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1 Insurance facts and figures 2009

2 Editor: Scott Fergusson Publication Team: Alexandra Russ Amy Johnson Angela Linus Antoinette Chan Michelle Tickle Tony Kamberi Contributors: Adam Taylor Alex Ta Alexandra Russ Amy Ellison Amy Johnson Andrew McPhail Angela Linus Annie Guo Billy Bennett Damian Hollingsworth Daniel Keating Darren Mack Deborah Chesney Elaine Bian Joanne Gorton Kim Smith Klynton Hankin Lisa Simpson Meera Talwar Michael Flanderka Michael Garrod Nicole Spencer Nishika D Cruz Pat Murray Pawan Kr Mundhra Peter Kennedy Peter Lurie Rajiv Khana Sam Hinchliffe Samuel Lee Sarah Long Scott Hadfield Serge Laville Shaun Mahony Surayez Rahman Suruchi Joshi Tim Jenkins Tony Cook Wayne Russell This publication is designed to provide an overview of the accounting, tax and regulatory environment relating to insurance in Australia. Information contained in this booklet is based on the law and Government announcements as at 15 April The information presented in this publication should be used as a guide only and does not represent advice. Before acting on any matter arising in this publication, readers should consider seeking advice from a PricewaterhouseCoopers insurance expert (contact details are provided at the end of this publication). Insurance Facts & Figures PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 155,000 people in 153 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. ( PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.) WL

3 Insurance facts and figures 2009

4 Contents Foreword 6 1 General Insurance 9 Introduction - Scott Hadfield Statistics Key developments Regulators of general insurance Supervision and compliance Solvency and capital adequacy requirements Reinsurance General insurance financial reporting General insurance taxation 82 2 Life Insurance 93 Introduction - Tony Cook Statistics Key developments Regulators of life insurance Supervision and compliance Solvency and capital adequacy requirements Reinsurance Life insurance financial reporting Life insurance taxation Health Insurance 135 Introduction - Wayne Russell Statistics Key developments Regulators of health insurance Supervision and compliance Solvency and capital adequacy requirements Reinsurance Health insurance financial reporting Health insurance taxation 158

5 4 Insurance Brokers 161 Introduction - Billy Bennett Key developments Regulators of insurance brokers Supervision and compliance Solvency and capital adequacy requirements Insurance brokers financial reporting Insurance brokers taxation Policyholder Protection Key developments Framework Product disclosure, insurance business and insurance contracts Pricing and competition Sales practice regulation Ability to pay claims Use of personal information Sources of redress Insurance Directory Government authorities Industry associations Complaints review services General insurers authorised to conduct new or renewal business Registered life insurers Registered health insurers Government insurers PwC in the Insurance Industry PwC in the insurance industry Contacting PwC Insurance and financial services publications since December PwC Australian offices and insurance industry experts 228

6 Glossary AASB ACCC ADI AFSL AHIA AIFRS AML APRA ARPC ASIC ASX ATO AUASB AUSTRAC BCM CEO CFO CPI CTF CTP DAC DAM DOFI ECS FASB FATF FCR FID FOS FSR GAAP GST HCCS HPPA IAA IASB IBNER IBNR ICA Australian Accounting Standards Board Australian Competition and Consumer Commission Authorised Deposit-Taking Institution Australian Financial Services Licence Australian Health Insurance Association Australian Equivalents to International Financial Reporting Standards Anti-Money Laundering Australian Prudential Regulation Authority Australian Reinsurance Pool Corporation Australian Securities and Investments Commission Australian Securities Exchange Australian Tax Office Auditing and Assurance Standards Board Australian Transaction Reports and Analysis Centre Business Continuity Management Chief Executive Officer Chief Financial Officer Consumer Price Index Counter-Terrorism Financing Compulsory Third Party Deferred Acquisition Costs Decreasing Adjustment Mechanism Direct Offshore Foreign Insurer Exceptional Claims Scheme Financial Accounting Standard Board Financial Action Task Force Financial Condition Report Financial Information Declaration Financial Ombudsman Service Financial Services Reform Generally Accepted Accounting Principles Goods and Services Tax High Cost Claims Scheme Hospital Purchaser Provider Agreements Institute of Actuaries of Australia International Accounting Standards Board Incurred But Not Enough Reported Incurred But Not Reported Insurance Council of Australia

7 IFRS ILVR KYC LAT LMI LVR MAA MCR MDO MER MII MOU MSE NIBA NOHC OCR PAIRS PDS PHIAC PHIO PML PST RAS RD RE REMS RHBO RMD RMS ROCS SEA SO SPV Stage 2 TOFA UPR VPST International Financial Reporting Standards Insurance Liability Valuation Report Know Your Customer Liability Adequacy Test Lenders Mortgage Insurance Loan-to-Value Ratio Motor Accidents Authority Minimum Capital Requirement Medical Defence Organisation Maximum Event Retention Medical Indemnity Insurer Memorandum of Understanding Management Services Element National Insurance Brokers Association Non-Operating Holding Company Outstanding Claims Reserve Probability and Impact Rating System Product Disclosure Statement Private Health Insurance Administration Council Private Health Insurance Ombudsman Probable Maximum Loss Pooled Superannuation Trust Reinsurance Arrangement Statement Reinsurance Declaration Responsible Entity Reinsurance Management Strategy Registered Health Benefits Organisation Risk Management Declaration Risk Management Strategy Run-off Cover Scheme Segregated Exempt Assets Senior Officer from Outside Australia Special Purpose Vehicle Stage 2 of APRA s general insurance reforms Taxation of Financial Arrangements Unearned Premium Reserve Virtual Pooled Superannuation Trust

8 6 Insurance facts and figures 2009 Foreword

9 It is with great pleasure that we welcome you to the 2009 edition of PwC s Insurance Facts and Figures. There is no doubt that Australian insurers are being challenged by the ongoing global financial crisis and the effects of severe weather events. The financial impacts are evident in the financial statistics found within this publication. However, it is for these very events that the Australian insurance industry exists - to help members of our community get through tough times. The insurance industry should take pride in its role in protecting the livelihood, health and assets of Australians and in its response to events such as the terrible Victorian bushfires. Serving the community well in these difficult conditions will help grow the trust that is key to filling the under-insurance void in our country. We have enjoyed preparing this publication and hope you find it a helpful and relevant reference. Best wishes Kim Smith Australian Insurance Leader PricewaterhouseCoopers Scott Fergusson Insurance Sector Leader Assurance PricewaterhouseCoopers PricewaterhouseCoopers 7

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11 General Insurance 1 Introduction - Scott Hadfield Statistics Key developments Regulators of general insurance Supervision and compliance Solvency and capital adequacy requirements Reinsurance General insurance financial reporting General insurance taxation 82

12 10 Insurance facts and figures 2009 Introduction Scott Hadfield

13 The world is a different place. The slight increases in credit spreads some 18 months ago have emerged as lead indicators of the worst economic environment since the Great Depression. Who would have thought that the likes of Lehman Brothers would fail and we would see such high profile problems at companies like AIG. Everyone has been impacted but it is fair to say that core general insurance business, weather events aside, have escaped relatively unscathed. Asset liability matching strategies have been tested, investments have been impacted and claims activity has increased, but fundamentally the industry remains strong. We are, however, still in the midst of a very difficult environment. Ongoing challenges include: Capital management What are the sensitivities to current capital levels? How are any potential impacts being mitigated? Responding to increased claims activity History shows that in times of financial stress claims tend to increase. The current environment also brings heightened exposure in the Professional Indemnity and Directors and Officers lines. Adequate pricing Premium rates in commercial are likely to stabilise and maybe even increase in 2009 overall. Nevertheless risk profiles need to be reassessed and pricing models need to be updated. Competition in personal lines appears to be increasing. Investment earnings Is your investment strategy still appropriate? How are you responding to an environment of reduced investment earnings? In addition, the frequency and severity of natural catastrophes continues to provide its headaches to insurers and reinsurers. In February this year, Australia had floods in the north and bushfires in the south, what will next year bring? On the regulatory front, the biggest impact will be to those caught by APRA s new supervision of general insurance groups. Those with global operations will be impacted the most and it is expected that availability and quality of data are likely to be the key issues. The world is definitely a different place, there are many challenges, but there is also opportunity. How well placed are you? PricewaterhouseCoopers 11

14 1.1 Statistics Top 15 general insurers Ranking Measure: Net earned premium Performance: Underwriting result Entity Year end Current $m Current Rank Prior $m Prior Rank % Change Current $m Prior $m 1 QBE Insurance Group 12/08 11, , % 1,275 1,438 2 Insurance Australia Group 06/08 7, , % Suncorp 06/08 5, , % Allianz Australia 12/08 1, , Wesfarmers 06/ % Zurich Australian Insurance 12/ % Munich Reinsurance Company Australia 12/ % Genworth Financial Mortgage Insurance 12/ % Swiss Re 12/ % AIG (American Home Assurance) 12/ % Chubb Insurance 12/ % RAC Insurance 12/ % Commonwealth Insurance 06/ % Elders Insurance 06/ % ACE Insurance 12/ % NR Lloyd s** 12/08 1,050 NR 950 NR 11% n/a n/a Source: Published annual financial statements or APRA annual returns, including segment reporting for organisations with significant non-general insurance activities Notes: World wide premium is included for those companies/groups based in Australia, while only premium under the control of the Australian operations are included for those with overseas parents. Where a group has significant non-general insurance operations, only performance and position information relating to general insurance is disclosed (subject to availability). In some instances this involves estimating of a notional tax charge for the result after tax. Outstanding claims are net of all reinsurance recoveries. * Disclosure of investment result from insurance operations was not available in Wesfarmers financial statements. ** Lloyd s Underwriters are authorised in Australia under special provisions contained in the Insurance Act Because of the unique structure of the Lloyd s market Lloyd s reports to APRA on a different basis to the Australian General Insurers. Lloyd s is required to maintain onshore assets in trust funds and as at 31st December 2008 its Australian assets comprised of $1,399m in trust funds and a statutory deposit of $2m. 12 Insurance facts and figures 2009

15 General insurance Performance: Financial Position: Investment result Result after tax Net outstanding claims Investments Net Assets Total Assets Current $m Prior $m Current $m Prior $m Current $m Prior $m Current $m Prior $m Current $m Prior $m Current $m Prior $m 1,177 1,132 1,859 1,925 16,161 13,871 25,693 23,525 11,245 8,543 48,383 39, ,416 6,799 9,479 10,884 4,351 4,832 19,380 21, ,881 6,001 9,587 10,126 7,333 7,082 19,701 19, ,626 3,392 4,176 5,198 1,652 1,685 7,924 8,723 n/a* n/a* ,320 1,254 3,321 3, , ,604 1, ,876 2, ,207 1,082 1,783 1, ,817 2, ,613 2,310 1,494 1,231 2,887 2, ,136 1,093 1,561 1, ,285 2, , ,931 1, , ,120 1,038 n/a n/a n/a n/a 1,399 1,062 1,401 1,064 n/a n/a 1,401 1,064 PricewaterhouseCoopers 13

16 Top 10 government insurers Ranking Measure: Net earned premium Performance: Underwriting Entity Year end Current $m Current Rank Prior $m Prior Rank % Change Current $m Prior $m 1 WorkCover NSW 06/08 2, , % Victorian WorkCover Authority 06/08 1, , % Transport Accident Commission (Vic) 06/08 1, , % WorkCover Queensland 06/ % NSW Self Insurance Corporation * 06/ % WorkCover Corporation (SA) 06/ % Motor Accident Commission (SA) 06/ % Insurance Commission of WA 06/ % Comcare (Cwlth) * 06/ % Motor Accident Insurance Board (Tas) 06/ % Source: Published annual financial statements Notes: Outstanding claims are net of recoveries. * Underwriting result has not been disclosed in financial statements and has been recalculated as net earned premium less net caims incurred 14 Insurance facts and figures 2009

17 General insurance Performance: Financial Position: Investment Result after tax Outstanding claims Investments Net Assets Total Assets Current $m Prior $m Current $m Prior $m Current $m Prior $m Current $m Prior $m Current $m Prior $m Current $m Prior $m -76 1, ,987 9,385 13,114 11, ,612 12, , ,170 7,824 7,721 9,535 10,806 2,069 2,656 10,271 11, ,782 5,613 6,714 7, ,422 7,503 8, ,720 1,566 2,788 3,008 1,218 1,470 3,127 3, ,927 4,120 4,136 4, ,566 5, ,374 2,255 1,337 1, ,528 1, ,617 1,520 2,041 2, ,093 2, ,328 1,317 2,138 2, ,745 2, ,242 1, ,833 2, ,044 1,161 PricewaterhouseCoopers 15

18 Direct insurers 25% Direct insurers - comparison of profitability We have not included 31 December 2002 data as APRA has not published statistics for this period. For 2002, only June data is available. 20% 15% 10% 5% 0% Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Jun-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08-5% Profit/loss as % net assets 10 year bond return 120% 110% Direct insurer loss and expense ratios Combined ratio We have not included 31 December 2002 data as APRA has not published statistics for this period. For 2002, only June data is available. 100% 90% 80% 70% Loss ratio 60% 50% 40% 30% Expense ratio 20% 10% 0% Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Jun-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Net loss ratio Underwriting expense ratio Net U/W combined ratio 16 Insurance facts and figures 2009

19 General insurance Direct insurers - Distribution of investments by sector Property, loans, advances & other 19% Indirect investments 6% Equity 5% Interest 70% Direct insurers - Movement in investments 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% Annual % change in proportional investment holdings Interest Equity Indirect investments Property, loans, advances & other Source: Selected statistics on general insurance industry, APRA, December 2008 PricewaterhouseCoopers 17

20 Reinsurers 25% Reinsurers - Profitability We have not included 31 December 2002 data as APRA has not published statistics for this period. For 2002, only June data is available. 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Jun-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Profit/loss as % net assets 160% Reinsurers loss and expense ratios We have not included 31 December 2002 data as APRA has not published statistics for this period. For 2002, only June data is available. 140% 120% Combined ratio 100% 80% Loss ratio 60% 40% Expense ratio 20% 0% -20% Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Jun-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Net loss ratio Underwriting expense ratio Net U/W combined ratio 18 Insurance facts and figures 2009

21 General insurance Reinsurers - Distribution of investments by sector Indirect investments 1% Property, loans, advances & other 1% Equity 1% Interest 97% Reinsurers - Movements in investments 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% -8.00% Annual % change in proportional investment holdings Interest Equity Indirect investments Property, loans, advances & other Source: Selected statistics on general insurance industry, APRA, December 2008 PricewaterhouseCoopers 19

22 Total private sector 25.0% Total private sector - comparison of profitability We have not included 31 December 2002 data as APRA has not published statistics for this period. For 2002, only June data is available. 20.0% 15.0% 10.0% 5.0% 0.0% Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Jun-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec % -10.0% Profit/loss as % net assets 10 year bond return Total private sector loss and expense ratios 120% Combined ratio 110% We have not included 31 December 2002 data as APRA has not published statistics for this period. For 2002, only June data is available. 100% 90% 80% Loss ratio 70% 60% 50% 40% 30% Expense ratio 20% 10% 0% Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Jun-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Net loss ratio Underwriting expense ratio Net U/W combined ratio 20 Insurance facts and figures 2009

23 General insurance Total private sector - Distribution of investments by sector Property, loans, advances & other 17% Indirect investments 5% Equity 5% Interest 73% Total private sector - Movements in investments 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% Annual % change in proportional investment holdings Interest Equity Indirect investments Property, loans, advances & other Source: Selected statistics on general insurance industry, APRA, December 2008 PricewaterhouseCoopers 21

24 Major Australian catastrophes Original cost adjusted to June 2006 CPI 2008* 2007* 2006* Flash flooding: Mackay QLD, 2008, $342m Flooding: North Coast, NSW, 2008, $15m NSW east coast storm and flood event, 2007, $1378m Severe Hailstorm Sydney, 2007, $205m Tropical Cyclone Larry, QLD, 2006, $367m Crop damage: Goulburn Valley, VIC, 2006, $71m Hailstorms Gold Coast, 2005, $62m Hail, Storm, Winds NSW, TAS, VIC, 2005, $220m Hail, storm Melbourne metro, 2003, $132m Bushfires Canberra, 2003, $373m Bushfires Sydney and NSW, 2001, $78m Hailstorms Sydney, 1999, $2093m Hailstorms, Brisbane, $95m Floods (excl. Cyclone Les) NT, 1998, $87m Cyclone "Sid" and floods QLD, 1998, $88m Hailstorms Singleton NSW, 1996, $62m Hailstorms Armidale/Tamworth NSW, 1996, $131m Bushfires NSW, 1994, $79m Storms Sydney, 1992, $166m Storms Sydney, 1991, $321m Flood and wind from Cyclone Joy Qld, 1990/1, $110m Cyclone Nancy, Qld/NSW, 1990/1, $62m Hailstorms Sydney, 1990, $564m Earthquake Newcastle, 1989, $1364m Hailstorms Western Sydney, 1986, $207m Storms and floods Sydney, 1986, $70m Cyclone Winifred, QLD, 1986, $80m Hailstorms Brisbane, 1985, $389m Bushfires NSW, 1984/5, $58m Floods NSW, 1984, $184m Ash Wednesday Bushfires SA & VIC, 1983, $421m Storms and floods Dalby QLD, 1981, $59m Storms Eastern NSW, 1978, $58m Thunderstorms NSW, 1977, $63m Cyclone Ted Qld, 1976, $71m Hailstorms NSW, 1976, $189m Cyclone Joan, WA, 1975, $106m Floods, Sydney, 1975, $80m Cyclone Tracy, Darwin, 1974, $1240m Cyclone Wanda, Brisbane, 1974, $421m AUD ($m) Source: Insurance Disaster Response Organisation, Major disaster event list since June Revised to March * Source: Emergency Management Australia, EMA Disasters Database. 24 April Insurance facts and figures 2009

25 World catastrophes General insurance Hurricane Ike, US & Caribbean et al, $28.5bn Hurricane Gustav, US & Caribbean et al, $5.7bn Tornadoes, US, $1.9bn Winter storm Kyrill, Europe, $6.1bn Floods caused by heavy rain, UK, $4.5bn Hurricane Wilma; torrential rain, floods, US, $13.0bn Hurricane Rita; floods, damage to oil rigs, US, $10.4bn Hurricane Katrina, US, $66.3bn Seaquake; tsunamis in Indian Ocean, $2.1bn Hurricane Jeanne; floods, landslides, US & Carribean, $4.0bn Typhoon Songda, Japan & Sth Korea, $3.8bn Hurricane Ivan; damage to oil rigs, US, $13.7bn Hurricane Frances, US & Bahamas, $5.5bn Hurricane Charley, US & Carribean, $8.6bn Hurricane Isabel, US, $2.3bn Thunderstorms, tornadoes, hail, US, $3.5bn Severe floods across Europe, Europe, $2.6bn Terrorist attacks on WTC, Pentagon etc, US, $21.4bn Tropical storm Allison; rain, floods, US, $4.1bn Hail, floods & tornados, US, $2.5bn Winter storm Martin, France & Spain, $2.9bn Winter storm Lothar over Western Europe, $7.0bn Winterstorm Anatol, Western/Northern Europe, $2.3bn Typhoon Bart, South Japan, $4.9bn Hurricane Floyd, Eastern US, Bahamas & Caribbean, $3.4bn Hurricane Georges, US, Carribean, $4.4bn Floods after heavy rain in Central Europe, $2.0bn Hurricane Fran, US, $2.3bn Hurricane Opal, US, $3.3bn Rain, floods and landslides $2.1 bn Great Hanshin earthquake in Kobe, Japan, $3.3bn Northridge earthquake, US, $19.0bn Blizzards, tornadoes, US, $2.7bn Hurricane Iniki, US, $2.3bn Hurricane Andrew, US, $23.0bn Forest fires which spread to urban areas, drought, US, $2.5bn Typhoon Mireille, Japan, $8.4bn Winter storm Vivian, Europe, $4.9bn Winter storm Daria, Europe, $7.2bn Explosion in a petrochemical factory, US, $2.2bn Hurricane Hugo, Puerto Rico, $7.4bn Explosion on the Piper Alpha oil rig, UK, $3.4bn Storms and floods in Europe, $5.5bn Hurricane Frederic, US, $2.2bn Tropical cyclone Fifi, Honduras, $2.0bn USD ($bn) Source: Swiss Re, Natural catastrophes and man-made disasters , Sigma no.2/2006; Natural catastrophes and man-made disasters in 2007, Sigma 1/2008; National catastrophes and man-made disasters in 2008: North America and Asia suffer heavy losses Swiss Re No. 2/2009 PricewaterhouseCoopers 23

26 1.2 Key developments Refinements to the existing prudential framework Background In recent years the Australian Prudential Regulation Authority (APRA) s main policy focus in General Insurance ( GI ) has been on refinements to the prudential framework necessary to give effect to the Government s decision, announced in May 2007, to extend prudential regulation to all insurers offering insurance to Australian policyholders. These reforms were aimed at enhancing the integrity of the GI industry and the protection provided to policyholders. These reforms affected not only Direct Offshore Foreign Insurers but also existing APRA-regulated general insurers. The objective of these refinements is to provide a clearer picture of prudential requirements for foreign insurers and reinsurers, whether branch or subsidiary and to more closely align the capital factors and treatment of reinsurance recoverables with policy objectives. Summary of refinements There are a number of changes to the existing prudential framework that became effective during 2008 and 2009 and they are summarised in the following table: Table 1.1 Refinements to the existing prudential framework Refinement Regulatory Instrument Effective from Comments Changes to structure of standards 1. The following categories of Insurers have been implemented by APRA to recognise different Insurers based on their risk profile: Category A: Locally incorporated insurer Category B: Wholly owned subsidiary of a local or foreign insurer Category C: Foreign insu rer operating as a foreign branch Category D: Association captive insurer Category E: Sole parent captive insurer. GPS Jul-08 Section Insurance facts and figures 2009

27 Refinement Regulatory Instrument Effective from Comments General insurance 2. GPS 110 Capital Adequacy has been divided into the following separate standards covering distinct elements of capital adequacy: GPS 110 Capital Adequacy GPS 112 Capital Adequacy: Measurement of Capital GPS 113 Capital Adequacy: Internal Model-based Method GPS 114 Capital Adequacy: Investment Risk Capital Charge GPS 115 Capital Adequacy: Insurance Risk Capital Charge GPS 116 Capital Adequacy: Concentration Risk Capital Charge GPS 110 GPS 112 GPS 113 GPS 114 GPS 115 GPS Jul-08 1-Jul-08 1-Mar-09 1-Jul-08 1-Jul-08 1-Jul-08 Section 1.5 Changes to operating requirements 3. Direct Offshore Foreign Insurers: All foreign insurers carrying on general insurance business in Australia, either directly or through an intermediary, must be authorised by APRA. For Category B (wholly owned subsidiary of foreign insurer) or Category C (foreign insurer operating as a foreign branch) insurers: Group Appointed Actuary can be non Australian resident (APRA s expectation is that the Group Actuary is employed within the foreign insurance group). Reviewing actuary must reside in Australia and be a Fellow or Accredited member of IAAust. GPS 520 paragraph 28 1-Jul-08 Section Run-off insurer: The business plan and FCR for a run-off insurer is replaced by a run-off plan. The run-off plan is to be prepared by the insurer on a rolling three year basis and is to be reviewed by the Appointed Actuary. GPS 220 paragraphs 21 to 27 & GPS 310 paragraphs 32 to 40 1-Jul-08 Section Small insurers: Actuarial requirements - provision for progressive transition to full actuarial requirements for small insurers that grow in size. APRA reporting - can use accounting data as approximations for APRA reporting purposes. GPS 310 paragraph 18 1-Jul-08 Section 1.4 PricewaterhouseCoopers 25

28 Refinement Regulatory Instrument Effective from Comments 6. Premium cession limits: Cession to be no more than 90% for Category D & E (captive insurers including group captives) insurers and 60% for other insurers. 7. Group business plan: Can be prepared on an insurance group basis provided there is adequate detail on each APRA-authorised insurer in the group. 8. Outsourcing: Outsourcing of material business activities to related parties must be documented in written contracts for Category D insurers. 9. Governance: Category E insurers can write to APRA to seek an adjustment to or exclusion from the board composition requirements under paragraph 64 of GPS 510. GPG 245 paragraph 5 GPS 220 paragraph 19 GPS 231 paragraph 21 GPS 510 & GPG 510 paragraphs 3 &4 1-Jul-08 Section Jul-08 Section Jul-08 Section Jul-08 Section Intra-group reinsurance: Temporary concessions on intra-group reinsurance will be discontinued and transitional arrangements considered on a case by case basis. 11. Reinsurance arrangements incepting prior to 1 January 2009 Greater scrutiny will be applied in assessing the security of recoverables under such arrangements. These are changes in policy and not a change in the Prudential Standards 30-Jun-08 Section 1.6 Section Insurance facts and figures 2009

29 Refinement Regulatory Instrument Effective from Comments General insurance Changes to capital requirements Calculation of MCR 12. Security of reinsurance recoverables: Reinsurance arrangements incepting prior to 1 January 2009 Contracts will be grandfathered so no additional capital charges will apply in respect of existing reinsurance arrangements. Reinsurance arrangements incepting after 31 December 2008 The following apply to recoverables from non-apra authorised reinsurers: a) The capital factors for secured reinsurance assets receivable are 1.5 times those applicable for APRA-authorised reinsurers. b) Increased capital factors for all unsecured reinsurance recoverables as follows: Factor of 20% to 100% depending on the counterparty rating. Factor of 100% if recoveries due and payable for > 6 months. Applicable only after the second annual balance date after the claim. GPS 114 Attachment A paragraph 4 GPS 114 Attachment A Table 1 GPS 114 Attachment A paragraph 5 1-Jan-09 Section 1.5 Section 1.6 Calculation of MCR 13. Capital Floor: A lower capital floor of $2M for Category D and E (captives of foreign insurers) insurers. 14. Capital factors for Equity and Real property: Listed equities (applied to net exposure after allowing for derivative hedging) has been increased from 8% to 16% Unlisted equities and direct property has been increased from 10% to 20% 15. Investments in unit-trusts: Insurers can treat investments in unit-trust on a look-through basis. GPS 110 paragraph 16 GPS 114 Attachment A Table 1 GPS 114 Attachment A paragraph 2 Section Jul-08 Section 1.5 PricewaterhouseCoopers 27

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