Financial Sector Reform (Amendments and Transitional Provisions) Act (No. 1) 1999 (44 of 1999)

Schedule 4   Amendment of the Life Insurance Act 1995

29   At the end of Part 5

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Division 3 - Management capital standard

73A Purpose of Division

The purpose of this Division is to make provision for the setting of a management capital standard with which life companies must comply in order to ensure that they are adequately capitalised outside their statutory funds.

73B Management capital standard

(1) The management capital standard consists of provision made by an actuarial standard for the purposes of this Division.

(2) The management capital standard may be so expressed as to set different standards of management capital:

(a) for different classes of companies; or

(b) to have effect in relation to a company in circumstances specified in the management capital standard.

(3) The Board may only make an actuarial standard referred to in subsection (1) with the agreement of APRA.

73C Purpose of management capital standard

The purpose of the management capital standard is to ensure, as far as practicable, that:

(a) the financial position of a life company reflects an appropriate capital commitment, outside the statutory funds of the company, to the life insurance business of the company; and

(b) a life company will be able to meet its obligations in respect of any business it carries on that is not life insurance business as those obligations fall due.

73D Modified application of management capital standard for particular companies

(1) The Treasurer may make a written declaration that the management capital standard is to have effect, in relation to a particular life company, with the modifications specified in the declaration. The declaration has effect accordingly.

(2) The Treasurer may only make a declaration under subsection (1) if he or she is satisfied that:

(a) in the particular circumstances of the company, compliance with some or all of the management capital standard is unnecessary or is likely to affect adversely the company's ability to carry on its business in accordance with the best interests of owners of policies issued by the company or of shareholders of the company; and

(b) the making of the declaration is not likely to have an adverse effect on the interests of owners of policies issued by the company.

73E Obligation to comply with standard

Every life company must, at all times, comply with the management capital standard.

73F APRA's power to give management capital directions to particular life companies

(1) If, having regard to such matters as APRA considers relevant, APRA is satisfied that there are reasonable grounds for believing that the financial position of a life company does not reflect an appropriate capital commitment, outside the statutory funds of the company, to the life insurance business of the company, APRA may, with the Treasurer's agreement, give the company written directions under this subsection.

(2) If, having regard to:

(a) the nature of the obligations of a life company relating to any business it carries on that is not life insurance business; or

(b) the nature and extent of the risks undertaken in respect of any business of a life company that is not life insurance business; or

(c) the nature or value of the assets of a life company that are not assets of a statutory fund of the life company; or

(d) any other matter that APRA considers relevant;

APRA is satisfied that there are reasonable grounds for believing that the life company may not be able to meets its obligations in respect of any business it carries on that is not life insurance business as those obligations fall due, APRA may, with the Treasurer's agreement, give the company written directions under this subsection.

(3) APRA may give a direction to a company under subsection (1) or (2) even if, when the direction is given, the company meets the requirements of the management capital standard and there are reasonable grounds for believing that the company will meet those requirements at all times while the direction is in force.

(4) A life company must comply with a direction given to it under subsection (1) or (2).

(5) Subject to subsections (6), (7) and (8), a direction remains in force for 12 months commencing on the day on which the direction is given. However, nothing prevents APRA from giving a further direction to the company to take effect immediately after the expiry of a previous direction.

(6) If APRA thinks that a particular direction is no longer required or that it should be varied, APRA must, by written notice given to the company, revoke or, with the Treasurer's agreement, vary the direction.

(7) If a company to which a direction has been given asks APRA, in writing, to revoke or vary the direction, APRA must:

(a) if APRA thinks, and the Treasurer agrees, that the direction is no longer necessary or should be varied - revoke or vary the direction; or

(b) in any other case - refuse to revoke or vary the direction.

(8) APRA must give the company written notice of a decision made under subsection (7).

(9) A direction to a company ceases to have effect if an order is made for the winding-up of the company.

(10) In this section:

direction includes a direction as varied.