a)

1980­ 81 (a)

% % % % % % % % % % % %

Commission 3.7 3.6 3.6 3.4 3.4 4.0 4.6 5.0 4.9 4.6 4.9 6.0

Salaries 4.8 4.7 4.8 4.3 4.4 5.0 4.9 5.1 4.9 4.7 4.8 5.1

Contributions to Staff Superannuation Fund (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) 0.8 1.0

Taxes (other than those charged on Interest, Dividends and Rents) (b) (b) (b) (b) (b) (b) (b) (b) (b) (b) 0.7 0.6

Other Expenses 3.5 3.5 3.5 3.3 3.5 4.2 4.5 4.7 4.7 4.5 3.4 3.7

Total 12.0 11.8 11.9 11.0 11.3 13.2 14.0 14.8 14.5 13.8 14.6 16.4

(a) includes State Government Insurance Offices (b) previously included in Other Expenses

The same breakdown of expenses by separate category is given for individual companies in the Half Yearly Financial and Statistical Bulletin.

52. A further breakdown of the item “ Other Expenses” is given below.

EXPENSE RATE — OTHER EXPENSES

Item Ordinary Superannuation

% %

1. Travelling Expenses 0.6 0.3

2. Directors, Auditors, Medical, Legal, Actuarial Fees 0.6 0.2

3. Other Fees and Charges 0.5 0.2

4. Office Rent 1.1 0.5

5. Hire and Maintenance of Machines and Data Processing Charges 1.0 0.4

6. Advertising, New Business and Promotional Expenses 0.7 0.3

7. Printing & Stationery 0.8 0.3

8. Postage, Telephone and Telegraph 0.6 0.2

9. Office Expenses 0.8 0.4

10. General Expenses and Bank Charges 1.9 0.8

11. Long Service Leave 0.3 0.1

Total 8.9 3.7

A more detailed division on an amount basis is given in the Half Yearly Financial and Statistical Bulletin.

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53. To give some appreciation of the expense rates for individual companies compared with the average for the industry as a whole, a frequency distribution is given below.

DISTRIBUTION OF EXPENSE RATES — AUSTRALIA

Expense Rate

Number o f Companies

Ordinary Industrial Superannuation

(per cent) Under 20 6 — 8

20 and under 25 — — 2

25 and under 30 2 — 9

30 and under 35 4 — 4

35 and under 40 8 2 2

40 and under 45 7 1 3

45 and under 50 1 — 1

50 and under 55 10 — —

55 and under 60 1 — 2

Over 60 9 — 10

Average 1980-81 37.4 38.5 16.4

54. The expense rates of individual companies are fairly widely distributed and the average for the industry is mainly determined by the larger companies.

11. ANNUITIES

55. The following table shows the movement in annuity business transacted in Australia over the last ten years. The figures for 1978-79, 1979-80 and for the twelve months ended 30 September 1981 include business written by the Government Insurance Offices. The figures for the last period were taken from the Quarterly Statistical Bulletin for September 1981.

AUSTRALIAN ANNUITY BUSINESS — ALL COMPANIES

Issued Discontinued In Force at End o f Year Annuities

Paid in Year from Revenue Accounts

(8)

Number (1)

Amount per annum (2) Number

(3)

Amount per annum (4) Number

(5)

Amount per annum (6)

Annual Premiums (7)

No $'000 No $'000 No $'000 $'000 $'000

ORDINARY BUSINESS

1969-70 105 124 182 117 2 076 1 086 18 978

1970-71 52 76 201 94 1 923 1 067 16 982

1971-72 63 73 106 38 1 880 1 102 16 990

1972-73 72 116 88 57 1 864 1 161 14 1 106

1973-74 72 99 170 90 1 766 1 169 13 1 106

1974-75 22 24 157 95 1 631 1 098 11 1 223

1975-76 38 99 142 82 1 528 1 116 10 1 081

1976-77 29 57 96 54 1 461 1 119 8 1 102

1977-78 11 42 116 86 1 355 1 075 8 1 047

1978-79 24 63 126 96 1 288 1 068 5 990

1979-80 27 131 135 133 1 180 1 066 3 924

12 months ended 30-9-81 (a) 24 176 95 724 1 024 1 169 8 973

SUPERANNUATION BUSINESS

1969-70 66 5 011 41 7 792 967 25 363 8 387 3 147

1970-71 59 10 582 34 4 515 979 31 427 10 762 3 070

1971-72 52 12 884 33 4 687 998 39 623 12 114 4 001

1972-73 47 14 613 55 7 187 990 47 049 15 130 5 177

1973-74 23 14 303 57 9 138 956 52 214 18 773 2 117

1974-75 23 17 323 66 14 010 913 55 527 18 244 2 292

1975-76 27 27 839 50 12 205 880 71 161 23 321 2 625

1976-77 33 19 654 238 14 893 674 75 905 24 975 2 569

1977-78 31 20 139 48 22 395 668 73 667 25 545 2 158

1978-79 18 16 868 35 18 671 663 71 872 24 977 2 346

1979-80 12 17 218 42 9 647 633 79 443 28 772 2 779

12 months ended 30-9-81 (a) 124 21 190 121 17 178 638 88 140 30 366 3 087

(a) Figures taken from Quarterly Statistical Bulletin

56. The level of Ordinary annuity business continues to decline. Policies in force are now only 53% of the number in 1970-71.

57. Superannuation annuities appear to have taken a dramatic increase. However this is mainly due to one company, and for special reasons, and is not indicative of the industry as a whole. It will be noted that discontinuances are correspondingly high also.

12. OVERSEAS-CONTROLLED COMPANIES 58. As at 31 December 1981 thirty-five of the forty-five companies registered under the Act were either incorporated outside Australia or were subsidiaries of such companies. In addition there were three State Government Insurance Offices operating in the States of NSW, QLD and SA.

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59. The following table shows the proportion of total premium income received by these companies in Australia and the proportion of total assets held in Australia. The percentages are of totals including State Government Insurance Offices as from 1978-79.

AUSTRALIAN BUSINESS OF OVERSEAS COMPANIES

Total Premium Income Total Statutory Fund Assets

Amount

Percentage o f Total Amount

Percentage o f Total

$m % $m %

1971-72 167.1 19.6 834.2 13.4

1972-73 198.5 20.1 957.4 13.6

1973-74 223.9 20.6 1113.8 14.3

1974-75 241.1 20.0 1212.9 14.7

1975-76 264.7 19.3 1341.0 14.8

1976-77 294.1 19.6 1477.2 15.0

1977-78 376.9 22.6 1676.2 15.5

1978-79 362.4 20.1 1862.3 15.1

1979-80 397.1 20.5 2058.8 15.2

1980-81 487.6 22.3 2182.5 14.8

60. In 1980-81, overseas controlled companies accounted for 22.3% of total premium income earned in Australia and owned 14.8% of total assets held in Australia.

61. Of the Australian companies, 5 conduct business overseas and the table below shows that in 1980-81 the earned premium of Australian companies operating overseas was 10.5% less than premiums earned in Australia by overseas companies, and the Australian assets of overseas companies operating here were 30.5% less than the overseas assets of Australian companies.

RATIO OF PREMIUM INCOME RECEIVED AND ASSETS HELD BY OVERSEAS CONTROLLED COMPANIES IN AUSTRALIA TO PREMIUM INCOME RECEIVED AND ASSETS HELD OVERSEAS BY AUSTRALIAN CONTROLLED COMPANIES

Year Premium Income Ratio Assets Ratio

% %

1971-72 93.4 52.3

1972-73 104.6 58.4

1973-74 110.1 68.8

1974-75 108.4 61.8

1975-76 112.9 72.1

1976-77 115.6 72.1

1977-78 122.9 71.0

1978-79 103.4 68.8

1979-80 98.8 66.9

1980-81 110.5 69.5

13. EQUITABLE TREATMENT OF POLICYHOLDERS ACCOUNTING FOR COMPETING INTERESTS 62. Recent years have seen a growing differentiation between the types of policies marketed by life insurance companies. This trend is likely to continue. The result is an increasing divergence

in the interests of the various policyholders and between policyholders and shareholders and situations may arise where these competing interests are in conflict. Accordingly it has become more important than ever that company managements, and including in that term particularly the actuaries concerned, are astute to ensure that equity is preserved between those interests.

63. When the Act was introduced in 1945 there was a much narrower range of policies on offer

19

and, consequently, a much greater commonalty of interest amongst policyholders in a Statutory Fund. Accordingly it was thought adequate to protect policyholders by imposing restrictions on transfers and payments out of the Fund, sections 38 and 50 providing the main limitations.

However, recent events, some of which are presently the subject of legal proceedings, suggest that the protection afforded may not be as strong as previously thought. Given the trustee nature of the relationship between policyholder and company management, an action which might be strictly legal from a narrow viewpoint may nevertheless be morally indefensible. An attitude occasionally observed is that if a contemplated course of action can be brought within the strict letter of the Act the equities involved are a secondary consideration. Clearly such an approach is not what policyholders are entitled to expect from management, and from the actuary concerned, and may bring the industry and the actuarial profession into disrepute with a concomitant demand by consumers for stronger legislation.

64. One example of the problems which can arise is that in some cases transactions have occurred which have had or may have the effect of transferring out of the Statutory Fund and into shareholders funds (ie from the policyholders to the shareholders) amounts which are inequitable and to the detriment of the policyholders.

65. Another example is where there are participating policies (ie those entitled to share in the profits of the company) and non participating policyholders in the same Statutory Fund. In this situation the Act does not require separate revenue accounts to be prepared and where such accounts are maintained there is no requirement that they be lodged with me or that they are to be available for public inspection.

66. Some companies maintain separate revenue accounts for participating and non-participating business within a class, others do not. The salient point, however, is that whatever means are chosen for recording the entitlements of the various participating policyholders the allocation of income and expenses should be fair and equitable. Since these policyholders have been led to expect a share in profits it is obviously of key importance that they are charged only with expenses properly attributable to them and are credited with an appropriate portion of income. In

some recent cases this principle has not been followed — again to the detriment of the policyholders concerned. Companies’ actuaries and directors bear the chief responsibility for ensuring equity amongst competing policyholder interests and between policyholders and shareholders. The auditor also has an important role in verifying that expense and interest allocations are appropriate.

67. The stage may have been reached where a separate Statutory Fund is necessary for non participating business where it is intended that any part of the surplus emerging may be distributed to shareholders or, alternatively, that separate internal revenue accounts be maintained in surplus

and in all other ways (eg proper allocation of income and expenses) as would have been the case if they had been separate Statutory Funds. The revenue account at least for the participating business should be published in the First Schedule and thus available for inspection by the policyholders. The Second Schedule should show valuation balance sheets for the separate revenue accounts.

68. Inequity in dealings within a Statutory Fund can also occur for other reasons. The growing lack of commonalty of interest amongst policyholders within a Fund can lead to a situation where a transaction which benefits one group of policyholders may be to the detriment of others.

69. The traditional concept of the insurance company “ estate” which is passed on to future generations of policyholders encompasses the principle of one generation supporting another in various ways. One could not quarrel with this as a general proposition. However, with an increasing divergence of interests within a Fund, the principle is more difficult of application and the actuary particularly must be careful to ensure that all policyholders are treated equitably.

70. The present statutory provisions dealing with the protection of policyholders’ interests and equity between policyholders may prove inadequate and it may become necessary for me to recommend changes to the legislation in this regard. This might include inter alia requirements for separate statutory funds or revenue accounts for different kinds of policies eg non­ participating, participating, investment linked, investment account etc.

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BONUSES FOR CONVENTIONAL “ WITH PROFIT” POLICIES 71. In paragraph 63 of last year’s Report the following was stated —

'In previous Reports the introduction of new types of product, eg unbundled policies of either the investment account or the investment-linked variety, has been welcomed. However, the legitimate claims of the older style conventional “ with-profit” policyholder should not be overlooked in this process, particularly by those companies who no longer actively market

conventional “ with profit” policies’.

72. The report then went on to compare the level of bonus declarations for Ordinary business as at 30 June 1980 with the level of bonus declarations in 1972, which was the last year before the heavier tax impost on life insurance companies occurred, necessitating bonus reductions in many cases. Since that time interest rates generally have risen and there has been a relaxation in the minimum valuation basis which, it was argued by the industry at the time, would result in higher

bonuses to policyholders. Accordingly, it was felt that it would be instructive to compare different companies’ bonus responses during this period to these subsequent developments.

73. The table presented showed that as at 30 June 1980 ten companies had not managed to regain the level of bonus declarations made in 1972, a further nine companies had approximately regained the 1972 position and fourteen companies were declaring higher bonuses than in 1972.

74. The table also showed that a wide variation in bonus declarations had occurred since 1972 and that, at the extreme, some companies were currently declaring bonuses more than twice those of other companies when compared with their relative positions in 1972.

75. The view was then expressed that this very wide variation was difficult to understand because all companies would appear to have considerably increased surplus available for distribution resulting from the relaxation in the minimum valuation basis and, in addition, would also appear to have benefited similarly from improving interest rates generally. The Report went on to state

the following — 'This is an important matter directly affecting the future expectations of these older style conventional “ with-profit” policyholders and particularly applies in a company where the marketing thrust is no longer aimed at selling policies of a similar nature. This matter will be

monitored closely during the year and I will write in more detail in my next Report.’ 76. During the year this closer monitoring was carried out. As a result, and with the assistance of the companies concerned, the table of bonus rate indices shown in Appendix VI was developed.

77. For Ordinary business the table shows that as at 30 June 1981 there were — • Four companies making bonus declarations more than 40% higher than in 1972 (compared with one in previous year) • Nine companies making bonus declarations more than 20% higher than in 1972 (seven in

previous year) • Ten companies making bonus declarations less than 20% higher than in 1972 (compared with six in previous year) • Six companies still making only approximately the same bonus declarations as in 1972

(compared with ten in previous year) • Five companies still making a lower bonus declaration than in 1972 (ten in previous year).

78. For Superannuation business the table shows a similarly wide diversity with three companies having managed to approximately double their bonus rates during this period while at the other extreme four companies have not made any increase in their bonus rates at all. This wide disparity in bonus declarations for Superannuation business is also very difficult to understand.

79. In my view, as the diversity of policy types increases, there is a growing need to provide additional information to policyholders. This applies particularly to policyholders owning conventional “ with-profit” policies who participate by way of bonus declarations and who should be given a better opportunity to understand the factors influencing their share of surplus than is

the case at present. It is for example virtually impossible for an existing or potential “ with- profit” policyholder to learn, either from the Second Schedule return or from any other published material, what actuarial or other principle has been applied in determining bonuses or on what basis the company allocates surplus between the different types of “ with-profit” policyholders and, where applicable, the shareholders. Since the companies’ practice in this area is vital to the policyholders’ interests it would appear essential that the necessary information be given to them.

80. Although not the only suitable vehicle to have this information the Second Schedule return could be considered particularly appropriate because it is concerned with those matters and is prepared by the company’s actuary, who is responsible both professionally and under legislation for its preparation. The Second Schedule, which is available for public inspection, should contain a clear exposition of the principles, together with relevant supporting data used by the company’s actuary in making his recommendations regarding the distribution of surplus amongst the competing interests involved. Statements currently being made by actuaries in the Second

Schedule have generally become too conventional to give any meaningful information.

14. OTHER MATTERS

AMENDMENTS TO THE LIFE INSURANCE ACT 81. The general review of the Act referred to in previous Reports is being carried out by a committee consisting of representatives of the industry, the Institute of Actuaries of Australia, my office and the Treasury, with the assistance of a consultant. Given the age of the Act and the wide ranging nature of the review it is likely that the committee’s work will not be finalized for some time.

82. The final report of the Committee of Enquiry into the Australian Financial System and reports of the Law Reform Commission have implications for the work of the Committee.

83. As mentioned in previous Reports the Government has decided that further consideration of the proposed amendments to Section 39 should be deferred pending consideration of the report of the Committee of Enquiry into the Australian Financial System.

CREDIT INSURANCE 84. In my last Report I referred to certain unsatisfactory aspects which had developed in the marketing of credit insurance. Of particular concern was the increasing level of commissions as a

means of competing for business and especially where such commission was expressed as a percentage of the premium. Such a situation is clearly not in the interests of the consumer.

85. My powers in this area are limited and as mentioned in my last Report the whole area is one which might usefully be examined by the appropriate State authorities. However, further investigations are proceeding.

INDUSTRY CIRCULARS 86. Principal circulars issued since my last Report have been:

• Circular 163 of May 1981 distributed a copy of a preliminary report of the Kent Select Committee established to examine the kinds of information regularly returned to this Office (see below).

• Circular 164 of May 1981 drew the attention of recipients to the unsatisfactory nature of benefit illustrations for investment linked policies. It also dealt once again with the Commissioner of Taxation guidelines for the surrender of individual superannuation policies.

• Circular 165 of 14 July 1981 sought information from companies in regard to some aspects of credit insurance.

• Circular 166 of September 1981, after receiving responses to Circular 164, reported the appointment of a select committee to recommend guidelines for benefit illustrations (see below).

• Circular 167 of September 1981 further dealt with guidelines for investment-linked policies (see below).

MJ

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• Circular 169 of January 1982 dealt with the preparation of various returns and the intention to discontinue some (see below).

• Circular 170 of January 1982 distributed a copy of the report of the select committee on benefit illustrations and requested that the committee’s recommendations be implemented. The committee consisted of Messrs B.R. Paul, Chairman, R.J. Atfield and V.D. Cottren to whom I express my gratitude for their excellent work in a difficult area. The recommended

guidelines covered benefit illustrations for investment linked, investment account and reversionary bonus policies where these illustrations are used for promotional purposes. The committee recommended that the guidelines should also apply to intermediaries and that disciplinary action should be taken where breaches occur. INVESTMENT LINKED POLICIES 87. Circular 167 of September 1981 reiterated my request that the assets backing the investment

linked liabilities of investment linked policies be held in a separate statutory fund. I am happy to report that to date this request has been adhered to.

88. The main benefits under these policies are linked in an exact fashion to the value of a portfolio of assets. For such policies it is essential that the operational details are precisely defined and that there is total certainty as regards the link. In my view the following principles should apply —

(1) The assets of the portfolio must be separately identified.

(2) Additions to or subtractions from the portfolio are carried out at proper market values.

(3) Income arising from the assets must be accounted for on a daily basis.

(4) The method of calculating unit prices for buying and selling should be precisely defined.

(5) Unit prices should be calculated frequently (and consequently assets must be valued, even if by a formula, at that frequency).

(6) Separate accounts must be published.

(7) The expense of dealing must be separately identified and any other expenses of management allocated on an arms length basis.

(8) Loans relating to the portfolio should be in a proper contract form and on arms length terms.

89. These requirements necessitate that the investment portion of investment linked business be rigorously separated from other business and this is most satisfactorily achieved if held in a separate statutory fund. An additional reason is, of course, that all of the assets of a statutory fund are available to meet all of its liabilities and in the case of a winding up, or even a winding down,

investment linked policyholders could be disadvantaged if they were in the same statutory fund with other policyholders. QUARTERLY STATISTICAL BULLETIN 90. The sixth in the series of the recently introduced Quarterly Statistical Bulletins was published

in February 1982. Although for various reasons this has not quite occurred to date, it is still the intention to produce the Bulletin approximately twelve weeks after the close of the period to which it refers thus providing up to date information and statistics on the industry. The value of the new publication is evident when it is considered that there was previously a delay of perhaps

11 to 14 months in publishing similar material. The Bulletin has the additional advantage of a common cut-off date for all participants thus ensuring more meaningful figures for comparison. It is gratifying to note that all companies and all State Government Insurance Offices are now providing data. Consequently, a complete picture of the industry as a whole is available. It is

intended that a circular summarising the salient features for the industry as a whole will also be produced quarterly approximately 9 weeks after the close of each quarter.

91. Arrangements are being made for appropriate amendments of the Life Insurance Act Regulations. This will involve deletion of certain now redundant forms and insertion of the Quarterly forms (see Circular 169). It is hoped that these amendments can be made as quickly as possible to relieve companies from the necessity of supplying information no longer required.

Section 145(4) of the Act has recently been amended (by Act No 176 of 1981) to facilitate this. 23

92. Further rationalisation of statistical collections will occur as a result of an ongoing review commenced in 1979. As part of that review a select committee chaired by Mr John Kent was set up in late 1979 to examine statistical collections and make recommendations to me for amendment. A preliminary report from this committee was received in May 1981 and distributed in Circular 163. A further report is expected in March 1982. I have been conscious of the desirability of reducing the work load on companies involved in furnishing statistical returns and the review is part of that process. More recently the Committee for Review of Government Functions has stressed the need for rationalisation of statistical collections by Government departments.

INTERMEDIARIES 93. In my last Report I mentioned the Treasurer’s intention to seek the views of industry organisations and other interested parties on the Report of the Law Reform Commission on Insurance Agents and Brokers. Consultations were also proposed with State Governments and

other Departments of the Commonwealth.

94. Following the various discussions and consultations the Treasurer indicated that the Government did not intend to legislate in this area but favoured the principle of self regulation.

95. As mentioned in previous Reports, I support the view that a separate and voluntary scheme of registration on a self-regulatory basis should be adopted for life intermediaries and feel that the Life Insurance Federation of Australia, the Australian Insurance Institute, the Corporation of Insurance Brokers, the various national associations of life representatives of individual life companies and the Life Underwriters Association of Australia should get together to form such a registration body which all would support.

REPLACEMENT OF POLICY AGREEMENT 96. In my last Report I mentioned the February 1981 meeting of the Trade Practices Commission at which both the Treasury and I supported a proposed replacement of policy agreement. The Commission has granted authorisation of the agreement for a trial period of two and a half years. The agreement came into force in May 1981 and part of the agreement requires participating companies to furnish statistical returns for collation by my office at six monthly intervals ending as at 31 March and 30 September each year. Companies are required to provide figures for five specific items which give some indication of the incidence of policy replacements. The returns are summarized by my office and the results forwarded to all participants so that an overall picture of the level of replacements can be seen. I have recently completed and returned to the

industry the first set of collated statistics covering the period to 30 September 1981.

FORMER LIFE INSURANCE COMPANIES 97. Included in Appendix V to this Report is a list of life insurance companies which have either changed name or ceased transacting life insurance business in Australia. This list is being continually updated and is published in the Annual Report every two years as a reference source. In alternate years an up to date list of circulars issued by this office since 1945 both in chronological and subject order, will be published.

ACKNOWLEDGEMENT 98. I should like to acknowledge the valuable assistance and advice this office has had during the year from the Australian Government Actuary and from members of his staff, not only in the preparation of this Report, but also the actuarial sections of the Half Yearly Financial and Statistical Bulletin and the computer programming for the Quarterly Statistical Bulletin.

G.L. Melville

1 March 1982 Life Insurance Commissioner

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APPENDIX 1

LIFE INSURANCE COMMISSIONER’S ORGANISATION CHART

Level 4 Commissioner

R02 Class 5

Projects and Review

Class 8

Class 6

Class 6

___________________________________ _ Class 10

Executive Officer

Level 1 Deputy------------------------------------------------------------

Commissioner

Returns and Reporting

Class 8

Registration and Policyholders Complaints

Class 7

Registry & Office Services

Class 5 Class 4

Class 5 CA5 CA2

CA4 CA1

CA2 CA1

RO = Research Officer

TOTAL 18 POSITIONS

APPENDIX II

FULL NAMES OF COMPANIES REGISTERED UNDER THE LIFE INSURANCE ACT 1945 AS AT 31 DECEMBER 1981 AND ABBREVIATED NAMES USED IN THE TABLES OF THE HALF YEARLY FINANCIAL AND STATISTICAL BULLETIN

Full Name Abbreviated

Name

Australian American Assurance Company Limited Adriatic Life Limited Australian Eagle Insurance Company Limited Aetna Life of Australia & New Zealand Limited Amev Life Assurance Company Limited Australian Manufacturers Life Assurance Limited Australian Mutual Provident Society Associated National Life Insurance Company Limited APA Life Assurance Limited Australian Reinsurance Company Limited

Business M en’s Assurance Company of Australia Limited Commonwealth General Assurance Corporation Limited Citilife Insurance Australia Limited Citigeneral Insurance Australia Limited The City Mutual Life Assurance Society Limited The Colonial Mutual Life Assurance Society Limited Combined Life Insurance Company of Australia Limited Cuna Mutual Insurance Society

Friends’ Provident Life Office Greater Pacific Life Assurance Company Limited Guardian Assurance Company Limited

Hallmark Life Insurance Company Limited HCF Life Insurance Company Ply Ltd Legal and General Life of Australia Limited

AAA ADR AEG AET AMEV AML AMP ANLI APA AUSR BMA CGA CILI CITG CITY CML COMB CUNA

FPL GPL GUAR HALL HCFL L&G

The Mercantile and General Life Reassurance Company of Australia Limited The Mutual Life and Citizens’ Assurance Company Limited The Mercantile Mutual Life Insurance Company Limited Munich Reinsurance Company of Australia Limited The National Mutual Life Association of Australasia Limited Norwich Union Life Insurance Society NRMA Life Limited New Zealand Life Limited Occidental Life Insurance Company of Australia Limited Phoenix Life Assurance Company of Australia Limited The Prudential Assurance Company Limited Royal-Globe Life Assurance Company Limited South British United Life Assurance Company Limited Scottish Amicable Life Assurance Society Security Life Assurance Limited Sentry Life Assurance Limited Sun Alliance Life Assurance Limited Swiss Reinsurance Company T&G Mutual Life Society Limited Underwriting and Insurance Limited The Victory Reinsurance Company of Australia Limited

M&G MLC MML MNRE NMLA NOR NRMA NZL OCC PHOE PRU RYLG SBU SCAM SECL SENT SUN SWRE T&G

U&I VICT

Total 45 Companies

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APPENDIX III

LIFE INSURANCE ACT 1945

1. The Life insurance industry in Australia is regulated by the Life Insurance Act 1945. The objects of the Act, which came into force as the Life Insurance Act 1945 on 20 June 1946, are set out in the Second Reading Speech of the then Treasurer, as follows:

(a) To replace all State legislation on the subject of life insurance, and to provide a uniform basis for applying the requirements of those Acts to the whole of Australia.

(b) To incorporate existing Commonwealth Acts with minor amendments.

(c) To appoint a Life Insurance Commissioner who shall exercise active supervision of the activities of life insurance companies, with a view to securing the greatest possible protection of policy owners.

(d) To set up adequate machinery for dealing with any company that fails to maintain a required minimum standard of solvency.

2. The Act is in seven Parts, which are: Part Subject

I Preliminary

II Administration

III Provisions relating to companies IV Provisions relating to Policies V Provisions relating to Industrial Insurance Business VI Repealed

VII Miscellaneous

3. There are seven Schedules which are: Schedule Subject I Statutory returns

II Provisions relating to the preparation of abstracts of actuaries’ reports III Provisions relating to the preparation of statements of.life insurance business IV Rules for calculation of value of liabilities on the Minimum Basis V Memorandum of Transfer

VI Rules for ascertaining the paid up policy or surrender value for the purposes of Division 4 of Part IV of the Act VII Amounts payable in case of death of child under 10 years of age P arti 4. Sections 1 to 8 state definitions and establish the classes of life insurance business under

headings known as: Ordinary Business Superannuation Business Industrial Business

The extent to which the Act applies to life insurance business in Australia is dealt with.

Part II 5. Sections 9 to 13 provide for the appointment of a Life Insurance Commissioner who shall, subject to any directions of the Treasurer, be charged with the general administration of the Act. The Commissioner is required to submit a report each year to the Treasurer for transmission to the

Parliament.

6. Delegation of powers and functions may be made by the Commissioner who may also act as arbitrator of a dispute between a policy owner and the company with the agreement of both parties.

Part III 7. The sections in this Part set out the arrangements made by the Act for the supervision of the activities of life insurance companies. 27

8. A company may not carry on life insurance business in Australia unless it is registered by the Life Insurance Commissioner. A statement of the particulars which are required to be supplied with an application by a company for registration under the Act is available.

9. The Life Insurance Commissioner may register a company or, with the approval of the Treasurer, refuse to register the company. By an amendment to the Act made in 1950. registration may only be refused if the Commissioner, after appropriate inquiry, is not satisfied as to a matter

set out in section 19(2) of the Act (eg the company will be unable to meet future policy liabilities).

10. A company is required to establish one or more statutory life insurance funds to secure life insurance policy liabilities. All amounts received in respect of a class of life insurance business which is a charge on the fund shall be paid into that fund. The assets of the fund may not be mortgaged or charged (except for a bank overdraft) and shall be kept separate from any other assets owned by the company. The only payments which may be made from the fund are those required to meet liabilities under policies secured on the fund and related expenses.

11. A company is required to obtain from an actuary, at intervals not exceeding five years, a report upon an investigation into its financial condition, including a valuation of the liabilities in respect of its life insurance business.

12. The value placed on the aggregate liabilities of the company in respect of its life insurance business by the actuarial valuation made in the course of the actuary's investigation of the company's financial conditions shall be not less than the aggregate value calculated by the Minimum Basis set out in the Fourth Schedule.

13. A company may allocate surplus disclosed at an actuarial valuation made in accordinace with the Act, provided that the sum of the amounts allocated from a statutory fund to shareholders and another statutory fund from the surplus in respect of participating policies secured by the former fund does not exceed one-quarter of the allocation made to those policies.

14. Registered life insurance companies are required to submit statutory returns to the Life Insurance Commissioner each year, including revenue accounts, balance sheets and statistical returns. Although the Act provides that actuarial reports need only be supplied at intervals of five years, it is usual for companies to supply actuarial report each year.

15. Apart from certain statistical returns, all of the returns referred to above can be published to enable policy holders and other interested persons to obtain information relating to a company. The returns provide the Commissioner with information which enables him to carry out the relevant objects of the legislation. They may be supported by further returns obtained especially to provide a continuous review of particular aspects of the operations of a company.

16. The Commissioner may request a life insurance company to supply him with information and, after giving the appropriate notice, may investigate the business of a company on specified grounds, if the company fails to show cause why an investigation should not be made. Following an investigation, the Life Insurance Commissioner may issue directions to the company to deal with the situation disclosed by the investigation, or may apply to the High Court for the appointment of a judicial manager or for winding up.

17. The procedures to be followed in the event that the life insurance business of a company is to be wound up, or is to be transferred to, or amalgamated with the life insurance business of another company are stated.

Part IV 18. The Commissioner may direct the amendment or withdrawal of any proposal, policy or canvassing matter if it is considered to be misleading or not in compliance with the Act.

19. A company may not issue a policy unless the rates of premium for that class of policy have been certified by an actuary who has to have regard to the maximum rates of commission allowable under the policies. The Commissioner may require a report to be supplied from an actuary upon the rates of premium for a class of policy.

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20. The Act sets out in considerable detail, provisions governing the rights and obligations of companies and policy owners. The principal items are:

(a) The age of the person seeking insurance has be be shown on the proposal form; consequential provisions relate to proof of age, misstatement and similar matters.

(b) The circumstances under which a minor may effect a policy or take an assignment are stated.

(c) Insurable interest is defined.

(d) Assignment of a policy is to be effected by a memorandum of transfer as set out in the Fifth Schedule and the responsibilities of transferors, transferees and the company are defined.

(e) Protection of the interest of the insured in a policy is afforded in certain cases, including insurances effected by married women.

(f) Minimum paid-up policies and surrender values are provided (the formulae being set out in the Sixth Schedule) and non-forfeiture rules in respect of certain cases of non-payment of premiums.

(g) Probate or letters of administration may be dispensed with under certain circumstances where the amount of the sum insured or beneficial interest is less than a specified amount.

(h) Unclaimed moneys (as defined) are payable to the Treasurer who may pay them out on proper proof.

(i) The amount which may be paid on the death of a child under 10 years of age is limited to the appropriate sum shown in the Seventh Schedule or a refund of premiums with interest not exceeding 4 per cent per annum.

(j) Children under 21 years of age may be insured under a policy which vests on attaining age 25 years or an earlier age, not less than 10 years.

(k) A company shall have in each State in which it carries on life insurance business a registry in which it shall keep a register of policies issued in the State and at which moneys due under the policy shall be paid, unless otherwise agreed by the company .and the policy owner.

(l) Arrangements are provided for the issue of a policy in place of a policy which is declared to be lost.

Part V 21. The Part contains a number of provisions for the conduct of industrial life insurance business and for the protection of persons holding these policies.

Part VI 22. This Part has been deleted.

Part VII 23. A number of machinery arrangements are included in this Part.

LIFE INSURANCE ACT 1950

1. This amending Act is No 65 of 1950. The date of assent is 14December 1950 and the date of commencement 1 January 1951.

2. The Act amends section 19 of the principal Act, which deals with the registration of a company, including the approval of or refusal of an application for registration. The amendment states the grounds on which the Life Insurance Commissioner may refuse to register the company, with the approval of the Treasurer.

3. The Statute Law Revision Act 1950 is amended by this Act by omitting from the Second Schedule of the former Act the words: ‘Life Insurance Act 1945/Life Insurance Act 1945-1950’.

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STATUTE LAW REVISION ACT 1950

1. The Statute Law Revision Act 1950 is No 80 of 1950, the date of asset being 16 December 1950 and the date of commencement 31 December 1950.

2. This Act amends sections 89(2) and 105(2) of the Life Insurance Act 1945. These sections provide that the receipt of the Principal Registrar or of a Deputy Registrar of the High Court shall be a good and valid discharge for moneys paid into Court.

3. The amendment allows a District Registrar who is the officer in charge at the registry in each capital city other than Melbourne to give a valid receipt.

LIFE INSURANCE ACT 1953

1. The Act is No 94 of 1953. The date of asset is 12 December 1953, the date of commencement being 9 January 1954. The main amendments are described in the following paragraphs. Definition o f Industrial Policy 2. An extension of the definition of an industrial policy includes a policy that has at any time

been such a policy and a paid-up policy granted in lieu of a premium-paying industrial policy.

Cancellation of Registration 3. Section 23A is introduced, setting out the procedures to be followed for the cancellation of the registration of a registered company.

Clarification o f the Meaning o f the Statutory Fund 4. Amendments to sections 44, 48, 49. 50 and 55 of the principal Act ensure that the statutory life insurance fund represents the whole of the liabilities (or the whole of the assets) of the relevant life insurance business and that a revenue account is prepared for each class (or part of a class) of life insurance business. The balance of the revenue account is compared with the actuarial valuation of the policy liabilities for a class (or part of a class) of life insurance business, in the actuarial report.

Commonwealth Government Insurance Office 5. Amendments by this Act delete references to a Commonwealth Government Insurance Office and Part VI of the Act which contained provision for the establishment in such an Office. Amendments to Provisions Relating to Policies 6. A number of amendments clarify or modify the arrangements for the assignment of policies the provisions facilitating the payment of small sums insured and other matters affecting policies. The sections varied by these amendments are: Sections Subject 81 Notice regarding proof of age

83 Misstatement of age

85 Minors

87 Assignment of policies

90A Assignment of policy to company issuing it 91 Policies held by trustees

94 Family insurance policies

103, 103A Dispensation of probate or letters of administration 106 Unclaimed moneys

114, 116 Child’s advancement policy 119 Lost policy

124, 129 Industrial Insurance policies 140 Voting by post

146 Service of notices

147 A Printing of documents

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The Schedules

7. Some amendments are made to the Forms in the First and Second Schedules to clairfy the meaning of the statutory life insurance fund.

8. The method of calculation of a paid-up policy, in the Sixth Schedule, is expanded.

LIFE INSURANCE ACT 1958

1. This Act is No 3 of 1958. It was assented to on 3 April 1958 and commenced on the same date.

2. The Act restates the Parts and Divisions of the principal Act and makes a small number of amendments.

Definition o f Life Insurance Business

3. The definition is varied by excluding from life insurance business, arrangement for the provision of funeral benefits.

Unregistered Company

4. Section 14 of the principal Act is amended by providing that a person who carries on business for an unregistered company is guilty of an offence.

Family Insurance Policies 5. An amendment is made to section 94 to include adopted children, stepchildren and exnuptial children as children in respect of whom a family insurance policy can be issued.

LIFE INSURANCE ACT 1959

1. The Act is No 93 of 1959. The date of assent is 4 December 1959 and the date of

commencement is the same date.

2. The Act increases the limiting amounts of sums insured below which a company could dispense with the production of probate or letters of administration.

3. In addition the rate of interest specified in the Sixth Schedule for the purposes of the calculation of the minimum surrender value is reduced from 5 per cent to 4 1/2 per cent.

LIFE INSURANCE ACT 1961

1. The Act is No 29 of 1961, the date of assent being 25 May 1961 and the date of

commencement 22 June 1961.

2. The life insurance business transacted by a company is divided into three classes:

(a) life insurance business (other than superannuation business) under ordinary policies; (b) life insurance business (other than superannuation business) under industrial policies and (c) superannuation policies.

The previous division was into ordinary and industrial business.

3. Separate revenue accounts, balance sheets, statistical returns and actuarial reports are required for each class of life insurance business, for which a number of separate statutory funds may be established and maintained.

LIFE INSURANCE ACT 1965

1. The Act is No 145 of 1965. It was assented to on 18 December 1965. The amendments generally commenced on 14 February 1966.

2. The Act implements Government’s decision to introduce decimal currency by replacing ’pound’ by 'dollar' and requiring returns to be prepared in dollars and cents.

31

3. Examples of bonuses and surrender values granted by a company, as reported in the return prepared in accordance with the Second Schedule are to be provided in future for a sum insured of $1000 instead of 100.

CURRENCY ACT 1965

The references in the Life Insurance Act 1945 to amounts of money are affected by the Currency Act 1965, section 10 of which provides that references in laws of the Commonwealth to amounts of money in the currency provided for by the Currency Act 1909 are, unless the context is such that it would be inappropriate or the contrary intention appears, to be construed as references to

the equivalent amount of money in the currency provided by the Currency Act 1965.

LIFE INSURANCE ACT 1973

1. The Act is No 78 of 1973. It was assented to on 19 June 1973 and generally commenced on the same date.

2. The amendment changes the title of the Insurance Commissioner to Life Insurance Commissioner to avoid confusion with the new office of Insurance Commissioner created under the Insurance Act 1973.

3. The Act also provides for the exclusion of an association registered as an organisation under the Conciliation and Arbitration Act 1904.

STATUTE LAW REVISION ACT 1973

1. The Act is No 216 of 1973 and was assented to on 19 December 1973. The date of commencement is 31 December 1973.

2. The Act deletes references to the commencement of the Life Insurance Act and converts a number of amounts from ‘pounds’ to ‘dollars'. The wording of a number of sections is varied without affecting the intention of the sections.

STATUTE LAW REVISION ACT 1974

1. The Act is No 20 of 1974. It was assented to on 25 July 1974, and retrospectively applied to commencement on 31 December 1973.

2. The Act in the main, changes certain legal phraseology, references to various other Acts and converts ‘pounds' to ‘dollars’ in a number of sections. No basic intentions in the sections of the Act were altered.

LIFE INSURANCE AMENDMENT ACT 1977

1. The Act is No 32 of 1977. It was assented to on 18 May 1977.

2. The main provisions of the Act are as follows:

(a) The definition of ‘actuary' is expanded to include a Fellow of the Society of Actuaries (North America) and a person who satisfies the Life Insurance Commissioner that he has appropriate actuarial qualifications and experience. After a period of twelve months following the commencement of the amendment the actuary is required to be ordinarily resident in Australia.

(b) A company is not to carry on business other than life insurance business or insurance business without the approval of the Life Insurance Commissioner.

(c) The provisions relating to deposits in Division 2 of Part III of the principal Act are repealed.

(d) The requirement to obtain High Court approval for a direct or indirect investment by a life insurance statutory fund in a company carrying on life insurance business is removed. However, a life insurance statutory fund may not be invested beyond specified limits in a 32

related company, life insurance company, investment company or unit trust without the approval of the Life Insurance Commissioner. Approval is not required for investment in a bank or loans to a prescribed dealer in the short-term money market.

(e) A company which carries on life insurance business both in Australia and outside Australia is required to apportion receipts and payments, where applicable, in an equitable manner.

(f) A company is required to furnish an annual statement of assets in accordance with a prescribed form. The statement is not available for public information.

(g) A report by an actuary to a company in regard to the results of an investigation into the company’s financial condition in Accordance with section 48 of the principal Act is to be a written report.

(h) Returns in accordance with the First Schedule to the principal Act are to be furnished within five months after the end of the financial year to which they relate.

(i) Returns in accordance with Second and Third Schedules to the principal Act are to be furnished within six months after the date as at which an actuarial investigation is made.

(j) The Life Insurance Commissioner may direct a company to lodge with him a copy of a report by an actuary into the company’s financial condition prepared under section 48 of the principal Act.

(k) The monetary limit prescribed by section 103 of the principal Act. below which policy moneys may be paid without the production of probate or letters of administration, is altered from $2000 to $6000.

(l) The monetary limit prescribed by section 103A of the principal Act for the surrender value of a policy, the ownership of which may be transferred on the death of the policy owner (not being the life insured) to another person without the production of probate or letters of administration, is altered from $800 to $3000.

(m) The monetary limit prescribed by Division 6 of Part IV of the principal Act, which a company may contract to pay on the death of a child under ID years of age, is altered to $500 (apart from repayment of premiums with interest at a rate not eceeding 8 per cent per annum).

(n) The limit on the sum insured, above which a company is required by section 119 of the principal Act to advertise before a special policy can be issued in lieu of a policy that has been lost or destroyed, is increased from $1000 to $3000.

(o) The approval of the Life Insurance Commissioner is required before publication of a prospectus or other invitation to the public for subscription in debentures, as well as in shares, in a life insurance company.

(p) The Life Insurance Commissioner is to be notified of details of a take-over offer for a life insurance company or for the holding company of a life insurance company.

(q) The Fourth Schedule to the principal Act, which contains the rules for the calculation of the value of policy liabilities on the minimum bases, may be amended by regulation.

(r) The High Court of Australia is divested of original jurisdiction under the principal Act which is conferred on other appropriate Courts. The existing appeals machinery is extended and is amended to allow for appeals against administrative decisions to be heard by the Administra­ tive Appeals Tribunal instead of by the High Court.

3. All of the amendments referred to in the preceding paragraph have now been proclaimed with the exception of those referred to in subparagraphs (b), (d) and (f).

LIFE INSURANCE AMENDMENT ACT 1978

The Act is No 177 of 1978. It received Royal Assent on 28 November 1978 and commenced on the same date.

The Act in the main changes the Life Insurance Act 1945 to bring the provisions applying to the

33

Life Insurance Commissioner into line with more recent legislation relating to similar Statutory Offices. More specifically, the Act enables the terms and conditions of appointment and service of the Commissioner to be determined under the Life Insurance Act.

STATUTE LAW (MISCELLANEOUS AMENDMENTS) ACT 1981

The Act is No 176 of 1981. It received Royal Assent on 2 December 1981 and commenced on 31 December 1981.

Schedule 1 in the Act amends Section 145 of the Life Insurance Act 1945 by omitting sub section (4) and substituting a new sub section dealing with the publication of statistics.

34

1

APPENDIX IV

DEFINITIONS

The following definitions and explanations are prepared for the information of those who are not familiar with certain terms and expressions used in the Annual Report and the Half Yearly Financial and Statistical Bulletin.

Annuity. A contract that provides an income for a specified period of time such as a number of years or for life.

Bonus. Registered life insurance companies in Australia issue policies which are either participating or non-participating. The form of participation usually adopted is the grant of a reversionary bonus, ie a guaranteed addition to the sum insured which is payable when the sum insured is payable.

Claim. Notification to an insurance company that payment of an amount is due under the terms of the policy.

Classes o f Life Insurance Business. The Life Insurance Act 1945 provides for three classes of life insurance business:

Superannuation Business — business in relation to policies providing benefits for employees or self-employed persons on retirement, death or injury.

Industrial Business — business in relation to policies in respect of which the premiums are payable at intervals of less than two months and are usually collected by collectors.

Ordinary Business — business not included in either of the above classifications.

Deposit Administration. A type of insurance, relating to Superannuation business, providing for the accumulation of contributions in an undivided fund out of which benefits are paid according to the rules of the plan under which the fund is set up.

Endowment Insurance. Insurance payable on survival to the maturity date stated in the policy or on prior death.

Expense Rate. The expense rate for a class of life insurance business is the ratio of the total payments for expenses in the year (including commissions, salaries etc) to the total of premium income other than single premiums received in the year in respect of that business. No allowance is made for such factors as:

(a) the relative proportions of new business and renewal expenses; (b) the types of policy mainly issued; (c) expenses associated with single premium business.

Forfeiture. The termination of a policy due to non-payment of premiums before the policy has acquired a surrender value.

Forfeiture Rate. The forfeiture rate for a class of life insurance business is the ratio of the annual premiums forfeited in a year to the mean of new annual premiums written in that year and the proceding year in respect of that business.

Gross Interest. The gross rate of interest for a class of business is calculated by the formula:

2G where:

A + B - I

G = gross interest etc earnings for the year I = net interest etc earnings for the year A = balance of the revenue account at the beginning of the year B = balance of the revenue account at the end of that year in respect of that business

No adjustment is made for any profit on loss on realisation of assets.

Investment Account. Provide a death benefit plus some type of identifiable savings account or investment account, the balance of which usually becomes the benefit payable in certain

35

I '

circumstances, most commonly after effluxion of a certain number of years when a substantial balance has accumulated in the account.

Investment-linked Policies. Provide a death benefit and an investment account, the value of which is directly linked to the performance of a specific portfolio investment. The value of the policyholder’s interest will rise and fall with the movements in the value of the portfolio.

Loan on Policy. A loan made by an insurance company to a policy holder on the security of the surrender value of the policy.

Net Interest Rate. The effective interest rate for a class of life insurance business is calculated by the formula 21 where:

A + B - I

I = net interest etc earnings for the year A = balance of the revenue account at the beginning of the year B = balance of the revenue account at the end of that year, in respect of that business No adjustment is made for any profit or loss on realisation of assets.

The earned interest rate for all companies has been calculated by the same formula using the aggregation of the relevant items.

Paid-up Policy. A life insurance policy on which all required premiums have been paid. The term is frequently used when the sum insured under a policy has been reduced so that future premiums can be waived.

Policy. The printed document stating the terms of the insurance contract that is issued to the policyholder by the company.

Policy Liabilities. Amounts required to be held now which, together with future premiums and interest earnings, will enable the company to pay all future claims.

Premium. The payment, or one of the periodical payments, a policy holder agrees to make for an insurance policy.

Reinsurance. An agreement made by one insurance company (the ceding company) with another company (the reinsurance company) under which the reinsurance company will accept part of the liability to pay benefits under certain policies issued by the ceding company. The type of reinsurance may be:

(a) coinsurance or proportional reinsurance, in which case the reinsurance company and the ceding company share premium and benefit payments on a fixed proportion: or (b) risk premium or non-proportional reinsurance, in which the ceding company pays a premium to the reinsurance company to cover a specified part of the amount at risk under a policy.

Statutory Fund. The Life Insurance Act 1945 requires every company to establish and maintain a statutory fund or statutory funds in respect of its life insurance business. The Act further provides in respect of those funds as follows:

Section 38.

(1) All amounts received by a company in respect of any class of life insurance business, after the establishment by the company of a statutory fund in respect of that class of life insurance business, shall be carried to, and become assets of, that fund.

(2) Subject to this Act, the assets of a statutory fund shall not, so long as the company carries on the class or classes of life insurance business in respect of which the fund was established, be available to meet any liabilities or expenses of the company other than — (a) liabilities or expenses referable to that class or those classes of life insurance

business

(b) liabilities charged on those assets or any of them immediately prior to the

commencement of this Act

36

and shall not otherwise be directly or indirectly applied for any purpose other than the purposes of that class or those classes of life insurance business.

(6) The assets of each statutory fund shall be kept distinct and separate from all other assets of the company.

(7) The income arising from investment of the assets of any statutory fund shall be carried to that fund.

Surrender Rate. The surrender rate for Ordinary business and Industrial business is the ratio of the total annual premiums discontinued by surrender in the year shown to the mean of the annual premiums in force at the beginning of the previous year and the year previous to that. The surrender rate for Superannuation business is the ratio of the total annual premiums discontinued

by surrender in the year shown to the total annual premiums in force at the beginning of the year.

Surrender Value. The amount available in cash upon voluntary termination of a policy before it becomes payable by death or maturity.

Term (or Temporary) Insurance. Insurance payable on death within a specified period.

Whole Life Insurance. Insurance payable on death.

37

APPENDIX V

LIFE INSURANCE COMPANIES WHICH HAVE CHANGED NAME OR CEASED TRANSACTING LIFE INSURANCE BUSINESS IN AUSTRALIA

Company Details Date

Adelaide Life Assurance & Guarantee Went into liquidation 1910

Company Adriatic Insurance Company Life business transferred to

Adriatic Life Limited 1974

Ajax Insurance Company Limited Name changed to Citigeneral Insurance Australia Limited 1981

Alliance British and Foreign Life Life business discontinued Unknown

and Fire Assurance Company

Associated Deposits Assurance Life business transferred to 1928

Society Limited Associated Dominions Assurance

Society Proprietary Limited

Associated Dominions Assurance Went into liquidation 1953

Society Proprietary Limited Associated National Insurance Life business transferred to 1979

Company Limited Associated National Life

Insurance Company Limited

Assurance & Thrift Association Life business transferred to The 1949

Limited National Mutual Life Association

of Australasia Limited

Australasian Capital Assurances Name changed to South British 1968

Limited United Life Assurance Company

Limited

Australasian Catholic Assurance Name changed to Austalasian Capital 1964

Company Limited Assurances Limited

Australasian Catholic Mutual Life business transferred to 1932-33

Assurance Company Limited Australasian Catholic

Assurance Company Limited

Australasian Temperance and Name changed to T&G Mutual Life 1974

General Mutual Life Society Limited

Assurance Society Limited Australian Alliance Assurance Life business liabilities 1952

Company discharged

Australian Benefit Life Assurance Life business transferred to 1931

Society Limited Associated Dominions Assurance

Society Proprietary Limited

Australian Colonial and General Life business transferred to Life Assurance and Annuity Liverpool and London and 1851

Company Globe Insurance Company Limited

Australian Farmers' Progressive Went into liquidation 1924

Insurance Company Limited Australian Federal Life and General Went into liquidation 1930

Assurance Company Limited Australian General Assurance Life business transferred to 1846

Company Australian Colonial and General

Life Assurance and Annuity Company

Australian Group and General Industrial life business transferred Assurance Company Limited to Farmers' and General Assurance 1929

Corporation Limited Ordinary life business transferred to Southern Cross Assurance Company 1930

Limited

38

H

C o m p a n y D e ta ils D a te

Australian Liberal Assurance Company Limited Australian Metropolitan Life Assurance Company Limited

Australian Natives Association Limited

Australian Probate and General Assurance Corporation Limited

Australian Provincial Assurance Association Limited Australian Widows’ Fund Life Assurance Society Limited

Catholic Life Assurance Office of Australia Limited Citizens & Graziers’ Life Assurance Company Limited

Went into liquidation

Name changed to The Mercantile Mutual Life Insurance Company Limited Life business transferred to

Associated Dominions Assurance Society Proprietary Limited Life business transferred to Australian Provincial

Assurance Association Limited Name changed to APA Life Assurance Limited Life business transferred to The

Mutual Life and Citizens’ Assurance Company Limited Went into liquidation

Life business other than in Queensland transferred to The Commonwealth Life (Amalgamated) Assurances Limited

Remaining life business transferred to The Commonwealth Life (Amalgamated) Assurances Limited Life business transferred to The

Mutual Life and Citizens’ Assurance Company Limited Life business transferred to The Commonwealth Life (Amalgamated) Assurances Limited

Name changed to Commercial Life Assurance Limited Name changed to Sentry Life Assurance Limited

Life insurance business transferred to The National Mutual Life Association of Australasia Limited Life business transferred to The

Commonwealth Life (Amalgamated) Assurances Limited Name changed to Security Life Assurances Limited Industrial life business transferred to

Commonwealth General Assurance Corporation Limited Ordinary life business transferred to The Australian Provincial Assurance

Association Limited

Copenhagen Reinsurance Company Limited Life insurance liabilities discharged

Citizens’ Life Assurance Company Limited

Colonial Provident Life & General Assurance Company Limited

Commercial and General Life Assurance Limited Commercial Life Assurance Limited

Commercial Union Assurance Company of Australia Australia Limited

Commonwealth Life Assurance Society Limited

Commonwealth Life (Amalgamated) Assurances Limited Co-operative Assurance Company Limited

Customlife Assurance Limited

Derwent and Tamar Fire Marine and Life Assurance Company Eagle Star Insurance Company Limited

Name changed to Skandia Australia Insurance Limited Ceased to write life business

Life business transferred to Australian Eagle Insurance Company Limited

1930

1971

1928

1924

1973

1910

1947

1926

1961 1908

1927

1969

1976

1980

1926

1961

1923

1924

1959

1966 1845

1978

39

C o m p a n y D e ta ils D a te

Empire Life and General Assurance Company Limited

English Insurance Company Limited Equitable Insurance Association of New Zealand

Equitable Life and General Insurance Company Limited Equitable Life Assurance Company of Australasia Limited

Equitable Life Assurance Society of the United States

Equitable Probate and General Insurance Company Limited

FML Assurance Limited

Farmers' and General Assurance Corporation Limited

Federal Building Assurance Company Limited

Federal Mutual Assurance Association of Australasia

Federation Insurance Limited

Federation Manufacturers Life Assurance Company of Australasia Limited Friends' Provident and Century Life Office

General Life Assurance Company

Great Pacific Life Assurance Association Limited Guardian Life Assurance Company of Australia Limited

Industrial Mutual Life Assurance Society

40

Some life business transferred to Queensland Probate Insurance Company Limited South Australian and Tasmanian life

business transferred to Producers and Citizens" Co-operative Assurance Company Limited Life insurance liabilities discharged Industrial life business transferred to

Provident and Industrial Company of New Zealand Life business transferred to Friends’ Provident Life Office Life business transferred to The Equitable Probate and General Insurance

Company Limited Life business transferred to The National Mutual Life Association of Australasia Limited

Name changed to Equitable Life and General Insurance Company Limited

Name changed to Australian Manufacturers Life Assurance Limited Life business transferred to Associated Dominions Assurance Society Proprietary

Limited Industrial life business transferred to Farmers’ and General Assurance Corporation Limited New South Wales and Victorian business

transferred to Equitable Life Assurance Company of Australasia Limited South Australian and Tasmanian business tansferred to The Producers

and Citizens’ Co-operative Assurance Company Limited Life business transferred to The Australasian Temperance and General

Mutual Life Assurance Society Limited Life business transferred to Federation Manufacturers Life Assurance Company of Australasia Limited Name changed to FML Assurance Limited

Name changed to Friend's Provident Life Office

Name changed to Yorkshire General Life Assurance Company Went into liquidation

Life business transferred to Guardian Assurance Company Limited

Went into liquidation

1926

1933-34

1967 1889

1977

1934

1922

1959

1981 1930

1929

1930

1933

1890

1972

1975

1973

1969

1931

1963

1888

C o m p a n y D e ta ils D a te

Invincible Fire and General Insurance Name changed to Invincible Life & General Company Limited Insurance Company Limited 1969

Invincible Life & General Insurance Life business transferred to 1977

Company Limited Commonwealth General Assurance

Corporation Limited

Legal and General Assurance Society Life business transferred to Legal and 1979

Limited General Life of Australia Limited

Life Insurance Company of Australia Industrial life business transferred to 1923

Limited Commonwealth General Assurance

Corporation Limited Ordinary life business transferred to 1928

The Australian Provincial Assurance Association Limited

Liverpool and London and Globe Life insurance liabilities discharged Unknown

Insurance Company Limited London and Scottish Assurance Life insurance liabilities discharged Unknown

Corporation Limited Mercantile and General Reinsurance Life insurance liabilities discharged 1976

Company Limited Mutual Assurance Society of Victoria Life business transferred to The 1896

Limited National Mutual Life Association of

Australasia Limited

Mutual Life Association of Australasia Life business transferred to The Mutual 1908 Life and Citizens’ Assurance Company Limited Mutual Life Insurance Company of New Life business transferred to The 1924

York Colonial Mutual Life Assurance Society

Limited

National Provident Company Limited Went into liquidation 1954

National Provident Life Assurance Industrial Life business transferred to Prior

Company Limited Life Insurance Company of Australia to

Limited 1923

New Era Insurance Company of Life business transferred to Southern Australia Limited Cross Assurance Company Limited 1929

New York Life Insurance Company Life business transferred to The 1924

National Mutual Life Association of Australasia Limited

New Zealand Victoria Life Limited Name changed to New Zealand Life Limited 1979 Northern Assurance Company Limited Life insurance liabilities discharged Unknown Northern Life Assurance Company of Name changed to Amev Life Assurance 1969 Australia Limited Company Limited

Occidental Life Insurance Company of Life business transferred to Occidental 1974 California Life Insurance Company of Australia

Limited

Pastoral and Mercantile Assurance Life business transferred to Prudential 1937

Corporation Limited Assurance Company Limited

People’s Prudential Assurance Company Went into liquidation 1930

Limited Phoenix Mutual Provident Society Went into liquidation 1931

Limited Post Office Mutual Life Assurance Life business transferred to The 1889

Society Limited Australian Temperance and General Mutual

Life Assurance Society Limited

Producers & Citizens’ Co-operative Name changed to Producers & Citizens 1969 Assurance Company Limited Life Insurance Company Limited

41

C o m p a n y D e ta ils D a te

Producers & Citizens Life Insurance Name changed to Aetna Life of Australia 1972 Company Limited and New Zealand Limited

Provident and Industrial Insurance Life business transferred to The 1904

Company of New Zealand Provident Life Assurance Company Limited

Provident Life Assurance Company Life business transferred to Phoenix 1969

Limited Life Assurance Company of Australia

Limited

Queensland Probate Insurance Company Western Australian life business 1924

Limited transferred to The Australian

Provincial Assurance Association Limited

Name changed to Equitable Probate and 1934 General Insurance Company Limited

Royal Exchange Assurance of London Issue of life policies discontinued 1946

Royal Insurance Company Limited Life insurance liabilities discharged Unknown

Shield Life Assurance Limited Life business transferred to Commonwealth General Assurance 1980

Corporation Limited

Skandia Australia Insurance Limited Life business transferred to Greater 1974

Pacific Life Assurance Company Limited

South Australian Mutual Life Assurance Life business transferred to The 1890

Society Australasian Temperance and General

Mutual Life Assurance Society Limited

Southern Cross Assurance Company Name changed to New Zealand Victoria 1969 Limited Life Limited

Southern Hemisphere Assurance Went into liquidation 1930

Association Limited Standard Life Association Limited Life business transferred to The 1910

Colonial Mutual Life Assurance Society Limited

Star Assurance Society Limited Life business transferred to Eagle Star 1917

Insurance Company Limited

Surrey Insurance Company Limited Name changed to Citilife Insurance Australia Limited 1981

Switzerland Life Assurance Society Life business transferred to 1978

Limited Commonwealth General Assurance

Corporation Limited

Transport and General Life Assurance Name changed to Shield Life Assurance 1972 Company Limited Limited

Underwriting and Insurance Company Name changed to Underwriting and 1963 Proprietary Limited Insurance Limited

Unity Life Assurance Limited Name changed to Sun Alliance Life 1976

Assurance Limited

Victorian Life & General Insurance Went into liquidation 1928

Company Limited Victory Life Reassurance Company of Life business transferred to The Victory 1965 Australia Limited Reinsurance Company of Australia Limited

Western Australian Insurance Company Life insurance liabilities discharged 1978 Limited

42

C o m p a n y D e ta ils D a te

Yorkshire General Life Assurance Name changed to Yorkshire-General Life 1970 Company Assurance Company Limited

Yorkshire-General Life Assurance Life business transferred to Associated 1979

Company Limited National Life Insurance Company Limited

Yorkshire Insurance Company Limited Life insurance liabilities discharged 1954 Yorkshire Life Assurance Company of Name changed to Greater Pacific Life 1969 Australia Limited Assurance Company Limited

Note: The above table has been carefully prepared but, in view of the difficulties involved in tracing some companies, the information given may not in some instances be completely reliable.

4 3

APPENDIX VI

BONUS RATE INDICES (1)

Important Note — The following indices give as fair an indication as possible, errors and omissions excepted, of Companies’ Reversionary Bonus Declarations during the period shown. They should be examined in this context only and should not be taken necessarily as any indication as to future bonus declarations by these Companies. A number of companies have

already announced increases in bonuses for Financial Years ending after June 1981 which have not been recorded in the following tables.

Ordinary

Comp Bonus 72/ 73/ 74/ 75/ 76/ 77/ 781 79/ 80/ Policy Comp

■any Type (2) 73 74 75 76 77 78 79 80 81 Type (3) ■any

NZL C 100 100 100 100 100 100 113 169 169 WLEA NZL

MML c 100 100 100 100 100 107 124 129 160 EA MML

BMA A/C 100 100 100 100 100 114 114 126 150 WLEA BMA

AMP A/C 100 84 84 90 93 101 113 125 145 WL AMP

CITY A/C 100 86 86 94 90 102 106 118 132 WL CITY

PRU c 100 85 74 70 85 90 100 115 131 WLEA PRU

MLC A/C 100 80 73 80 87 93 102 120 129 WL MLC

NMLA A/C 100 80 79 92 97 105 123 123 128 WL NMLA

AML C 100 90 90 90 90 100 100 125 125 WLEA AML

AN LI C 100 86 86 86 100 100 100 102 125 WL ANL1

AAA C 100 100 100 100 100 100 100 100 122 EA AAA

CML A/S 100 82 82 85 88 91 104 109 12/ WLEA CML

CGA AIC 100 83 83 88 88 88 100 110 120 EA CGA

ADR C 100 100 100 100 100 116 116 116 116 WLEA ADR

T&G A/C 100 100 87 83 83 102 102 116 116 WL* T&G

FPL C 100 100 64 64 64 64 64 69 115 WL FPL

L&G A/C 100 88 81 81 86 88 92 99 112 WL L&G

AET A/C 100 100 85 85 85 85 85 104 H I WL AET

SECL C 100 100 75 75 75 83 90 110 110 EA SECL

U&I A/C 100 100 100 93 93 97 102 102 HO WL* U&I

SHLD C 100 100 91 91 91 91 91 91 109 WL SHLD

APA A/S 100 100 100 100 100 100 103 103 108 WL APA

OCC C 100 100 92 92 92 92 92 92 108 WLEA OCC

SUN A/C 100 88 88 88 88 88 89 102 103 WLEA* SUN

SCAM c 100 100 83 93 93 93 102 102 102 WLEA* SCAM

NOR C 100 100 100 100 100 100 100 100 100 WLEA NOR

GPL/SKAN c 100 100 100 65 65 90 100 100 100 WLEA* GPL/SKAN

RYLG A/C 100 89 89 89 80 80 89 98 99 WLEA* RYLG

AMEV C 100 86 71 77 77 77 97 97 97 WLEA AMEV

AEG c 100 89 89 89 89 89 89 89 89 WLEA* AEG

GUAR C 100 100 89 78 78 78 78 78 84 WLEA* GUAR

SENT C 100 85 75 75 75 75 75 75 75 WLEA* SENT

GPL c 100 100 65 65 65 65 65 65 65 WLEA* GPL

SBU c 100 100 63 63 63 63 63 63 63 EA* SBU

Total 34 Companies

44

Superannuation

c :rBonus

Type (2)

72/ 73

73/ 74

74/ 75

75/ 76

76/ 77

77/ 78

78/ 79

791 80

801 81

Policy Type (3) c z

NZL C 100 too 100 113 125 125 125 188 207 WLEA NZL

SHLD C 100 100 100 100 100 100 125 125 200 EA SHLD

L&G A/C 100 100 113 113 118 125 135 130 192 EA L&G

BMA A/C 100 100 113 125 125 138 138 150 179 WLEA BMA

CGA A/C too too 100 122 122 122 133 147 178 EA CGA

MAIL C 100 100 100 II I in H I 129 133 178 EA MML

CITY A/C 100 105 114 125 120 126 131 150 174 EA CITY

PRU C 100 104 104 104 111 120 133 152 170 WLEA PRU

AMP A/C 100 102 110 113 116 120 132 144 165 EA AMP

SECL c 100 100 114 114 114 125 150 164 164 EA SECL

ADR c 100 100 100 127 127 160 160 160 160 EA ADR

ALT A/C 100 102 104 106 109 109 125 138 159 EA AET

MLC AIC 100 100 100 113 114 122 129 149 159 EA MLC

ANLI c 100 100 no no no no 120 120 150 EA ANLI

NMLA A/C 100 95 97 105 105 113 137 137 148 EA NMLA

AEG C 100 100 100 127 127 147 147 147 147 WLEA* AEG

T&G A/C 100 114 no 104 104 124 124 142 147 EA* T&G

CML A/C 100 104 104 106 no 114 122 129 141 EA CML

AMEV C 100 114 114 114 114 114 137 137 137 WLEA AMEV

FPL c 100 100 102 102 102 107 107 123 136 EA FPL

AML C too 100 107 107 107 m 111 133 133 WLEA AML

occ c 100 100 100 100 100 108 108 108 131 WLEA OCC

SCAM c 100 100 96 111 111 H I 130 130 130 WLEA* SCAM

AAA c 100 100 100 100 100 100 100 100 122 WLEA AAA

RYLG A/C 100 104 104 104 104 104 in 120 121 EA* RYLG

SUN A/C 100 100 100 100 100 100 104 118 120 WLEA* SUN

U&l C too 100 107 101 107 105 105 112 120 EA* U&l

APA A/5 100 100 100 100 100 100 112 112 118 EA APA

GUAR C 100 100 100 100 100 102 102 102 m WLEA* GUAR

SBU c 100 108 108 108 108 108 108 108 108 EA* SBU

GPL c 100 too 100 100 100 100 100 100 100 WLEA* GPL

NOR c 100 100 100 100 100 100 100 100 100 WLEA NOR

SENT c 100 100 100 100 100 100 100 100 wo WLEA SENT

GPLISKAN c too 100 100 100 100 100 100 100 100 WLEA* GPL/SKAN

Total 34 Companies

Notes ( 1) Indices are based on reversionary bonuses declared for financial years ending from July to June for the year shown, as compared with 1972/73 (shown as having an index of 100). For further comments and explanations reference could also be made to the text of the 1981

Annual Report.

(2) Bonus type — C compound bonus rate declared

A/C “ adjusted compound” where in some years different rates of bonus

were declared on the sum insured and on the bonuses in force. These have been adjusted for the year concerned to an equivalent compound bonus rate (based on the first ten policy years) A/S “ adjusted simple” where bonuses have been declared on a simple basis

(i.e. on the sum insured only). These have been adjusted for the year concerned to an equivalent compound bonus rate (based on the first ten policy years).

(3) WLEA — Whole of Life and Endowment Assurance Policies.

EA — Endowment Assurance Policies.

Except where an asterisk is shown the latest series of policies was analysed. The main reason

45

for not choosing the latest series was because this was not on offer in 1973, in which case a series was chosen which seemed at the time to have had the largest liability attached. A description of the series chosen in such cases is given below.

Ordinary AEG OLD Series

GPL GUAR RYLG SBU SCAM SENT GPL/SKAN

“ G ” Series — closed in 1974.

2nd Series — old scale Old Series prior to 1974 Old Series prior to 1971 1960 Series Series closed prior to 19.3.73.

’S ’ Series — closed in 1974. Originally issued by Skandia Australia Insurance Limited before being transferred to GPL in 1974.

SUN T&G U&I

Old Series prior to 1975 Series 2 — Table 61 — closed in 1971.

T 110

Superannuation AEG GPL GUAR RYLG SBU SCAM GPL/SKAN

Old Series “ G ” Series — closed in 1974.

2nd Series Old Series prior to 1974 Old Series prior to 1971 1960 Series

“ S” Series closed in 1974. Originally issued by Skandia Australia Insurance Limited before being transferred to GPL in 1974.

SUN T&G U&I

Old Series prior to 1975 Series 2 — Table 64 closed in 1971.

Type 2 & T280

TERMINAL BONUSES Terminal bonuses have not been allowed for in the above analysis as they did not represent in the years concerned any appreciable cost. The purpose of the above analysis has been to demonstrate different companies reactions, first, to the additional tax imposed for ordinary business in early

70s, second, to the sharply improving interest earnings in recent years and thirdly, to the relaxation in the valuation basis also made possible in recent years, and it was felt that only bonus declarations involving an appreciable cost to the company during this period should be included.

Terminal bonuses declared for 1980/81 not included in the above calculations were as follows —

Sum Existing Surrender

Insured Reversionary Value

Bonuses

Ordinary % % %

AMP 3.4 3.4

BMA(l) 5.0

CITY(2) CML(3) 1.5

GUAR 15.0

GPL 33.3

GPL/SKAN 23.0

L&G 40.0

NML(4) 0.5 0.5

PRU(5) 7.5

Superannuation AMP 3.4 3.4

BMA(l) 5.0

CITY(2) CML(3) 1.5

GUAR 25.0

GPL 33.3

GPL/SKAN 33.3

L&G 40.0

NML(4) 1.0 1.0

PRU(5) 12.6

Notes (1) Percentage of surrender value at date of claim.

(2) Capital Growth Bonuses were payable as terminal bonuses in 1980/81 on a basis which could not conveniently be summarised above.

(3) For each complete year — maximum 37:/2% (4) For each year (maximum 40 years).

(5) For policies with 12 years duration.

Generally, terminal bonuses are not payable on policies unless they have been five years in force.

47