THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRAUA LIFE … fileLIFE INSURANCE BIlL 1994 GENERAL OUTUNE...

ARTHUR ROBINSON & HEDDEi9WICKSU F~fl’(

1994

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRAUA

SENATE

LIFE INSURANC1~BILL 1994

EXPLANATORY MEMORANDUM

(Circulated by authorityof the Treasurer,the Hon Ralph Willis, MP)

THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTh MADE BY THEHOUSE OF REPRESENTATIVESTO THE BILL AS INTRODUCED

1111 llI~IIll I~II ~ll71257 CaLNo.945397X 9 780644 365369

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IPrinted by Authority by the Commonwealth Oovermnent Printer

LIFE INSURANCE BIlL 1994

GENERAL OUTUNE AND MAiN PURPOSEOF THE BILL

The main purposeof this Bill is to establisha newmodem regulatory regime for the life‘ insuranceindustry that will supersedeitspredecessor,theLife InsuranceAct 1945,which iscomplexandhasremainedlargely unchangedfor thepast half century.This newregimewillsubstantially strengthenprudential supervision andimprove consumerprotection.

The more important prudential measuresof the Bill will:

• streamlinethe regulation of life insurance throughthe scopeof the Bill;

• setnewmodernisedsolvencystandards and financial reporting requirements; and

• increasethe powersof the Insuranceand Superannuation Commission(ISC) toinvestigateand intervenein the interestsof more effective prudential supervisionofthe life insurance industry.

The Scopeof theBill will ensurethat all life companyproducts are subject to ISC regulationandnot subject to duplicate regulation underthe CorporationsLaw.

This Bill provides for updated andungraded solvencyand capital adequacystandards whichwill demonstrate that life companiesare financially sound, are able to meet existingobligations andarein a position to continue asa goingconcern. Financial statementsarealsorequired to be morecomprehensiveandmeaningfulto makelife companies’solvencypositionandunderlying performancemore transparent to policy owners,financial analysts,theISC andother interested observers.

The Bill provides for the establishmentof a Life Insurance Actuarial StandardsBoard todevelopactuarialstandards relevant to life companyprudential controls.

The Bill provides directors, auditors and actuariesof life companies with increasedresponsibilities. It clarifies that directors oweafiduciary duty to policy owners,andthey willbe specifically required to:

form an Audit Committee responsible for ensuringthe accuracy, adequacyandreliability of financial reporting and the maintenance of internal managementandfmancial controls; and

• givethe AppointedActuary andApproved Auditor accessto that committeeto providemembers of the committeewith written adviceon certain matters.

The Bill alsoupdatesthe provisions relating to policiesin PartIV of theLife InsuranceAct1945. Theseprovisions reflect a modernapproach andare easier to understand than theprevious provisions.

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This Bill provides the ISC with additional powersandresourcesto:

• issuelegally enforceable Rules to life companies;

• improve investigationsandobtainstatistical, fmancial andassetinformation from lifecompanies;and

• initiate judicial managementprocessesmore efficiently in casesof fraud or wherethe 4fmancial viability of a life companyis at stake.

FINANCIAL IMPACT STATEMENT

The measurescontainedin thisBill to provide addedprotection to policy owner savingsandpromote a more efficient life insurance industry,will result in additional supervisory costsbeing incurredby the InsuranceandSuperannuationCommission.

Theseadditional resourceshave beenestimatedat $l.269min 1994-95,$l.053min 1995-96and $1.053min 1996-97.

However, thesecostswill be fully recoupedthrough an increasein the annualsupervisorylevy on life insurance companies. This levy was increasedfrom $28,000to $70,000percompanyfrom 1 October1994.

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EXPLANA1URY N01ThON ThELIFE INSURANCEBILL 1994

PARF1- PRELIMINARY

CLAUSE 1 SHORT TITLE

This clauseprovides the mode of citation of the Bill.

CLAUSE 2 COMMENCEMENT

2. This clauseprovides for the commencementof the Bill.

CLAUSE 3 OBJECTOF ACT

3. This clausesets out the object of this Act and the principal meansadopted for theachievementof thisobjective.

CLAUSE 4 ADDITIONAL OPERATION OF ACT

4. This clauseprovides that without prejudice to its effect apart from this section, thisAct also has the effect it would have if eachreferenceto a company were confmed to acompanythat is a corporation to which paragraph 51(xx) of the Constitution applies; ieforeign corporations, andtrading or fmancial corporations formed within the limits of theCommonwealth.

CLAUSES EXCLUSION OF CERTAiN STATE INSURANCE

5. This exclusion is intendedto clarify that, irrespective of the place of issue of thepolicy documents,the Act applies to policies‘~wiUenby a State insuranceoffice operating inother States on lives domiciled andnormally resident in those other States.

CLAUSE 6 EXTENSION OF ACT TO NORFOLK ISLAND

6. Selfexplanatory.

CLAUSE 7 GENERAL ADMINISTRATION

7. Selfexplanatory.

CLAUSE 8 DICTIONARY

8. Selfexplanatory.

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PARF2- EXPLANATION OF KEY CONCEFIS

CLAUSE 9 LIFE POUCY

9. This clauseoutlines the type of contractsandpoliciesthat will constitutea life policyfor the purposesof the Act It also provides that a particular type of contract will not beconsidereda life policy for the purposesof the Act, if it satisfiescertaincriteria.

CLAUSE 10 ISSUEAND OWNERSHIPOF POLICIES

10. This clauseoutlinesthe circumstanceswherea life company“issues” apolicy. It alsoexplains who is the “owner” of a policy for the purposesofthe Act

CLAUSE 11 LIFE INSURANCE BUSiNESS

11. This clausedefmeswhat isconsideredto be life insurancebusinessandlists thetypes

of businessesthat will not constitute a life insurancebusinessfor the purposesof the Act.

CLAUSE 12 CLASSESOF UFE iNSURANCE BUSiNESS

12. This clauseoutlinesthe two classes- ordinary andsuperannuation - of life insurancebusiness. It provides for the Commissionerto declare that businessincluded in oneclassorother types of businessmay betreatedfor the purposesof the Act asif they were includedin the other or a specifiedclass of life insurancebusiness,respectively.

CLAUSE 13 BUSiNESSOF A STATUTORY FUND

13. This clauseclarifies that a reference in the Act to the businessof a statutoryfund ofa companyis a referenceto the life insurance businessof the companyto which the fundrelates.

CLAUSE 14 INVESTMENTACCOUNTBENEFITS,INVESTMENT-LINKED BENEFITS

14. This clause explains the terms “investment account benefits”, “investment-linkedbenefits”, “investment account contract” and “investment-linked contract”. Subclause(2)provides that an investment accountcontract doesnot needto have an insuranceelement.

15. Subclause(4) defmes the type of contract that will constitute an investment-linkedcontract and clarifies that such a contract does not need to have an insuranceelement.Subclause(5)permits the Commissionerto declare (in a ~wittenform) that certaincontractsare, or would be investment account contracts or investment-linked contracts.

16. Subclause(6) provides that when the Commissionermakesa declaration thisAct haseffect accordingly and the Commissionermust give a copy of the declaration to the lifecompanyat whoserequestthedeclaration wasmade. Theseprovisionswill provide flexibilityto theCommissionerwherecontractsare hybrids, containingcharacteristics ofbothinvestmentaccountand investment-linked contracts.

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CLAUSE 15 PARTICIPATING,NON-PARTICIPATINGBENEFITS

17. This clauseexplains the terms“participating benefit” and “non-participating benefit”.It further provides that the Commissionermay declare particular benefits to be participatingbenefits or non-participating benefits.

CLAUSE 16 RELATED COMPANIES

18. This clause provides that where there is a question whether one company is asubsidiary or related to anotherit is to bedeterminedtheway it would under theCorporationsLaw. This general rules doesnot apply for the purposesof Part7 of thisAct.

PART3- REGIS1R4TIONOF LIFE CO1~1PAN1ES

CLAUSE 17 PROHIBITION OF PERSONSOTHERTHAN REGISTEREDCOMPANIESCARRYING ON LIFE BUSINESS

19. This clauseprovidesthat apersonother than a registered companyunder thisAct mustnot intentionally issuea life policy or undertake liability under a life policy. Subclause17(2)outlines what is excludedfrom the generalprohibition. Theprovision will enable investmentaccountand investment-linked contracts without an insuranceelementto be issuedby otherthanregistered life companies.

CLAUSE 18 CERTAiN ACTIVITIES NOT REGARDED AS CARRYING ON LIFEBUSINESS

20. This clauseoutlines certainactivities that will not be regarded as the carryingon oflife business.

CLAUSE 19 CERTAIN PERSONSTAKEN TO CARRY ON LIFE BUSINESS ETC

21. Thisclauseoutlines certainpersonswho will beregardedascarryingon life insurancebusiness. It is aimed at overseaslife insurancecompaniesthat seekto promote or procurelife businessin Australia, via direct marketing or agents.

CLAUSE 20 APPUCATION FOR REGISTRATION

22. This clauseallows any companyto apply to the Commissionerfor registration underthisAct andprovides that certain documentsor information mustbe lodged or produced asspecified in the regulations.

CLAUSE 21 DECISION ON APPUCATION FOR REGISTRATION

23. Thisclauseprovidescertaingroundsfor theCommissionerto refusean application forregistration of a companyunderclause20, subject to the Treasurer’s approval. In particular,it setsout the capital requirements of the applicant company.

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CLAUSE 22 CONDITIONS OF REGISTRATION

24. This clauseprovides that the Commissionermay imposeconditions on a companyprior to registering it.

CLAUSE 23 CONTINUING CAPITAL REQUIREMENTS

25. This clauseexplains themeaningof “adjusted paid up sharecapital”. It requires alifecompany,which is limited only by sharesto have at least$10,000,000in suchshare capitalat all times and eligible assetsthe value of which exceedsthe total amountof liabilities byat least $5,000,000. If the life company is limited by sharesand by guaranteeor doesnothave any share capital then the company must at all times have eligible assetsof at least$10,000,000in value. The specifiedamountsmay be increasedby regulation. The term“liabilities” is further defmed.

CLAUSE 24 MODIFICATION OF APPLICATION OF SECTION 23 TO PARTICULARCOMPANIES

26. This clauseprovides that the Treasurermay makeawritten declarationin respect ofsubclause23(1),(3) or (4) in relation to a specifiedlife company,substituting the amountofmoney specifiedin the provision for the lesseramount specifiedin the declaration. Thisdeclaration can only be madeif certainconditions are satisfied. Subclause(5) provides thatthissectionapplies to an existing life company asif a referenceto the amount specified ina relevant provision or fixed by regulations includes a reference to such an amount asmodified by regulation madeundersubsection255(2).

CLAUSE 25 NOTIFICATION OF CHANGES IN INFORMATION SUPPLIED TOCOMMISSIONER

27. This clauseprovidesthat if thereis achangeof circumstancesafter the registration ofa company, as specifiedin the provision, the Commissionermust be notified andgiven allrelevant details.

CLAUSE 26 CANCELLATION OF REGISTRATION: DEFUNCT COMPANY

28. This clausesetsout the procedure for cancellation of registration of a life companyunder thisAct.

CLAUSE 27 VOLUNTARY DEREGISTRATION

29. This clauseoutlines the circumstancesunder which the Commissionerwill canceltheregistration of a company, at the compan~swritten request.

CLAUSE 28 RETURN OF CERTIFICATE OF REGISTRATION

30. This clause provides that where the registration of a company is cancelled, thecertificate of registration must be returned to the Commissionerwithin 7 days.

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) PARr 4- STATh1~YHiNDS OFLIFE COMPANIES

DIVISION 1- GENERAL REQUIREMENTS

CLAUSE 29 WHAT IS A STATUTORY FUND?

‘ 31. This clauseprovides that a statutoryfund is a fund that is establishedin the recordsof a life company and relates solely to the life insurancebusinessof the company or aparticular part of that business.

I: Statutory Fund~

I Categ orbs

Participating Non-participating

$tatutoryFund~:,I

1Superannuation

LIFE COMPANY

I Statutory. Fund I

Classes of Business

Ordinary

I Categories

Participating Non-participating

I Sub Cat gory I

I 1 I Sub Category I

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CLAUSE30 OUTLINE OF REQUIREMENTS REGARDING STATUTORY FUNDS 432. This clausesummarisestheprincipal requirements of a statutory fund.

CLAUSE 31 REQUIREMENTTHAT COMPANY HAVE STATUTORY FUNDS

33. This clauseprovides that a life companymusthaveat leastonestatutoryfund and the

circumstanceswhenit musthave a separate fund for partsof its life insurancebusiness.

34. The requirement for a separatestatutory fund for certain types of business(eginvestment-linkedbusiness)is to protect the interestsofpolicy ownersby having businessofasimilar risk profile groupedtogether.

CLAUSE 32 DUTY OF COMPANY IN RELATION TO STATUTORY FUNDS

35. This clauseprovides that in the investment, administration and managementof theassetsof a statutory fund, a life companymust comply with Part4 and mustgivepriority tothe interestsof the ownersof policiesreferable to the fund.

CLAUSE 33 NOTICE TO COMMISSIONER WHEN FUND ESTABUSHED

36. This clausesets out the written details that must be provided in a notice by a lifecompanyto the Commissionerwhen a statutoryfund is established.

CLAUSE 34 ASSETSOF STATUTORY FUND

37. This clausedescribeswhat money/assets/investmentsconstitute assetsof a statutoryfund at aparticular time. Subclause(3) providesthat, subjectto subelause(4), a life companymustkeepassetsof a statutoryfunddistinct and separatefrom assetsof other statutory fundsandfrom all other money, assetsor investmentsof the company.

38. Subclause(4) permitsthe life companyto maintaina singlebankaccountfor moneythat constitutesassetsof 2 or more statutory funds, provided the accountis maintained inaccordancewith the Commissioner’srules. Subclause(5) clarifies that the life company ordirectors of a life companyare not trustees of the assetsof the statutory funds of thecompany.

CLAUSE 35 IDENTIFICATION OF POUCIES REFERABLE TO STATUTORY FUND

39. Subclause(1) provides that a policy document must specifythe statutoryfund(s) towhich the policy relates and under subelause(2) the policy document must not makeprovision inconsistent with section 31. The requirement in subclause (1) does not applyduring the period of 15 months beginning at the commencementof this Act, if the policydocument relating to a policy was issuedbefore the commencementof thisAct.

40. Subclause(3) setsout the conditions that mustbe satisfied if a provision in a policydocument, that statesa policy is referable to 2 or more statutory funds, is to be effective.

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) 41. Subclause(4) provides that a policy document referred to in subelause(1) can beendorsedsoasto make apolicy referableto a different statutory fundor to a furtherstatutoryfund.

CLAUSE 36 PAYMENTS TO STATUTORYFUND

‘ 42. This clausespecifiesamountsthat must be credited by a life companyto a statutory

fund.

CLAUSE 37 CAPITAL PAYMENTS TO STATUTORY FUNDS

43. This clausespecifieswhatconstitutesa capital payment to a statutory fund.

CLAUSE 38 EXPENDITUREAND APPUCA11ONOF STATUTORY FUND

44. Subclause(1) provides that a life companymust not apply, or deal with, assetsof astatutoryfund,whetherdirectly or indirectly, exceptas statedin this clause.

45. Subclause(3) provides that a life companymust not mortgage or charge any of theassetsof a statutoryfund exceptto securea bankoverdraftor in accordancewith section40.Section40 provides that a mortgage or charge over an assetof a statutoryfund, excepttosecurea bankoverdraft,is permittedif it has been approved by the Commissioner.

46. Subclause(4) provides that a life company mustnot borrowmoney by meansof anunsecuredborrowingfor the purposesof the businessof a statutoryfund, if the result is thatthe total amountof unsecuredborrowingsexceedsanamountprescribedin the regulations.Subclause(5) providesthatanunsecuredborrowingdoesnot include borrowingby meansofa bankoverdraft.

47. Subclause(6)provides the exceptionto the general rule that assetsof a statutory fundare not available to meet a liability of a life company under a contract of guarantee.Subclause(7) clarifies that the clausedoesnot apply to the transfer of assetsfrom onestatutoryfund to another in accordancewith Division 3, 4 or 6.

CLAUSE 39 PROHIBITION OF REINSURANCEBETWEEN FUNDS

48. This clauseprovides that if alife companyengagesin reinsurancebetweenstatutoryfundsof the companyit will contravenethisPart. The clauseexplainswhat will constitute

~ the practice of reinsurancebetweenstatutoryfunds.

CLAUSE 40 MORTGAGES ETC. OF ASSETS

49. This clauseprovides an exceptionto the rule in subclause38(3). Subclause(2)specifies the conditions that must be met for approval by the Commissionerundersubclause(1). Subclause(3) provides that suchapproval may onlybegivenwith theconsent

~ of the Treasurer. Under subclause(4) conditional approval may be given by theCommissioner,as appropriate, in the circumstances. The provision is aimed at majordevelopmentprojects with a long time frame, such as30 years.

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CLAUSE 41 EFFECTOF NON-COMPLIANCEWITH SECTION 38 450. This clause provides that where a life company enters into a transaction incontraventionof section38, that transactionis of no effect. This is subject to subclause(2)which providesthat a Courtdeclarationcanbe appliedfor, orderingthat the transactionbetakento have effect. Such an order will be grantedby the Court if the transactionwasenteredinto in good faith without knowledgeof thecontravention,hardship hasbeencausedto the applicantor any other matters to which the Courthasregard.

CLAUSE 42 INVESTMENT PERFORMANCEGUARANTEE - UMIT OF CERTAINUABIUTIES

51. Thisclausedefinestheterm“investmentperformanceguarantee”andprovides that the

investmentperformanceguaranteefactor shall not exceed5%.

CLAUSE43 INVESTMENT OF STATUTORY FUNDS

52. Subelause(1) defineswhat a “listed corporation” is for the purposesof this clause.

53. Subclause(2)provides that a life companymay investassetsof astatutoryfund in anyway that is likely to promotethebusinessof the fund. Undersubclause(5) a contraventionof paragraph(3)(c) or (d) doesnot necessarilyresult in a transactionbeingineffective.

54. Subclause(6) clarifies that a life company can invest money of a statutoryfund byway of bankdepositwithout restriction.

55. Subclause(7) provides that an investmentby way of a loan is to be takento be madewhen the loan agreementis entered into.

CLAUSE 44 REPORTINGOF RESTRICTED INVESTMENTS

56. Subclauses(2) and(3) specifywhat will andwill not constitutearestrictedinvestment.

57. Subclause(4) provides that a restrictedinvestmentsreturnfor each“half year”, mustbe provided to the Commissionerfrom every life company. Subclause(5) provides that the“half year”be linked to the fmancialyearof the company.

58. Subclauses(6) and(7) specify the type of informationthatmust be statedon therestricted investmentsreturn, the form it must take and when it is requiredby theCommissioner. 4CLAUSE 45 TRANSFEROF ASSETSBETWEENFUNDS

59. This clauseprovides thattransfersof assetsbetweenstatutoryfundswill bepermittedin accordancewith Division 3, 4,6 or on an arm’s lengthbasis. This clausewill permitassetsto be transferredbetweenfundsratherthan forcing salesandpurchaseson the marketwithconsequenttransactioncosts.

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CLAUSE 46 DIVISION, AMALGAMATION ETC. OF STATUTORY FUNDS

60. Selfexplanatory.

CLAUSE47 ASCERTAiNMENTOF INCOME AND OUTGOINGSOF A STATUTORYFUND

61. This clauseallows the regulations to declare whatconstitutesincome and outgoings

of a statutoryfund.

DIVISION 2- DUTIES AND LIABIUTIES OF DIRECTORS ETC.

CLAUSE48 DUTY OF DIRECTORSIN RELATiON TO STATUTORY FUNDS

62. This clauseprovidesthat a director of a life company has a duty to the ownersofpoliciesreferableto astatutoryfund ofthecompanyto ensurethelife companycomplieswiththis Partand gives priority to policy owner’s interests. It provides clarification to the issueofconflict betweenthe interestsofthe ownersof policiesreferabletoastatutoryfund andtheinterestsof shareholders. In that event the director is to ensurepriority to the interestsofpolicy owners.

63. It should be noted that apersoncan only be madeliable (in respect of the sameactor omission) under this clauseor section50, and not both.

CLAUSE 49 COMMISSIONERMAY GIVE NOTICE

64. This clauseprovides the Commissionerwith the powerto givea life companywhichhascontravenedthisPart,written noticerequiringthecompanyto takesomespecifiedactionto remedy the contravention. The clausespecifiesthe period oftime that mustbegiven andthetype of action that canbe specifiedin thenotice. A life companymust complywith thisnotice.

CLAUSE50 LIABILITY OF DIRECTORS

65. This clauseprovidesthat as ageneralrule wheretheCommissionerhasgiven noticeto a life companyof a contraventionundersection49,the contravention hasresulted in lossto a statutoryfund andthe companyhasnot compliedwith the notice, thenthe directors ofthe company at the time of the contravention are jointly and severallyliable to pay thecompanyanamountequalto theamountoftheloss. The clauseoutlines circumstanceswherea director will not be liable.

CLAUSE 51 COMMISSIONERS POWERTO SUEIN THE NAME OF A COMPANY

66. This clauseallowstheCommissionerto bringanactionagainstapersonin the nameand for the benefitof a life companyfor the recoveryof an amount under section50. This

~ actioncanonly beboughtif theCommissionerthinksthat it is in the interestsof the ownersof policies referable to a statutory fund to do so. The Commissionermay bring actionsagainstpersonswho areno longer directors.

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DIVISION 3- DIVISION AND AMALGAMATION OF STATUTORY FUNDS 4CLAUSE 52 DIVISION OF STATUTORY FUND

67. This clausedeals with the procedureswhichmust be followed if a life companywishesto establishastatutoryfund in respectofpartof the life insurancebusinessreferableto anexistingstatutoryfund.

68. Subclause(4) provides that the Commissionerwill approve the establishmentof thenewfund if he or she is satisfied that on establishmentof the new fund it will satisfythesolvencyandcapital adequacystandards.

69. Subclauses(5)to (8) dealwith the transferofassetsfrom the old fundto the newfundwhenapprovalfor theestablishmentof the new fund is given.

70. Subclause(9) provides that written notice of certain matters must be given to theCommissionerwithin 6 weeksof establishingthe new fund.

CLAUSE 53 AMALGAMATIONOF STATUTORY FUNDS

71. This clausedeals with the amalgamationof 2 or more statutory funds of a lifecompany,so asto form onenew fund. Subclause(1) provides that the life companymayapply for the Commissioner’sapprovalof the amalgamation. Under subclause(2) thisapplicationmust be madein accordancewith Commissioner’srules. Subclause(3) outlinesthe type of provisions that may be made by Commissioner’srules for the purposesofsubclause(2).

72. Subclause(4) provides that the amalgamationwill only be approvedby theCommissionerif two conditionsare satisfied. Subclause(5) dealswith treatmentofpolicies,policy and other liabilities, andassetsof the funds to be amalgamated.

CLAUSE 54 NOTICE TO POLICY OWNERS OF ESTABUSHMENT ORAMALGAMATION OF STATUTORY FUNDS

73. This clauseprovides that written notice of the establishmentor amalgamationofstatutory fundsundersection52 or 53 respectively,must be given to the ownerof everypolicy referableto the fundestablishedor fundsamalgamated.This noticemust begiven in

a form and manner asrequiredby the Commissioner’srules.

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DIVISION 4- TRANSFEROF POUCIESBETWEEN STATUTORY FUNDS

CLAUSE 55 CONSEQUENCESOF TRANSFEROF POLICY FROM ONESTATUTORYFUND TO ANOTHER

74 This clauseprovidesthatif therehasbeenatransferofa policy from astatutoryfund~ to oneor more other statutoryfunds, the companymusttransferto eachfund to which the

policy has becomereferable,assetsof a value equivalentto such part of the liabilities(includingpolicy liabilities) of the companyas is specifiedby Commissioner’srules. Thecompanymustalsogivenoticeto theownerofthe policy in accordancewith Commissioner’srules.

DIVISIONS- ALLOCATION OF PROFITS AND LOSSESAND CAPITAL PAYMENTS

CLAUSE 56 INTERPRETATION


CLAUSE 57 OBLIGATION TO ALLOCATE OPERATINGPROFIT OR LOSS

76. This clauserequiresa life company,wherea categoryof businessof astatutoryfundhasdisclosedan operatingprofit or incurredanoperatingloss for the period, to allocatetheprofit or loss.

CLAUSE58 OPERATING PROFIT ETC.

77. This clauseestablishesthe basisfor determiningif there hasbeenan operatingprofitor an operating loss.

CLAUSE 59 ALLOCATION OF OPERATING PROFIT ETC.

78. This clauseprovides that a life companymust allocate all of the operatingprofit orlossofa categoryof businessof astatutoryfund for aperiod. Subclauses(2) and(3) specifyhow a life companyallocatesoperating profit andoperatingloss, respectively. Subclauses(4) and (5) specifyhow alife companyallocatesa capitalpayment.

CLAUSE 60 BASIS OF ALLOCATION OF OPERATING PROFIT ETC

79. Subclause(1) detailsthe ruleswhich apply to the allocation of an operating profit ofacategoryof businessof a statutory fund. In particular,it providesthat at least80% ofprofitof acategoryrepresenting Australianparticipating business(or such higherpercentageasisspecifiedin the articles of associationof the company), must be treated as, or added toAustralian policy owners’ retainedprofits of the statutory fund.

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80. Subclause(2) detailstherules whichapplyto the allocationof an operatingloss of a 4categoryof businessof a statutoryfund. In particular,it provides that nomore than 80% ofa lossof acategoryrepresentingAustralianparticipatingbusiness(or suchhigherpercentageas is specifiedin the articles of associationof the company)may be takeninto accountinreduction of Australianpolicy owners’ retained profits of the statutoryfund.

DIVISION 6 - DISTRIBUTION OF RETAiNED PROFITS AND SHAREHOLDERS’CAPITAL 4CLAUSE 61 INTERPRETATION

81. This clauseprovidesdefinitions for a numberof termsusedin this Part. It alsoprovides that the distribution rules setout in the Division are to apply to mutual companiesaswell as shareholder companies.

CLAUSE62 DISTRIBUTION OF RETAiNED PROFITS

82. This clauseoutlinesthe circumstancesunder whicha distribution of retained profits

of a statutoryfund cantake place.

CLAUSE 63 DISTRIBUTION OF SHAREHOLDERS’ CAPITAL

83. This clauseoutlines the circumstancesunder which a distribution of shareholders’capital in relation to a statutoryfund can takeplace.

PART 5- SOLVENCY AND CAPiTAL ADEQUACYSTANDARDS

DIVISION 1 - SOLVENCY STANDARDAPPUCABLE TO STATUTORY FUNDS

CLAUSE 64 PURPOSE OF DIVISION


CLAUSE 65 SOLVENCY STANDARD

85. This clauseprovides that the solvencystandardconsistsof provision madeby anactuarial standardfor the purposesof this Division and the solvencystandardmay be soexpressedasto set different minimum standardsof solvencyin certaincircumstances.Subclause(3) provides that the Life Insurance Actuarial StandardsBoardcan only makeanactuarial standard(for solvency)with the agreementof the Commissioner. 4CLAUSE 66 PURPOSEOF SOLVENCY STANDARD

86. This clauseprovides that the purpose ofthe solvencystandardis to ensurethatat alltimes there are sufficient assetsin each statutory fund of a life company to enable thecompanyto meet all policy andother liabilities of that fund as they becomedue.

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CLAUSE67 OBLIGATION TO COMPLY WITH STANDARD


CLAUSE 68 COMMISSIONER’S POWER TO GIVE SOLVENCY DIRECTIONS TOPARTICULAR LIFE COMPANIES

88. Subclause (1) provides the Commissionerwith the power to issuea life companywritten directionsasarereasonableandnecessary,whereafterhaving regard to certainmattersthere are reasonable grounds for believing that the company may not be able to meet allpolicy andother liabilities out of the assetsof the fund asthey becomedue.

89. Subclause(2)provides that a direction may begiven by theCommissionerevenif thecompany meetsthe solvencystandardwhen the direction is given and will also continue tomeet the standardwhile the direction is in force. Subclause(3) requires a life companytocomply with sucha direction.

90. Subclause(4) provides that a direction will remain in force for 12 months from theday the direction was given. This is subject to subelauses(5), (6) and (8) which allow theCommissionerto vary or revoke the direction in certain circumstancesand specify that adirection will ceaseto have effect in thewinding up of a life company. Under subclause(7)the Commissioner must give written notice to the company of a decision made undersubclause(6).

DIVISION 2 - CAPITAL ADEQUACY STANDARD APPLICABLE TO STATUTORY

FUNDS

CLAUSE 69 PURPOSEOF DIVISION


CLAUSE 70 CAPITAL ADEQUACY STANDARD

92. This clauseprovides that thecapital adequacystandardconsistsofprovision madebyanactuarial standardfor the purposesofthis Division. Undersubclause(2)the Life InsuranceActuarial StandardsBoard may only make an actuarial standardin this regard with theagreementof the Commissioner.

CLAUSE 71 PURPOSEOF CAPITAL ADEQUACY STANDARD

93. This clauseprovides that an additional reserve be established above the solvencystandardsuch that there are sufficient assetsin eachstatutory fund of a life companytoprovide adequatecapital for the conduct of the businessof the fund.

CLAUSE 72 OBUGATION TO COMPLY WITH STANDARD


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CLAUSE 73 COMMISSIONER’S POWER TO GIVE CAPITAL DIRECTIONS TO 4PARTICULAR LIFE COMPANIES

95. This clauseprovides theCommissionerwith power to issuecertain directions to a lifecompany. Directionscan only beissuedif there arereasonablegrounds for believingthat theassetsof the fund will not provide adequatecapital for the businessof the fund and it is inthe interests of the ownersof policiesof the fund to do so. The clausefurther explains thetype and duration of directions that may be given by the Commissioner.

96. The following diagram illustrates thecompositionofthesolvencyandcapitaladequacystandards applying to a statutoryfund.

STATJT3R’~’FUND

Excess Assets

Capital Acequacy~-.lecu

Solvency St~dardReser”e Solven~’

T~ta!~ Standard

RealisticPolicyU abilities

Otne~L~a~iiii~es

PART 6- FINANCIAL MANAGEMENT OFLIFE COMPANIES

DIVISION 1 - PRELIMINARY



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DIVISION 2- FINANCIAL RECORDSAND STATEMENTS

CLAUSE 75 FINANCIAL RECORDS- AUSTRALIAN AND AUSTRALIAN/OVERSEASFUNDS

98. Subclause(1) provides that a life company must keeprecords of the income andoutgoingsofeachstatutory fundaswill record properly the affairs andtransactions in respectof the funds categorised in respect of classesof business, categories of business andsubcategoriesof business. An overseasfund of the companyis required to keep records inrespect of classesof business.

99. Subclause(2) provides that for anAustralian fund, a classof life insurancebusinessisdivided into categoriesin respectofAustralianparticipating andnon-participating business.

100. Subclause(3) provides that for an Australian/overseasfund, a class of life insurancebusinessisdivided into categoriesin respectofAustralian participating, overseasparticipatingandnon-participating business.

101. Subclause (4) specifieswhat will constitute a subcategorywithin a category of lifeinsurance business.

CLAUSE 76 FINANCIAL RECORDS - OVERSEASFUNDS

102. This clauseprovides that a life company must keep such records of the incomeand

outgoings of an overseasfund of the company at the category of businesslevel.

CLAUSE 77 FINANCIAL YEAR OF A LIFE COMPANY

103. This clauseprovides thatthe fmancial yearof an existing life company is theperiodthat, immediately before the commencementof this Act, was the fmancial year of thecompanyunder theLife Insurance Act 1945or, for anyother company,the period nominatedby the companyunder subsection20(4).

104. The Commissionerhasthepower to approve a changeto the life company’sfmancialyear. To obtain such an approval, written notice must be given to the Commissionerproviding certain information. If approval is granted, the periods specifiedin the noticebecomefmancial yearsof the company. Theperiod that is to be treatedasthe first fmancialyearofthe company,commencingafter the giving of the notice, may exceed12 months butmust not exceed 15 months.

CLAUSE 78 TREATMENT OF INCOME AND OUTGOINGSRELATING TO MIXEDBUSINESS

105. Subclause(1) provides that an amountof incomeor outgoings,thatrelatesto both lifeinsurancebusinessand other business,be apportioned so asto determine what part of theamount relatesto the businessofthestatutory fund. Subclause(2) provides that only that partof the amount is to be treated asrelated to the businessof the statutory fund.

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106. Subclause(3) provides that a liability incurredby a life company, in respectof a 4matterthatrelates to both the businessof astatutoryfund and businessof another company,must be apportioned. Only the portion of the liability referable to the business of thestatutory fundmay be treated as outgoings of the fund.

CLAUSE 79 TREATMENT OF INCOME OR OUTGOINGS RELATINGTO 2 OR MORECATEGORIESOF BUSINESS ETC.

107. This clauseprovides for the apportionment of an amount of income or outgoings ofa life companythat relatesto 2 or more statutory funds, or 2 classes,2 or more categoriesofbusinessor two or more subcategories.

CLAUSE 80 BASIS OF APPORTIONMENT

108. This clauseprovides that apportionment under section78 or 79 mustbe madeon anequitablebasisandaccordingto generally acceptedaccountingprinciples. The directors mustobtain the appointed actuary’s written advice on whether the basis of the proposedapportionment is appropriate. Subclause(2)provides that an apportionment is not effectiveunlessareport is givenby the auditor thatcomplieswith subsection83(3)and statesthat theapportionment hasbeenmadeequitably and in accordancewith generally acceptedaccountingprinciples.

CLAUSE 81 TREATMENT OF APPRECIATION AND DEPRECIATION OF ASSETS

109. This clauseprovides that the amountby which an assetof a life company has

appreciatedor depreciatedmust be treated asan amountof incomeor outgoing.

CLAUSE 82 FINANCIAL STATEMENTS

110. Thisclausespecifiesthe fmancial statementsthat must be preparedby a life companyat the end of eachfmancial yearofthe company,thetimeframe for their preparation and therelevant signaturesthat are required.

111. Financial statementsprepared as at the endof the financial yearmust be consistentwith the written actuarialreport prepared after the annualactuarial investigation. Financialstatementsprepared asat a time other thanthe end ofa financial year, mustbe preparedafteran actuarial investigation under section 115 has taken place and be consistentwith theactuarial report given under section 115.

CLAUSE 83 AUDIT 4112. This clauseprovides the directors of a life company with a duty to ensurethat therecordsof the company in respect of a financial year are audited by the auditor of thecompany before the fmancial statementsare given to the Commissioner.

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113. Subclause(3) provides that financial statementsprepared under subsection82(1) arenot effective unlessthey are accompaniedby a report signedby the auditor andmakingparticularstatements.Subclause(4)providesthatthe auditor may acceptavaluationby theappointed actuary of certain things, for thepurposesof the Act.

CLAUSE 84 APPOINTMENTOF AUDITOR

114. Subclause(1) provides thatonly anindividualwho is anapprovedauditor mayholdan appointment as the auditor of a life company. Subclause(2) sets out the procedurefornominationwherea life companyrequestsa firm to nominateamemberor employeeof thefirm for appointmentas auditor ofthelife company. Subclause(4) setsout theprocedurethatmust be followed to appoint an auditor if the currentappointmentis revoked.

CLAUSE 85 APPROVAL OF AUDITORS

115. This clauseallows the Commissionerto approveindividuals as auditorsof a lifecompanyproviding the individual is a registered company auditor, as provided in theCorporationsLaw, andhas experiencesuitable for such an appointment.

CLAUSE 86 REVOCATIONOF APPROVAL OF AUDITOR

116. This clauseprovides the Commissionerwith the power to revoke the approval of anauditor undersection85, if thepersonhasceasedto be a registered companyauditor or failedto properly andadequately performthe functions and duties of an auditor.

CLAUSE 87 NOTIFICATION OF APPOINTMENTETC. OF AUDITOR

117. Subclauses(1) and (2) provide that on appointment of the auditor the life companymust provide the Conmiissionerwith written notice of certaindetails. This notice must begivenwithin 14 daysafter theday of the appointment.

118. Subclauses(3) and (4) provide that wherea personhas ceasedto be the auditor, thelife companymust givetheCommissionerwritten noticeof thiswithin 14 daysafterthedayon whichthe personceasedto be the auditor of the company.

CLAUSE 88 AUDITOR’S OBUGATION TO REPORT TO COMPANY ANDCOMMISSIONER

119. Subclause(1) requires the auditor to drawto the attention ofthe company any matterthat requires actionto avoid acontravention of this Act or avoid prejudice to the interests ofthe ownersof policies issuedby the company.

120. Subelause(2) requires the auditor to inform the Commissioner where there arereasonablegroundsfor believing thecompanyor a director may have contravenedanAct andthecontraventionis ofsuchanaturethat it may affect significantlythe interestsofthe ownersof policies issuedby the company.

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121. Subclause(3) requires the auditor of a life company to inform the Commissionerofmatterswhichhave previously been drawnto the attention of the company or directors andin respectof whichno action hasbeen takenwithin areasonabletime.

122. Subclause(4) provides that the auditor remainssubject to the obligation undersubsection(2) or (3), if the auditorhadknowledgeof the matterand had not informedtheCommissionerbeforethe personceasedto be the auditor.

CLAUSE 89 QUALIFIED PRIVILEGE OF AUDITORS

123. This clauseprovides that apersonwho is, or hasbeen the auditor of a life companyhasqualifiedprivilege in certaincircumstances.This privilege is in additionto anyprivilegeconferredon a personby the CorporationsLaw of a Stateor internal Territory.

CLAUSE 90 OBUGATION ON UFE COMPANY TO HAVE AUDIT COMMITTEE


CLAUSE 91 MEMBERSHIPAND MEETINGS OF AUDIT COMMITTEE

125. This clausesets out the requirements relating to an audit committee, such as the

compositionandappointmentof thecommitteeandthe meetingprocedure.

CLAUSE 92 FUNCTIONS AND POWERSOF AUDIT COMMITTEE

126. This clausesetsout the general functions,duties and powersof an audit committee.It alsoprovides that the directors of a life companymustensurethat the auditor and actuaryhavereasonableaccessto the audit committee. The auditor and actuary are entitled to bringmattersto the attentionof the committeein writing or orally at the meeting, however theycannotvote at the meeting.

DIVISION 3- APPOINTEDACTUARIES

CLAUSE 93 APPOINTMENT

127. Subclauses(1)and (2)provide that a life companymusthave an actuaryappointedbythe companyandthat a personmust be appointed to be the actuary of a companywithin 6weeksafter a personceasesto hold the appointment. Subclause(4) sets out the eligibilityrequirementsfor appointment.

128. Subclause(5) allows alife companyto makea written requestto the Commissionerto approve an actuarialappointment. Subclause(6) provides that the Commissionermayapprovethe appointment if he/sheis satisfiedthat the personhasactuarialqualificationsand

experiencethat allow the personto performthe functionsof an appointed actuary.

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CLAUSE 94 CESSATION OF APPOINTMENT

129. This clauseoutlines the circumstancesthat will leadto a personceasingto hold anappointmentas theactuaryof a life company, including theCommissionerdeclaringapersonnot eligible for suchappointment.

CLAUSE95 NOTIFICATION OF APPOINTMENTETC.

130. Subclause(1) requires a life companyto give written notice to the Commissionerofthe appointment of an actuary and particular personaldetails relating to the actuary.Subclause(2) specifiesthat written notice must be given within 14 days after the date ofappointment.

131. Subelause(3) requires a life companyto given written noticeto the Commissionerifa personhasceasedto be theappointed actuaryof the company, including details of the dateof cessation. Subclause(4) specifiesthatwritten notice must be given within 14 days afterthe date on whichthe personceasedto be the appointed actuary.

CLAUSE96 COMPLIANCE WITH ACTUARIAL STANDARDS


CLAUSE 97 POWERS OF APPOINTED ACTUARY

133. Subclauses(1) and(2) provide the appointed actuaryof a life company with powersto accessany informationor documentof the company and require any officer or employeeof the company to answerquestions or produce documents,provided such accessandquestionsare reasonablynecessaryfor the actuaryto properlyperformhis/herfunctionsandduties.

134. Subclause(3) provides that an officer or employeeof alife companywill be exemptfrom complying with subclause(2) only if they have a reasonableexcuse.

135. Subclause(4) allows the appointed actuaryto attendameetingof the directors ofthecompanyand outlines the matterswhich the actuarycanspeakon.

136. Subclause(5) allows the appointed actuaryto attendany annualgeneralmeetingofmembersof the companyandany other meetingof memberswherecertainspecifiedmattersare to be considered.

CLAUSE 98 ACTUAR~SOBLIGATION TO REPORT TO COMMISSIONER

137. Subclause(1) requires the actuaryto draw to the attention of thecompany any matterthat requiresaction to avoid acontravention of this Act or avoidprejudice to the interests ofthe ownersofpolicies issuedby the company.

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138. Subclause(2) requiresthe actuaryto inform the Commissionerwhere therearereasonablegroundsforbelievingthecompanyoradirectormayhavecontravenedanAct andthecontraventionis of suchanaturethat it may affect significantlytheinterestsofthe ownersof policies issuedby the company.

139. Subclause(3) requires the actuaryof a life companyto inform the Commissionerofmatterswhichhave previously been drawn to the attention of the companyor directors andin respectof whichno action hasbeen takenwithin areasonabletime.

140. Subclause(4) provides that an appointed actuarymay inform the Commissionerifhe/shethinksthat the directors,anofficer or an employeeofthe companyhave failed to takeaction or engagedin conduct which has prevented the appointed actuaryfrom exercisinghis/herright under subsection97(4) or (5).

141. Subclause(5) providesthat the actuary remains subject to the obligation undersubsection(2) or (3), if the actuary had knowledge of the matterandhad not informedtheCommissionerbefore the personceasedto be the actuary.

CLAUSE 99 QUALIFIED PRIVILEGEOF APPOINTEDACTUARY

142. This clauseprovides that a personwho is, or hasbeen,theappointed actuaryof a lifecompanyhasqualifiedprivilege in certaincircumstances.This privilege is in additionto anyprivilege conferredon apersonby any other law.

DIVISION 4- LIFE INSURANCEACTUARIAL STANDARDS BOARD

CLAUSE 100 ESTABLISHMENT


CLAUSE 101 ACTUARIAL STANDARDS

144. This clauseprovides the guidelinesin respectof matters for which the Boardmaymakeactuarialstandards.An actuarialstandardis a disallowableinstrumentfor thepurposesof section46A of the Acts Inteipretation A Ct 1901. This clauseclarifies that an actuarialstandardcan be deriveddirectly from professionalstandardspublished by The Institute ofActuariesof Australia.

CLAUSE 102 POWERSOF THE BOARD

145. This clauseprovides that theLife InsuranceActuarialStandardsBoardhasthe powerto do whatever is necessaryfor the exercise of its power to makeactuarialstandards,inparticular,the power to engagein consultationsin connectionwith theperformanceof itsfunction.

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CLAUSE 103 MEMBERSHIP

146. This clausesetsout the composition of the Board,the procedureand rulesfor Boardappointmentsandthe period andconditionsof appointment.

CLAUSE 104 ACTING CHAIRPERSON

147. This clauseprovides for theappointment of anactingchairpersonin certainsituations.

CLAUSE 105 LEAVE OF ABSENCEOF MEMBERS

148. This clauseallows the Treasurerto grantthe Chairpersonaleaveof absenceandthe

Chairpersonto grant othermembersof the Boarda leaveof absence.

CLAUSE 106 RESIGNATION


CLAUSE 107 ENDING OF APPOINTMENTSFOR MISBEHAVIOUR ETC.

150. This clausesets out the circumstancesunderwhichthe Treasurermay,and in certainsituationsmust, endthe appointment of a member.

CLAUSE 108 REMUNERATION AND ALLOWANCES

151. This clause setsout the remuneration and allowances that will be provided to a

memberofthe Board, other than a governmentmember.

CLAUSE 109 MEETINGS

152. This clausesetsout the proceduresand rules for conveningand voting at a meetingandalso recordingthe minutesof the meeting.

CLAUSE 110 CONDUCT OF MEETINGS


CLAUSE 111 RESOLUTIONSWITHOUT FORMAL MEETINGS

154. Subclause(1) permits a resolution to be passedwithout a formal meetingprovidingcertainprocedureshave takenplace.Subelause(2)setsout when aresolution is taken to havebeenpassedwhereno formal meetinghas beenconvened.

CLAUSE 112 ANNUAL REPORT

‘ 155. This clauseprovidesthattheLife InsuranceActuarial StandardsBoard must providethe Commissionerwith an annual reportassoonaspracticableafter the endof the financialyearand no later than3 monthsafter the end of the financial year.

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DIVISION 5- ACTUARIAL INVESTIGATIONS AND ADVICE

CLAUSE 113 ANNUAL ACTUARIAL INVESTIGATIONS

156. Subclause(I) provides that every life companymustarrange for its appointedactuaryto investigatethe fmancial condition of the companyandprovide awritten report at the endof every fmancialyearof the company. Subclause(2) provides that the investigationmustinclude valuing the company’spolicy liabilities andassessingthecompany’scompliancewiththe solvencyand capital adequacystandards,having regard to directionsthat mayhave beengiven under subsection68(1) or 73(1).

CLAUSE 114 METHOD OF VALUiNG POLICY LIABILITIES

157. This clauseprovides, other than for provisions relating to a wind-up, for policy

liabilities to be valuedin accordancewith actuarialstandards.

CLAUSE 115 ADDITIONAL ACTUARIAL INVESTIGATIONS

158. This clauseprovides that a life companycanhave its appointedactuaryinvestigatethefinancial condition of the company at any time and not just at the end of the financial yearof the company. Further, the Commissionermay require that such an investigation beconducted. Such an investigation must be conducted in the samemanneras an annualactuarialinvestigationand awritten reportmustbeprovided to the life company. If thesetwoconditionsaresatisfiedonly then can the company make the results of the investigationpublic.

CLAUSE 116 ACTUARIAL ADVICE REGARDING POLICIES

159. This clauseprovides that a life companymust not issuepolicies of a particular kindor enter into a reinsurancearrangement unlessthe appointed actuaryhasgiven the companya written report aboutthoseparticular matters.

DIVISION 6- ANNUAL RETURNS ETC.

CLAUSE 117 ANNUAL STATISTICAL RETURNS

160. Subclause(1) requires that a statisticalreturn in respect of eachstatutoryfund of thecompanybepreparedafter the end of every financial yearof the company. Subelause(2)outlines whata statistical return relates to. Subclause(3) requires the statistical return to bepreparedin accordancewith Commission&s rules.

CLAUSE 118 LODGMENT OF FINANCIAL STATEMENTS AND ANNUALSTATISTICAL RETURNS

161. This clauseapplies to the fmancial statementsreferred to in subsection 82(1) andannualstatisticalreturnspreparedundersection 117.

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‘ 162. Subclause(2) requires a life company to provide the Commissioner with eachdocument required by this clauseand 3 printed copies. Subclause(3) requires financialstatementsreferred to in subsection82(1) to be given to the Commissionerwithin 3 monthsafter the endofthe financial year. Subclause(4) requires areturn prepared under section 117to be given to the Commissionerwithin 3 months after the end of the fmancial year. Theseperiods may beextendedby the Commissionerundersubelause(5) and theextensioncan begranted beforeor after the end of theperiod to be extended.

CLAUSE 119 LODGMENT OF FINANCIAL CONDITION REPORT

163. This clauserequires a life companyto provide the Commissionerwith a copyofthefinancial condition reportpreparedundersection 113 or 115, within 3 months after the endoftheperiod asat which thereport is made. An extensionof time may be grantedin certaincircumstances.

CLAUSE 120 STATEMENT OF ACTUARY S PECUNIARY INTERESTS

164. Subelause(1) providesthat when the life company givesa fmancial condition reportto the Commissionerit must alsoprovide the Commissionerwith a written statementof thepecuniary interestsof the actuary. This statementmust beprepared in accordancewith theregulations.

165. Subelause(2) providesthat the appointedactuaryof a life company must give thecompany such information as is reasonably necessaryto enable the company to prepare astatementunder subelause(1).

166. Subclause(3) specifiesthe type of provisions that may be madeby the regulations.

167. Subclause(5) providesthat if a life companygivestheCommissionera statementandbelieveson reasonablegrounds that the statementis accuratethen the company is takentohave compliedwith subclause(1), evenif the statementis inaccurate.

CLAUSE 121 REJECTIONOF FINANCIAL STATEMENT

168. Subclause(1) allows the Commissionerto requestwritten explanationsfrom a lifecompany,where adocumentprovided tohim/her under section 118 is, in the Commissioner’sopinion, incorrect, incomplete, misleadingor doesnot comply with thisAct.

169. Subclause(2) providesthat the notice must specify the time within which theexplanationsare to be given.

170. Subclause(3) provides that if the companyfails to give anexplanation asrequired bythenotice,or the explanationsgivendo not satisfytheCommissioner,thenthe Commissionermay givethe companywritten directionsto vary the document. Subclause(4) requiresthesedirectionsto specifyaperiodwithin which they are to be compliedwith.

171. Subclause(5) requires a life company to comply with directions given undersubclause(3) or with directions as variedundersubclause(6) or (7).

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CLAUSE 122 FINANCIAL STATEMENTSTO BEACCOMPANIEDBY REPORTS

TO SHAREHOLDERSAND POLICY OWNERS172. This clauseprovides that when a life company gives the Commissioner financialstatementsreferredto in subsection82(1) it mustalsoprovide theCommissionerwith a copyof any report given by the company to its shareholdersor policy ownersthat relates to theaffairs of the companyduringthe period to which the first-mentioned statementsrelate.

CLAUSE 123 REPORTING OF REINSURANCEARRANGEMENTS

173. This clausedescribeswhatareinsurancereport is andprovidesthat everylife companymust give the Commissionera reinsurance report relating to every financial year of thecompanywithin the time setby rules.

CLAUSE 124 POLICY OWNER’S RIGHT TO COPY OF FINANCIALSTATEMENTSAND ANNUAL RETURN

174. This clauseprovides that the owner of a policy issuedby a life company is entitledto beprovided by the company,free of charge,onecopy ofthe latest financial statementsandannualreturn given by the company to the Commissioner.

DIVISION 7- MISCELLANEOUS

CLAUSE 125 APPROVAL OF CERTAIN REINSURANCE ARRANGEMENTS

175. This clauseis aimedmainly at financial reinsurance arrangements. Prior approval ofthe Commissionermust be soughtbefore entering into sucharrangements. Application forapproval must be made in accordancewith Commissioner’s rules. If written approval isgranteda copy of the documentor documentscontaining the termsof the contract must begiven to the Commissionerwithin 14 days after entering into the contract.

PART 7- MONiTORING AND INVFS’IIGATIION OF UFE COMPANIES

DIVISION 1- PRELIMINARY



CLAUSE 127 APPOINTMENTOF AUTHORISED PERSONS (177. This clauseprovides that the Commissionermay appoint certainpersons, asreferredto in subsections13(1) and(3) ofthe InsuranceandSuperannuationCommissionerAct1987asan authorisedpersonfor the purposesof a specifiedprovision of this Act. An authorisedpersonmay exerciseanypower or perform anyfunctionsof the Commissionerunder thatprovision. The appointment must be in writing.

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CLAUSE 128 ASSOCIATED COMPANY

178. Thisclauseprovides what is meantby an associatedcompanyfor thepurposesof thisPart.

CLAUSE 129 RELATED COMPANIES

179. This clauseprovides when companiesare related for the purposesof this Part.

DIVISION 2- MONITORING LIFE COMPANIES

CLAUSE 130 PURPOSEOF DIVISION


CLAUSE 131 REQUIREMENTTO GIVE INFORMATION TO COMMISSIONER

181. Subclause (1) provides that the Commissionermay give a written request to acompanyfor certain informationor documents. Subelause(2) requires therequestto specifythe period within which the information or documentmustbe given to theCommissionerandthis periodmust not be lessthan 7 days andnot longer than one month.

182. Subclause (4) provides that a life company is entitled to be paid reasonablecompensationfor making copies for the purpose of complying with the Commissioner’srequest in this clause.

CLAUSE 132 REQUIREMENTTO PRODUCE RECORDS

183. This clauseprovides that the Commissioner,for the purposeof monitoring companycompliancewith this Act, may require an officer to produce any recordsrequired to be keptby the companyand may inspectand take extracts or copiesofthose records. If the recordstakeanelectronic form they muststill beprovided to theCommissionerin documentaryform.

CLAUSE 133 ACCESS TO PREMISES

184. This clauseallows the Commissionerto enter premises,with the occupier’sconsent,for the purposeof searchingfor, inspecting,takingextractsfrom andmakingcopiesof, anyrecordsof the company.

DIVISION 3- INVESTIGATION BY COMMISSIONER

CLAUSE 134 DIRECTIONS REGARDINGCOMPANY ASSETS

185. This clauseprovides the Commissionerwith the power to give a life company awritten direction not to disposeor removean assetof the company from Australia, if the‘ Commissionerthinksthecompanyis, or is likely to becomeunable to meetits policy or otherliabilities asthey becomedue. Thispower essentiallyallows the Commissionerto freezetheassetsof the life company.

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CLAUSE 135 GIVING OF SHOWCAUSE NOTICE

186. This clauseprovides the life companywith the opportunity to give reasonswhy theCommissionershouldnot investigatethe life insurancebusinessor apartofthe life insurancebusinessof thecompany.

CLAUSE 136 GROUNDS FOR GIVING OF SHOW CAUSE NOTICE

187. This clausesetsout the grounds on whichashowcausenotice may be givento a lifecompany.

CLAUSE 137 DECISION TO INVESTIGATE

188. This clauseprovides theCommissionerwith thepower to commencean investigation

in certainspecifiedcircumstances.

CLAUSE 138 INVESTIGATION OF ASSOCIATED COMPANY

189. This clauseprovidesthatin certaincircumstancesthe Commissionermay investigate

an associatedcompany of the life company.

CLAUSE 139 INVESTIGATION PROCEDURE

190. This clausesetsout therequirementsthat mustbe fulfilled beforeanauthorised personcan investigatethe relevantbusinessof alife company.

CLAUSE 140 ACCESSTO PREMISES FOR PURPOSES OF INVESTIGATION

191. This clauseprovides the Commissionerwith thepower to enterthe premisesof a lifecompany for the purposesof an investigationof businessof a life company if there arereasonablegroundsfor believing that it is necessaryto enter the premises.

CLAUSE 141 REQUIREMENT TO PRODUCE RECORDS

192. This clauserequires a personwho is relevantto the investigationof businessof a lifecompanyto produce to the Commissionerany records relating to that business,if requestedby the Commissioner.

CLAUSE 142 COMMISSIONER’S POWER TO REQUIRE ASSISTANCE

193. Thisclauseprovides theCommissionerwith thepowerto requestreasonableassistance 4of a relevantpersonandmay include that personansweringquestionsin connectionwith theinvestigation.

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,:LAUSE 143 APPLICATION FOR WARRANT TO SEIZE RECORDS NOT

PRODUCED194. This clauseprovides the Commissionerwith the power to apply for the issueof awarrant to searchthe premisesfor certain records,in specifiedcircumstances.

CLAUSE 14-4 GRANT OF WARRANT

195. This clauseprovides thecircumstancesunderwhichamagistratemay issueawarrant.The warrant must authorise certainpersonsto enter premisesto do suchacts asarespecifiedin subclause(3) andstatecertainparticularsas set out in subclause(5).

CLAUSE 145 POWERSIF RECORDSPRODUCED OR SEIZED

196. This clauseprovides that if a persontakespossessionof any records asspecifiedinsubclause(1) they may inspect,copy, takeextracts,useor permit the useof the records fora proceedingand retain them for solong as is necessaryasset out in subclause(5).

CLAUSE 146 POWERSIF RECORDSNOT PRODUCED

197. This clause requiresa person who has failed to produce particular records inaccordancewith arequirement under this Division to stateto the bestof hisor her knowledgeandbeliefwhere the records may be found, who last had possession,custody or control ofthe records and wherethat personmay be found.

CLAUSE 147 OFFENCES RELATED TO INVESTIGATIONS

198. This clauseprovides that it is an offence to intentionally or recklesslyrefuseor failto comply with a requirement of the Commissioneror intentionally delay or obstruct theinvestigation or proposedinvestigation.

CLAUSE 148 SELF-INCRIMINATION

199. Subclause(1) provides that for the purposesof section 147 it is not a reasonableexcusefor apersonto refuseor fail to do thethings or actsspecifiedin paragraphs(1)(a)to(c) on the basisthat the thingor act might tendto incriminatethe personor makethepersonliable to a penalty.

200. Subelause(2) specifieswhat is not consideredadmissibleagainstthe person in afrriminal proceedingor a proceedingfor the imposition of a liability.

CLAUSE 149 COMMISSIONER MUSTGIVE COMPANY WRI1TEN SUMMARYOF CONCLUSIONS

201. This clauserequires theCommissionerto givethe companyawritten summaryof thenclusionsreachedas a resultof the investigation.

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CLAUSE 150 COMMISSIONER MAY GIVE DIRECTIONS DURING OR AFTE

INVESTIGATION202. This clauseprovides that the Commissioner may give directions during or afterinvestigations. Theclausespecifiescircumstancesin whichdirections can be given, the typeof directions, how long they are to remain in force and the circumstancesunderwhich adirection may be revokedor varied.

CLAUSE 151 IDENTITY CARDS

203. This clauseprovides that identity cards may be issuedto authorised persons and thecardsmustcontain a recent photograph of the authorisedpersonandbe in an approved form.The identity cardmustbereturnedto the Commissionerwhenan authorisedperson ceasestobe authorisedand contravention ofthisprovision without reasonableexcuseis an offence.

DIVISION 4 - SPECIAL PROVISIONS RELATING TO THE EXECUTION OFWARRANTS



CLAUSE 153 USE OF EQUIPMENT TO EXAMINE OR PROCESS THINGS

205. This clauseprovides that the executingofficer may bring to thepremisesto which awarrantrelates any equipment reasonably necessaryfor the -examination or processingofthings found at the premisesto determinewhether they constituterecordsthatmaybe seizedunder thewarrant. If it isnot practicable to examineor processthe thingsat the premisesorthecompanyconcernedconsentsin writing, thethingsmay be movedto anotherplacesothattheexamination or processingcanbe carriedout in order to determinewhetherthey constituterecords that may be seizedunder the warrant.

CLAUSE 154 USE OF ELECTRONIC EQUIPMENTAT PREMISES

206. This clauseprovides thatwhere information constituting thewhole or partof a recordor recordsis storedat premises by electronic meansand that information is permittedto beseizedunderawarrant, theexecutingofficer may operateelectronicequipmentat thepremisesto seewhether the information is accessibleby doing so.

207. If the information is found to be accessibleall the equipment andany associatdevice can be seizedor the information can be printed out andput in documentary form oi -

the information can be transferredto another disk or tape. It is strongly statedthat theprimaryelectronic sourceof information can only be taken if the other options for seizure

have been exhausted,such asprinting or copying.

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CLAUSE 155 COMPENSATIONFORDAMAGE TOELECTRONICEQUIPMENT

208. This clauseprovidesthat if damageis causedto any equipment which is specifiedinsection153 or 154, compensationis available from money appropriated by the Parliament.However, the damagemust have been causedas a result of two circumstancesset out inparagraph (1)(b).

CLAUSE 156 COPIES OF SEIZED THINGS TO BE PROVIDED

209. This clauseprovides that if certainitems have beenseizedunder thisDivision, exceptunderparagraph1 54(3)(b)or (c), the executing officer must, if requestedto do so by anofficer of the companyconcerned,give a copy of the seizeditem(s) to that personas soonas is practicableafter the seizure.

PART 8- JUDICIAL MANAGEMENT AND WINDING UP

DIVISION 1- JUDICIAL MANAGEMENT

CLAUSE 157 APPLICATION FOR ORDER FOR JUDICIAL MANAGEMENT

210. This clauseprovides that the Commissioneror alife companymay apply to the Courtfor an order for judicial managementof a life company. Subelause(2) provides that the lifecompanymay apply to the Court for an order that it be placedunderjudicial management.The life companyandthe Commissionerare entitled to beheard onan application under thisclause.

CLAUSE 158 ORDERFORJUDICIALMANAGEMENT AFTERINVESTIGATION

211. This clauseprovides that where an application is made under section 157, the Courtmay makesuchan order if it is satisfied that the life insurancebusinessof the companyhasbeen investigated under Division 3 of Part7 and that investigationshows that it is in theinterestsof the ownersof policiesissuedby the companythat the order be made.

CLAUSE 159 ORDER FOR JUDICIAL MANAGEMENT ON OTHER GROUNDS

212. This clauseprovides that where an application is madeundersection 157, the Courtmay makesuchan order if the criteria in paragraphs(a) and (b) are satisfied.

CLAUSE 160 COMMENCEMENTOF JUDICIAL MANAGEMENT

213. This clauseoutlineswhen thejudicial managementof a life company,or part of thebusinessof a life company, commences.

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CLAUSE 161 STAY OF PROCEEDINGSDURING JUDICIAL MANAGEMENT I214. This clause provides that while a life company is under judicial management, aproceedingin a court (exceptaproceedingin respectof an offence) againstthe companyorin relation to its property cannot be commencedor proceededexcept with the judicialmanager’swritten consentor with the leaveof the Court.

CLAUSE 162 NO JUDICIAL MANAGEMENT EXCEPT IN ACCORDANCE WITH

THIS ACT


CLAUSE 163 APPOiNTMENTOF JUDICIAL MANAGER

216. This clauseprovides that the Courtmust appoint a judicial manager,where there hasbeen an order for judicial managementof a company. A judicial managercanonly be anofficial liquidator registeredwith the Australian Securities Commission. This appointmentcan be cancelledat any time.

CLAUSE 164 REMUNERATION OF JUDICIAL MANAGER

217. This clause provides that the Court may give directions about remuneration andallowances that a judicial manager is to receive and who is to pay the remuneration andallowances.The judicial manage?s remunerationandallowancesarechargedto thepropertyof the company under judicial managementin suchorder of priority asthe Courtthinks fit.

CLAUSE 165 MANAGEMENT VESTS IN JUDICIAL MANAGER

218. This clauseprovides that wheretheCourt hasmadeanorder placing a companyunderjudicial management, then the managementof the companyvests in thejudicial managerappointed by the Court.

CLAUSE 166 CONTINUED APPLICATION OF OTHERPARTS OF ACT

219. This clauseprovides that an appointmentof a judicial managerunder thisPartdoesnot affect the continued operation of other Partsof thisAct in relation to alife company orthe obligation of a life companyto comply with provisions of other Partsof thisAct.

CLAUSE 167 COURTS CONTROL OF JUDICIAL MANAGER

220. This clauseprovides that the judicial manager is subject to the control of the Court 4andmay apply to it at any time for instructions. The judicial manager must inform theCommissionerof the intention to makethe application and provide written detailsbefore

applying to the Court. The Commissioner is entitled to be heard on the application.

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) CLAUSE 168 POWERS OF JUDICIAL MANAGER

221. This clauselists the powersofthejudicial managerin addition to thepowersconferredby the Court.

CLAUSE 169 APPLICATION BY COMMESSIONERFOR INSTRUCTIONS TOJUDICIAL MANAGER

222. This clauseprovidesthe Commissionerwith the right to apply to the Court for anorderthat the Court give instructionsto thejudicial managerrelatingto the conduct of thejudicial managementof the life company. The judicial manageris entitled to beheardontheapplication.

CLAUSE 170 REQUESTBY COMMISSIONERFOR INFORMATION

223. This clause requires the judicial managerto comply with a request from the

Commissioner,for informationaboutthe conductof thejudicial management.

CLAUSE 171 DURATION OF JUDICIAL MANAGEMENT

224. This clauseprovides that if the Court ordersthat a life company be placedunderjudicial management,it remainsunderjudicial managementuntil the judicial managementiscancelledor the Court ordersthat the company be wound up.

CLAUSE 172 CANCELLATION OF JUDICIAL MANAGEMENT

225. This clauseprovidesthatthe appointedjudicial manageroranyotherinterestedpersonmay applyto the Court for an order cancellingthejudicial managementof a life company.The clausesetsout the circumstancesunder which the order can be cancelled.

CLAUSE 173 JUDICIAL MANAGER MUST CONDUCT MANAGEMENT

EFFICIENTLYAND ECONOMICALLY


CLAUSE 174 DISCLAIMER OF ONEROUS PROPERTY

227. This clauseprovides that a judicial managerhasthe samepower to disclaim property

~ of a life companyas a liquidator of the companywould have under the CorporationsLaw.

CLAUSE 175 REPORTBY JUDICIAL MANAGER

228. This clauserequires a judicial managerto file with the Courta reportthat sets outwhichof the possiblecoursesof action listed in subclause(2) is, in his or her opinion, themost advantageousto the generalinterestof thepolicy ownersofthecompanyandthe reason

I for hisor her recommendation.Subelause(4) expresslypermitsthejudicial managerto makemore than onesection176 report in appropriate cases.

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229. After filing the report, the judicial manager must give a copy of it to theCommissionerandapply to the Courtfor an order to giveeffectto thecourseof actionstatedin the report. The report must be available for inspectionby any personat the placesspecifiedin subelause(7).

CLAUSE 176 ORDER OF COURT ON REPORT OF JUDICIAL MANAGER

230. Subelause(1) provides that on the application for an order to give effect to arecommendationin a report under section 175, the Commissionerand any other personinterestedis entitled to be heard.

231. Paragraph(1)(b) requiresthe Court to makean orderthat giveseffect to the courseof action it considersto be most advantageousto the general interests of the policy ownersofthe company. The order is binding on all personsand takeseffect despiteanythingin thearticlesof associationof the companyor other rules of the company.

CLAUSE 177 TRANSFEROF BUSINESS TO ANOTHER COMPANY

232. This clauseprovidesthat if the Courtordersthe transferofthe businessof acompanyto another company, the judicial manager must prepare a scheme for the transfer inaccordancewith Part9.

CLAUSE 178 RESIGNATION

233. This clauseprovides that a signednotice of resignationmustbe filed with the Court

if a judicial managerunder thisDivision wishesto resignthe appointment.

CLAUSE 179 iNDEMNITY

234. Thisclauseprovides an indemnityto thejudicial manager in respectof liability to any

personasaresultof anythingdonein the courseof appointment asjudicial manager.

DIVISION 2- WINDING-UP

CLAUSE 180 WINDING-UP OF LIFE COMPANIES

235. This clauseprovides that alife companyis not to bewound up exceptby order of theCourt on an application under subsection175(6)or section 181.

CLAUSE 181 ORDERON APPLICATION BY COMMISSIONER 4236. This clauseprovides theCommissionerwith thepower to apply for an order that a lifecompanybe wound up, only if the Commissioneris satisfied that as a result of aninvestigationunderDivision 3 of Part7it is necessaryor properto do so. On an application,the Courtmust satisfyitself that it is in the interestsof the ownersof policies issuedby thecompanythat suchan order be made.

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~LAUSE 182 OPERATION OF CORPORATIONSLAW


CLAUSE 183 NOTIFICATION TO COMMISSIONER REGARDINGAPPLICATIONS BY LIQUIDATOR

8. This clauserequiresthe liquidator to give the Commissionerwritten noticeof an- applicationmadeto the Court in relation to a matter arising under the winding-upof a lifecompany. The notice must includedetailsoftheproposed application andtheCommissioneris entitledto be heardon the application.

CLAUSE 184 APPLICATION BY COMMISSIONERFOR DIRECTIONS

239. This clauseallowstheCommissionerto apply to theCourtfor directionsregardinganymatterarisingunderthewinding-upof a life company. The liquidator mustbe givenwrittennotice by the Commissionerof the intent to make the application. The liquidator is entitledto be heardon the application.

CLAUSE 185 COMMISSIONERSPOWER TO ASK FOR INFORMATION

240. This clauserequires the liquidator to comply with arequestfrom the Commissioner,

for informationaboutthe winding-upof a life company.

CLAUSE 186 DETERMINATION OF AMOUNTS TO BE TREATED AS

LIABILITIES OF LIFE COMPANY

241. This clauseprovides that the liquidator must, in respectof eachpersonappearingasthe ownerof apolicy on the company’srecords,determinewhetherapolicy liability to thepersonexists, andthe value of that policy liability. This clausealsoprovidesthat for thepurposesof winding-up,the company’s liability in relation to a specificpolicy is theamountdetermined.

CLAUSE 187 APPLICATION OF STATUTORY FUND ASSETS

242. This clausesets out the rules which will apply in relation to the application of theassetsof the statutoryfund on winding-up. Subelauses(1), (2) and (3) provide that in thewinding-upof a life companythe assetsof a statutoryfund must be applied in accordancewith the applicableCorporationsLaw,with the exceptionthatpolicy ownersrankbeforeother~jnsecuredcreditorsbut after employeesof the life company.

243. Subclauses(5), (6) and(7) provide that where in the winding-upof a life companythere is a liability that relatesto more than onefund, the liquidator may apportionthatliability to determinewhat part is to be borne by eachof the statutory fund(s) or by thestatutoryfund.

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CLAUSE 188 LIABILITY OF DIRECTORSFOR LOSSTO STATUTORY FUNDI

244. Thisclauseprovidesthatasageneralrule wherealife companycontravenesthis Act,the contravention hasresulted in loss to astatutoryfund,and the Courtordersthe companybe wound up, then the directors of the companyat the time of the contravention are jointlyandseverallyliable to pay the company an amount equal to the amount of the loss. Theclauseoutlinescircumstanceswhereadirector will not be liable.

245. Note that a personcannotbe madeliable under this sectionandunderDivision 2 of -

Part4 in respect of the samecontravention.

PART9- WANSFFRSAND AMALGAMATIONS OFLIFE INSURANCEBUSINESS



CLAUSE 190 TRANSFER OR AMALGAMATION OF LIFE INSURANCEBUSINESS

247. This clauseprovides that life insurancebusinessof a life company cannotbetransferredto anotherlife company or amalgamatedwith the businessof another companyexceptunderaschemeconfirmedby the Court.

248. Subelause(2)providesthat a transferof life insurancebusinessmay be to a companyregisteredunderthe Act which isnot yet carryingon life insurancebusiness. Subclause(3)setsout the details the schememust incorporatein the proposedtransferor amalgamation.Subclause(4) provides the circumstancesunder which a transferor amalgamationof lifeinsurancebusinessis not required to be madeunderaschemeapprovedby the Court.

CLAUSE 191 STEPS TO BE TAKEN BEFORE APPLICATION FORCONFIRMATION

249. This clauseprovides that anapplication for confirmationofa schememay not be madeunlessacopyof the schemeandany actuarialreportonwhichthe schemeisbasedhave beengiven to the Commissioner,anotice of intention to makethe application hasbeenpublishedby the applicantandaffectedpolicy ownershave receivedasummaryof the scheme. Thisclausealsoprovides that an affectedpolicy owner(asdefmedin the clause)is entitled to beprovided by the companywith one copy of the full details of the schemefreeof charge.

CLAUSE 192 ACTUARIAL REPORTON SCHEME

250. This clauseallows the Commissionerto arrangefor an independentactuaryto makea writtenreportonthe schemeandto provide acopy of thatactuarialreportto eachcompanyaffectedby the scheme.

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CLAUSE 193 APPLICATION TO COURT

251. This clauseallo~anyof thecompaniesaffectedby theschemeto applyto theCourtfor confirmationof the scheme. This applicationmust be madein accordancewith theregulationsandthe Commissioneris entitled to be heardon an application.

CLAUSE 194 CONFIRMATION OF SCHEME

252. This clausesetsout the options available to the Court for confirmingthe scheme.

CLAUSE 195 EFFECT OF CONFIRMATION ETC


CLAUSE 196 COSTS OF ACTUARYS REPORT

254. This clauseprovides that in the caseof a schemebeingconfirmed, the companywhoappliedfor the confirmation is liable to pay to the Commonwealthan amountequalto theexpensesreasonablyincurred by the Commissioner in obtaininga section 192 actuarialreport. This amount may be recoveredby the Commonwealthas a debt in any court ofcompetentjurisdiction.

CLAUSE 197 DOCUMENTS TO BE LODGED IN CASE OF TRANSFER ORAMALGAMATION

255. This clauseprovides that where any life insurancebusinessof a life company istransferredto, or amalgamatedwith thebusinessofanothercompany,the lattercompanymustgive the Commissionercertaindocumentsas requiredby regulationsandwithin the timespecifiedby regulations.

PART 10- PROVISIONSRELATING ID POUCIFS

DIVISION 1 - ISSUEOF POLICIES

CLAUSE 198 ALTERATION OF PROPOSAL AND POLICY FORMS

256. Subelause(1) allows the Commissionerto request from a life company any form ofproposalor policy documentordinarily usedby the company in Australia.

257. Subclause(2) provides that if the Commissionerbelievesa form submittedundersubelause(1) doesnot comply with the Act or is likely to mislead,the Commissionermaygive the companywritten notice of the areaswherethe form fails to comply with the Act oris likely to mislead. The life companyis to be invited to makesubmissionson any matterset out in the notice.

I 258. Subelause(3) provides that the Commissionermay give the life companyawrittendirection to changethe form if, aftera specifiedperiod,no submissionshave beenmade,orthe submissionsgiven are not satisfactory.

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259. Subelause (4) provides that where a form is subject to a written direction, a lifecompany or a representativeof the companymust not makeuseof that form, unlessit hasbeenchangedin accordancewith the direction.

CLAUSE 199 CAPACITY OF YOUNG PERSONSTO INSUREETC.

260. This clauseprovides that a personwho is at least 10 yearsof age,but hasnot reached16, may legally enter into or takean assignmentof a life policy with the written consentofa parentor guardian. In respectof a personwho has reached 16 but not 18, that personisto have the samecapacityto exerciserights or powersin relation to a life policy asapersonwho hasreached18.

DIVISION 2- ASSIGNMENTS AND MORTGAGES

CLAUSE 200 ASSIGNMENTOF LIFE POLICY

261. This clauseprovidesthattherightsof a personasowner of a life policy may only beassignedunder this section. For an assignmentto be effective it must comply with therequirementsin subclause(2). If a valid assignmenthastakenplace,it will have the effectsas set out in subelause(3). Several rules in relation to an assignmentare set out insubelauses(4), (5), (6) and(7).

CLAUSE 201 MORTGAGES AND TRUSTS

262. This clauseprovides that an assignmentof a policy by way of mortgage or on trustwill not be effective unlessit complieswith the rules set down in paragraphs(l)(a) to (c).This clausealsoallowstransfereesunderanassignmentto be describedin amemorandumoftransferas the trusteeor trustees of a superannuationfund.

CLAUSE202 EFFECT OF NOTICE OF TRUSTETC.

263. This clauseprovides that a life companyis not entitled to rely on any provisions ofsection200 or 201, if it hasnot acted in good faith or hasreceivedexpressnoticein writingof any trust,right, equityor interest. The clauseprovides that if a notice hasbeengiven, thecompanycanpaymoneysinto theCourt for avalid dischargeandthe Courthasresponsibilityfor paying out thosemonies.

CLAUSE203 TRANSFEROF POLICY AFTERCHANGEOF TRUSTEE

264. Thisclauseprescribesamethodof transferringownershipof apolicy from one trustee 4to another. The previous provision in the Life InsuranceA Ct 1945was deficient in relationto proceduresnecessaryto obtain the requisite statutorydeclaration. Thus the sectionhasbeenamendedto ensurein appropriatecircumstancesthe incomingtrustee(s)can invoke the

provision.

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DIVISION 3- PROTECTIONOF POLICIES

CLAUSE 204 PROTECTIONOF INTERESTOF INSURED

265. This clauseprovides for the protection of the interests of a personagainstcreditorsin certaincases. The clauseensuresthe protection of the interests of the life insured,irrespectiveof who effectedthe policy, and the protection of an interest on the life of thespouse. This clauseis subject to the BankruptcyAct 1966.

CLAUSE 205 PROTECTION OF POLICY MONEY ON PERSONSDEATH

266. This clauserelatesto policieseffectedby a personon their own life for the benefit oftheir estate. This clauseprotects the moneypayableunder the policy from beingapplied ormadeavailablefor paymentof the person’sdebts,exceptin the circumstancesoutlined inparagraph(1)(b). This clauseis subject to the BcinkruptcyAct 1966.

DIVISION 4-SURRENDERVALUES, PAII)-UPPOLICIES ANDNON-FORFEITUREOFPOLICIES

CLAUSE206 APPLICATION OF DIVISION


CLAUSE 207 SURRENDEROF POLICIES

268. This clauseprovides that the owner of a policy whichhasbeenin force for at least3 yearsmay askthe companyto surrenderthepolicy. Subclauses(3) and(4) setout the rulesfor the amount and paymentof the surrendervalue of the policy, including minimumsurrendervalueswhichwill be set in actuarialstandards.

269. The equivalentprovision undertheLjfe InsuranceAct 1945,settheperiod at 6years,however, thiswasthought to be anunconscionablylong period sincethe market usually payssurrendervaluesafter 3 yearsand in manycases,after 2 years.

CLAUSE 208 RELAXATION OF COMPANYSOBLIGATIONS TO SURRENDER

270. This clauseallows the Commissionerto suspendor vary a life company’s obligationto pay surrendervalues under section 207in certaincircumstances.

271. Thispowerwouldonly beexercisedveryrarely. However, it is importantin providinga safetyvalve in extremecircumstancesby preventing a run on the statutoryfundsof a lifecompany,thus enablingothercoursesof corrective actionto be considered. It is intendedtoprotect the interestsof policy ownerswho are not seekingto surrendertheir policies.

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CLAUSE209 PAID-UP POLICIES

272. This clauseprovidesthat if premiumsunderapolicy have beenpaid in respectof aperiodof at least3 years,the ownerofthe policy may askthe life companyconcernedto varythe policy sothat no furtherpremiumsarepayableandtreatthe policy asapaid i.q~policy.

273 The clausealsooutlinesthe rules for varying the policy It specifieswhat the lifecompanyis entitled to do if the policy owner owesa debt to the companyunder the policy,or a debt owedby the policy ownerto the companyis securedby the policy.

CLAUSE 210 NON-FORFEITUREOF POLICIES IN CERTAiN CASESOFNON-PAYMENT OF PREMIUMS

274 This clauseprovidesfor the non-forfeitureof apolicy wherepremiumsareoverdueOverduepremiumsplus interestareto be treatedasa debt securedby the policy. It alsoallowsthe issueofthe requisitewarningnotice at thesametime asthe renewal notice. Thisis not only more practicalfor life companiesbut it is appropriate to warn the policy ownerbefore the due dateof the premium.

DIVISIONS- PAYMENT OF POLICY MONEY

CLAUSE 211 PROBATE OR ADMINISTRATION NOT NECESSARY IN

CERTAIN CASES - A SINGLE POLICY

275. This clauseallows a companyto pay smallclaims (notmore than $50,000)in certain

circumstanceswithout requiringthe production of probateor lettersof administration.

CLAUSE 212 PROBATE OR ADMINISTRATION NOT NECESSARY IN

CERTAiN CASES-2 OR I’vflRE POLICIES

276. This clauseallowsa companyto pay small claims(totalling not morethan$50,000)in certain circumstanceswithout requiring the production of probate or letters ofadministration.

CLAUSE213 DEATH OF POLICY OWNERWHO IS NOT THE LIFE INSURED

277. This clauseenablesa companyto endorsea change in title in respectof certainpolicies(notmorethan$25,000)ownedby a deceasedpersonbut not on that person’slife.

CLAUSE214 COMPANY NOT BOUND TO SEE TO TI-IE APPLICATION OFMONEY PAIDBY IT


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CLAUSE 215 POWER TO PAY MONEY INTO COURT

279. This clauseprovidesthe company with the right to pay moneys into Court if, in thecompanysopinion, it cannototherwiseobtaina properdischarge.The paymentof moneysthen becomesthe responsibilityof the Court. In doing this, it is expectedthe companywillactreasonably.A companyisunlikely to pay money into Court unnecessarily,sinceif it doesso, it mightberequiredto pay the legal costsofother partiesusanysubsequentproceedmgs

CLAUSE 216 UNCLAIMED MONEY

280. This clauseprovides that a life companymustgiveto the Commissionera statementof all unclaimedmoneysas at the endof eachcalendaryear. At the time of providing thestatement,thecompanymustalsopay to the Commonwealthanamountequalto the amountof unclaimedmoneyworked out undersubclause(6)

281. The remainingclausesdeal with administrativemattersinvolved in the lodgement,certification and payment of unclaimedmoney.

CLAUSE 217 NO DEDUCTIONIN RESPECTOF OTHER POLICIES

282. This clauseprovidesthat aclaim which is paidunderapolicy cannotbeusedby thecompanyto pay debts dueto it on any other policy exceptwith the written consentof theclaimant.

DIVISION 6- CHILDREN’S ADVANCEMENT POLICIES

CLAUSE218 INTERPRETATION


CLAUSE 219 PROPERTY IN CI-IILIYS ADVANCEMENT POLICY

284. This clauseapplies to every child’s advancementpolicy excepta policy effectedbyaparent,or apersonwhostandsin the placeof a parent, of a child in which it is expresslyprovided that thissectiondoesnot apply to it.

285. Subclause(3) providesthat unlessanduntil the child reachesthe vesting age, thepolicy is the absoluteproperty,both at law and in equity, of the personeffectingthepolicyor hisor her assigns. Thatpersonor his or her assignsis taken to have thepower to assign,mortgage,charge,surrender,vary or otherwisedealwith the policy

286. Subclause(4) providesthat when a child whose life is insuredunder a child’sadvancementpolicy reachesthe vestingage, the policy is taken to be theabsolutepropertyof the child, both at law and in equity, subject to the two conditions specified inparagraphs (4Xa) and(4Xb).

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CLAUSE 220 DEATH OR BANKRUPTCY OF POLICY OWNER I287. This clausedetailstheproceduresthat must be followed if the personwho effectsachild’s advancementpolicy dies or becomesbankrupt. It should be noted thatthe companywhichissuedthe policy is underno obligationto seeto the applicationof the proceedsofthepolicy.

DIVISION 7- LOST OR DESTROYEDPOLICY DOCUMENTS ICLAUSE 221 LOST OR DESTROYED POLICY - ISSUE OF REPLACEMENT

POLICY DOCUMENT

288. This clauseoutlines the procedurethat mustbe followed by the life companywhenissuingareplacementpolicy document,wheretheoriginal policy documentis claimedto havebeenlost or destroyed.

CLAUSE 222 FORM OF REPLACEMENTPOLICY DOCUMENT

289. This clauseoutlinesthe form areplacementpolicy documentmusttakeandprovidesthat the replacement policy document must statethe reasonwhy the replacementpolicydocumentwas issued.

CLAUSE 223 NOTICE BEFOREISSUINGREPLACEMENTPOLICYDOCUMENT

290. This clauseprovides that before issuingareplacementpolicy document, thecompanymust issuea notice of its intention to do so. The notice must be circulated in a newspaperin an appropriate district asoutlined in paragraphs(3Xa) to (3)(c). The applicantmustmeetall the expensesrelating to the advertisingand the issuing of the replacement policydocument.The detailsof areplacementpolicy documentmust beenteredin the appropriateregister of policies.

CLAUSE 224 CLAIM UNDERPOLICY WHEREPOLICY DOCUMENT LOSTORDESTROYED

291. This clauseprovides that a company is discharged from all liability to any personunder a policy which is lost or hasbeendestroyed,providing the companyhas satisfiedthecriteria set down in subclause(1).

292. Oneparticularcriteria that mustbe satisfied is that the companygiveat least 10 days’notice of its intention to satisi~’the claim or comply with the request. Subclause(2) setsoutthe rules relating to the notice. Subclause (3) provides that expensesassociatedwithadvertisingthe notice are to be paid by the personmakingthe claim or request in respectofthe policy.

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CLAUSE 225 APPUCATION OF SECTIONS 221, 222, 223 AND 224 TO

REPLACEMENTPOLICY DOCUMENT293. This clauseprovides that if the owner of apolicy claimsthatthepolicy is lostor hasbeendestroyed,sections221,222,223 and224apply to thereplacementpolicydocumentasif it were an original policy document.

DIVISION 8- GENERAL

CLAUSE 226 REGISTERS

294. This clauseprovidesthatalife companymusthavearegisterof life policiesfor each

Stateand Territory in which it carries on life insurance business.

CLAUSE 227 REGISTRATION OF LIFE POLICIES

295. This clauseprovides that a life company mustregistereach life policy issuedby thecompanyin Australia in accordancewith subclause(1). The life companymustalsoregistereach life policy issuedby the company outside Australia in accordancewith subclause(2).

296. The policy may be transferredfrom aregister to another register, provided the ownerof a life policy issuedin Australia makesawiitten request. The expensesincurredby thecompanyin connectionwith the transferareto be paid by the owner of the policy.

CLAUSE 228 EFFECT OF SUICIDE ON POLICY

297. This clauseprovides that a life companymay only avoid a life policy on the groundthat the personwhoselife is insuredby the policy committedsuicide, if the policy expresslyexcludesliability.

CLAUSE 229 CONDITION AS TO WAR RISK VOID

298. This clauseprovides that any termor condition of a life policy is void if it limits, toan amountlessthanthe suminsuredandbonuses,the amountpayableunderthepolicy if thelife insuredby thepolicy dieson warservice. This generalrule doesnot apply if thepersonwho effected the policy agreesin wiiting to the insertion of that term or condition in thepolicy.

CLAUSE 230 POLICIES NOT INVALIDATED BY CONTRAVENTEONS OF THEACT


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PART!!- MISCEHANEOUS ICLAUSE231 ANNUAL REPORT

300. This clauserequires the Commissionerto prepare andgive to the Treasurer as soonaspracticable aftertheend of eachfinancial year, a report onthe operation oftheAct duringtheyear. The Treasurer hasto causeacopy ofthe report to be laid beforeeachHouseof theParliament within 15 sitting days after the dayof receipt of the report.

CLAUSE 232 DELEGATION

301. This clauseprovides that the Commissionermay delegateall his or her powers orfunctions under the Act or the regulations to a member of his or her staff A delegateissubject to the directions ofthe Commissioner.

CLAUSE 233 OPERATION OF STATE AND TERRITORY LAWS

302. This clauseprovides that it is the intention of the Parliament that this Act is not toapply to the exclusionof a law of a Stateor Territory to the extentthat the law is capable ofoperatingconcurrentlywith thisAct. Two exceptionsto this general intention are outlined.

CLAUSE 234 PROHIBITION OF MIXED INSURANCE BUSINESS

303. This clauseprovidesthat alife companymust not intentionally carry onanyinsurancebusinessother than life insurance business. This provision doesnot prevent a life insurerowning a general insurancesubsidiary or vice versa,nor a corporate structure involving aholding companyandseparatelife and generalinsurancesubsidiaries.Therefore, aparticularorganisationcouldconduct bothclassesofbusiness,provided they do sowithin theconstraintsof separatelegal entities.

304. This clausealsodoesnot prohibit an existing life companyfrom carryingon generalinsurancebusiness,if the companywas carryingon generalinsurancebusinessimmediatelybefore the commencementof thisAct.

CLAUSE 235 INJUNCTIONS

305. This clauseexplainsthetypesof injunctions thatareavailable,when they canbe usedand the scopeof the Court’s power in granting injunctions.

CLAUSE 236 REVIEW OF CERTAIN DECISIONS

306. This clause outlines which decisions made under the Bill are reviewable by theCommissionerandsubsequentlytheAdministrative AppealsTribunal. It setsdown theperiodwithin whicharequestfor review must be made and also the period to make a decision.

CLAUSE 237 CONSTITUTION AND PROCEDUREOF TI?JBUNAL


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CLAUSE 238 PROSPECTUS10 BE GIVEN TO COMMISSIONER

308. This clauserequires a life companywholodgesaprospectus,relatingto securitiesofthe company,with the Australian SecuritiesCommissionunderPart7.12of theCorporationsLaw of a State or internal Territory, to alsoprovidethe Commissionerwith a copy of theprospectus.

CLAUSE 239 DOCUMENTS RELATING TO TAKEOVER SCHEMES

309. This clauserequiresa life company, which lodgesa document with the AustralianSecuritiesCommissionor is givena documentfor thepurposesof Part6.3 oftheCorporationsLaw of a Stateor aninternalTerritory, to givethe Commissionera copy within 7days afterthe document is lodgedor received.

CLAUSE 240 REGISTER OF LIFE COMPANIES

310. Thisclauseprovides that the Commissionermustkeeparegistercontainingprescribedinformation in respectof eachregisteredlife company. The Commissioneris to determinethe form andmannerin which the Registermay be kept. The Register ispermittedto be keptby meansof a computer.

CLAUSE 241 INSPECTION OF REGISTERETC

311. This clauseprovides that the CommissionermustensuretheRegisteris available forinspectionduringnormal businesshours. Anypersonwhopaysa prescribedfee is entitledto inspect the Register.

CLAUSE 242 NON-SHAREHOLDER MEMBERSOF LIFE COMPANY - VOTINGBY POST

312. This clauseoutlines the arrangementsthatmustbemadefor alife companythat doesnot have sharecapitaland is limited by both sharesand by guarantee.It explainsthe systemthatmustbeestablishedto facilitate the voting by postin electionsofdirectors andquestionsrelatingto thealterationof the company’s articles of association.

313. The clausealsoprovides for variousrulesin relation to suchvoting. Paragraph(2Xd)setsout thearrangementsthat mustbemadeby a life companyfor the inspectionofthepostalvoters’ roll by any candidatein the election.

CLAUSE 243 INSPECTIONOF DOCUMENTS

314. This clause provides that any document given to the Commission undersubsection 118(2)mustbe availablefor inspectionby anymemberof the public and can becopied if the prescribedfee is paid.

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CLAUSE 244 COMMISSIONER’S POWERTO OBTAIN STATISTICS ETC.

315. This clauseallows the Commissionerto collect suchstatistics as are prescribedby

Commissioner’srules. The Commissioner may also publish suchstatistics.

316. The Commissionerwill only issueCommissioner’s Rules with respect to statistics,

wherethere hasbeenextensiveconsultation with industry.

CLAUSE 245 BANKRUPTS AND PERSONS CONVICTED OF CERTAiNOFFENCES NOT TO BE DIRECTORS, PRINCIPAL EXECUTIVEOFFICERSETC. OF LIFE COMPANIES

317. This clauseprovides that certainpersonswho have beenconvicted of an offenceorhave been bankrupt etc. cannot be a director, principal executiveofficer or the appointedactuary of a companyregistered under this Act.

CLAUSE 246 PRiNCIPAL EXECUTIVE OFFICER

318. This clauseprovides who is a principal executiveofficer of a life company for thepurposesof this Act andprovides that an existing company must give written notice of itsprincipal executiveofficer to the Commissionerwithin 3 months after commencementof theAct.

CLAUSE 247 PROTECTION OF PERSON WHO DISCLOSES INFORMATIONETC. UNDERCOMPULSION

319. This clauseprovides that a personwho disclosesinformation or producesrecords inaccordancewith arequirement or direction of apersonunderthisAct, is not liable to anyoneelse in respectof the disclosureor production.

CLAUSE 248 OFFENCES

320. This clausesetsout thetime within which proceedingsfor an offenceagainst thisActmay be instituted. Subclause(2) provides that proceedingsagainstacompanyfor an offencedo not prevent the institution of proceedingsfor thejudicial managementor winding up ofthe company on a ground thatrelates to the matter that constitutesthe offence.

CLAUSE 249 FALSE OR MISLEADiNG DOCUMENTS

321. lhis clauseprovides that where a falseor misleading statementhasbeenmadeby a

person in a document, that person is guilty of an offence.

CLAUSE 250 CONDUCT BY DIRECTORS, SERVANTS AND AGENTS

322. This clausesets out the considerationsa court may take into account in proceedingsfor an offencein determining the stateof mind of directors, servants andagentsin relationto any conduct engagedin by or on behalfof abody corporate or individual.

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CLAUSE 251 SECRECY

323. The objective of this provision is to maintain the confidentiality of informationacquiredfrom fmancial institutions in the courseof the Insurance and SuperannuationCommission’s supervisory activities, while permitting the disclosureof such information toparticular partiesin certaincircumstances.

324. Subclause(I) outlines particular definitions for thepurposeof the section, including“compliance officer”. Subclause(2) provides that as a general rule, information obtainedunderor for the purposesof thisAct must not be disclosed to any person, or to a court.Subclause(3) permits disclosure of information where the life company hasconsentedinwriting to the disclosure.

325. Subclauses(4), (5) and(6) set out particular personsto whom a complianceofficer

may disclose information and the circumstancesin which the information can be disclosed.

CLAUSE 252 COMMISSIONER’S RULES

326. This clauseprovides that Commissioner’srulesarea disallowable instrument andcanrelate to all mattersrequiredor permitted by thisAct to be prescribedby Commissioner’srules.

CLAUSE 253 REGULATIONS

327. This clause provides the type of regulations that may be made by theGovernor-General.

PART 12-HOW ThIS ACT AFFECIS EXIS11NGUFECOMPANIES fl~C

CLAUSE 254 COMPANIES REGISTEREDUNDERLIFEINSURANCEA CT1945

328. This clauseallows existing life companiesto be automatically registered under thisAct. It alsoprovides for the transferofconditions imposedonregistration of a life companyunder theLjfe InsuranceAct 1945 to the newAct. A certificate of registration issuedundertheLife InsuranceAct 1945 is taken to bethe samecertificate issuedunder subsection21(5)of this Act.

329. This clausealso provides that an existing life companythat is incorporated outsideAustralia is taken to be a company within the meaning of this Act. However, certainprovisions asspecified in subclause(7) do not apply to such companies.

CLAUSE 255 CONTINUiNG CAPITAL REQUIREMENTS

330. This clauseclarifies the application of transitional provisions in the Insurance LawsAmendmentAct 1991 relating to the capital requirements to be satisfied by life companies.

IRegulations madeunder thisAct in respectof life companycapital requirementsmaymodifythe operation of the relevant section of the InsuranceLawsAmendmentA Ct 1991.

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CLAUSE256 APPROVED AUDITOR I331. Selfexplanatory.

CLAUSE 257 APPROVED ACTUARY


CLAUSE 258 DOCUMENTS REQUIRED TO BE LODGED

333. This clauseoutlinesthe generalrulesfor lodgmentof documentsthatwererequiredto be lodgedunder section 52 of the Ljfe Inswunce A Ct 1945 immediately before thecommencementof this Act for a period that ended before that commencementand thecompanyhadnot lodged that documentbefore that commencement.

CLAUSE259 REINSURANCE BETWEENSTATUTORY FUNDS

334. This clauseprovides that Part4 ofthisAct will not be contravenedby alife companyengagingin reinsurancebetweenstatutoryfunds,in relation to a particular policy, if certainconditions are satisfied.

CLAUSE260 SCHEMEFOR TRANSFEROR AMALGAMATION

335. This clauseprovides that if acopy of a schemewas lodgedwith the Commissionerundersection75 of theLife Inrumnce Act 1945before the commencementof thisAct, thatAct as in force immediately before that commencementcontinuesto apply in relation to theschemeandPart9 of thisAct doesnot apply in relation to thatscheme.

CLAUSE 261 MODIFICATION OF OPERATION OF DIVISIONS 5 AND 6 OFPART 4

336. This clauseis a transitionalprovision which providesthat regulationsmay modify,in respectof existing life companies,the operationof Division 5 of Part4 in relation tocertainfmancial statementsgiven to the Commissionerunder thisAct or the Life InsuranceAct 1945, and Division 6 of Part 4 in relation to fmancial statementsgiven to theCommissionerunder section 82. The clauseincorporates“sunset” provisions, in that theregulations can only be madein respectof aperiod commencingbefore 1 January1996.

CLAUSE 262 EXISTING BENEFIT SOCIETY BUSINESS

337. TI~sclauseprovidesthat businessc~edonby a society,registeredundera law of 1a Stateor Territory relating to the registrationof benefit societies,after the commencementof thisAct, to theextentthat it would be businessunder paragraph(b), is not life insurancebusinessfor the purposeof this Act, but only for a period of 2 years beginningat the

commencementof thisAct. I

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) CLAUSE 263 JUDICIAL MANAGEMENT AND WINDING-UP

338. This clauseoutlines which Act and which Partsof an Act will apply whereacompanyor part of the businessof the company,was underjudicial managementor beingwound upunder theLjfe InsuranceAct 1945 immediatelybefore the commencementof thisAct

‘ CLAUSE 264 SAVING PROVISION - SECTIONS 83, 84 AND 94 OF THE LIFEINSURANCEACT1945

339. This clauseprovides that in spiteof therepealoftheLife InsuranceAct 1945,sections83, 84 and 94 of that Act continue to apply to policies to which those sectionsappliedimmediately before the commencementof thisAct.

SCBEDULE

340. This Scheduleprovides the definitions of various termsusedwithin the Act.

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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRAUA LIFE … fileLIFE INSURANCE BIlL 1994 GENERAL OUTUNE...

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