1 INSURANCE/ REINSURANCE PRACTICE GROUP Multi-Jurisdictional Survey CONTACT INFORMATION Mark Waller Clayton Utz Level 28, 71 Eagle Street, Brisbane, Qld, 4000 Ph: (07) AUSTRALIA 1. What is the definition of insurer and reinsurer in your jurisdiction? a) Insurer is defined as a person who carries on insurance business; 1 an 'insurance business' is "the business of undertaking liability, by way of insurance, in respect of any loss or damage, contingent on the happening of a specified event and includes any business incidental to insurance business as so defined". 2 b) There is no standard or statutory definition of 'reinsurer', and the difficulties of defining this term have been judicially discussed. 3 A reinsurance contract has been defined as a contract where "for consideration one agrees to indemnify another wholly or partially against loss or liability by reason of a risk that the latter has assumed under a separate and distinct contract as the insurer of a third person it is a mechanism by which one insurer insures the risk of another insurer" Insurance Act 1973 (Cth), section 11. This definition is reflected in definitions in other Australian legislation, for example the Medical Indemnity Act 2002 (Cth), section 4. Note: the definition of 'person' includes a body politic or corporate as well as an individual (Acts Interpretation Act 1901 (Cth), section 22). Insurance Act 1973 (Cth), section 3; F. G. Hawke, 'Australia', Insurance Law Rel 4 (May 1996), p. 78. Commercial Union Assurance Co Plc v NRG Victory Reinsurance Ltd (1998) 2 Lloyd s Rep 600 at p CCH, Australian & New Zealand Insurance Commentary at [30.130].
2 2. Can a foreign insurer and/or reinsurer underwrite insurance or provide capacity to underwrite insurance in your jurisdiction? 5 a) Provided that the requirements outlined below 6 are fulfilled, foreign insurers and reinsurers can underwrite insurance or provide capacity to underwrite insurance in Australia. Foreign insurers who actively market their policies in Australia must also appoint an agent who is an individual resident in Australia. 7 b) Only 'eligible foreign life insurance' companies can provide life insurance in Australia. A foreign life insurance company is considered "eligible" if it: (i) (ii) is a foreign corporation within the meaning of paragraph 51(xx) of the Constitution; and is authorised in a foreign country, or part of a foreign country, to carry on life insurance business; and (iii) has established, or proposes to establish, an Australian branch; and (iv) is not an existing life company that is registered under the Life Insurance Act; and satisfies any conditions in the Life Insurance regulations which relate to the body corporate Are insurers and/or reinsurers regulated in your jurisdiction? a) The insurance industry in Australia is heavily regulated. The Insurance Act 1973 (Cth) regulates the conduct of general insurance and reinsurance businesses through a system of authorisation. Under the Insurance Act, a body corporate may apply in writing for authorisation to carry on insurance business in Australia. The Insurance Contracts Act 1984 (Cth) regulates contracts of insurance and proposed contracts of insurance. 9 b) The Australian Prudential Regulatory Authority ("APRA") was established in July 1998 to maintain a prudential regulatory regime. 10 APRA is responsible for promoting the safety and soundness of life and general insurance companies. General insurers authorised to conduct business in Australia must comply with the Insurance Act 1973 (Cth) and are subject to prudential supervision by the Australian Prudential Regulatory Please note: This answer is limited to insurers and reinsurers underwriting or providing capacity to underwrite insurance in Australia; it does not consider reinsurers underwriting or providing capacity to underwrite reinsurance. See answers to questions 4, 6 & 7. Insurance Act 1973 (Cth), section 118. Arrangements with the agent in Australia should be formalised by way of contract and other documentation that sets out the agent's responsibilities for the insurer's operations in Australia. Life Insurance Act 1995 (Cth), Part 2B. F.G. Hawke, International Insurance Law & Regulation (Oceana Publications Inc, NY & OUP) Release , Australia, Clayton Utz, p. 2. See APRA website,
3 Authority. The Australian Prudential Regulatory Authority also regulates the administration of the Life Insurance Act 1995 (Cth). The regulatory regime requires that Australian licensed general insurers hold capital reserves sufficient to meet their actual and expected claims costs. 11 c) The Australian Securities and Investments Commission ("ASIC") has power to administer the Insurance Contracts Act 1984 (Cth). ASIC also exercises consumer protection related functions under the Life Insurance Act 1995 (Cth) and Insurance Act 1973 (Cth). ASIC has power to do all things that are necessary or convenient to be done in connection with the administration of insurance. 12 ASIC enforces company and financial services laws to protect consumers, investors and creditors. 13 d) The Financial Services Reform Act 2001 (Cth) introduced uniform licensing, disclosure and conduct requirements for the insurance industry and intermediaries. This legislation, which now forms part of the Corporations Act 2001 (Cth), mandates that every person who carries on a financial service business, including the business of insurance, must hold an Australian financial services licence or be an Authorised Representative of an Australian financial services licensee. The Financial Services Reform Act 2001 (Cth), including the current transition to full implementation of its provisions, is regulated by the ASIC. There was a two-year transition period, commencing 11 March 2002 and ending on 11 March 2004, for insurers to achieve full compliance with the Financial Services Reform provisions of the Corporations Act 2001 (Cth). 14 e) There are also Codes of Practice for the Life Insurance Industry and the General Insurance Industry. Insurers offering life insurance products to consumers do so in accordance with the Life Insurance Industry Code, which is recognised in the Life Insurance Act and Regulations. The General Insurance Code of Practice applies to general insurers who write certain domestic and personal classes of insurance. 15 f) The Financial Ombudsman Service Limited, administers the General Insurance Code. Both Codes are nominally self-regulatory, but have practical legal force due to legislative requirements that insurers subscribe to "approved" schemes of industry self-governance of which these are, at present, the only two available. 16 g) Other regulators are influential in the insurance industry. These include: The Australian Competition and Consumer Commission (formerly the Trade Practices Commission) under the Trade Practices Act 1974 (Cth); The Commonwealth Department of Consumer Affairs; The Privacy Commissioner; and Insurance Contracts Act 1984 (Cth), section 11B.
4 Less directly, the Commonwealth Government Department of the Treasury. 17 h) The Treasurer is the Commonwealth Government Minister who has responsibility under the Insurance Acquisitions and Take-Overs Act 1991 (Cth), which governs changes of ownership of authorised general insurers or registered life insurers. The Commonwealth Government Department of Health and Social Services is responsible for the administration of the National Health Act 1953 (Cth), regulating the health insurance business. There is a substantial regulatory distinction in Australia between health insurance, on the one hand, and life and general insurance, on the other. 18 i) The Australian Accounting Standards Board develops the accounting standards for financial reporting, and there are a number of standards specific to the insurance industry. There are a range of associations representing participants in the insurance market and their customers. The market is regulated not only by statutes but also by a plethora of delegated legislation, guidelines and codes. Taking all matters into consideration, the Australian insurance market is one of the most tightly regulated in the world. While this constitutes a not insubstantial barrier to entry, it also confers significant benefits in terms of financial stability and consumer protection. 19 j) In addition to the Insurance Act 1973 (Cth), the conduct of life insurance business is regulated through a system of registration under Life Insurance Act 1995 (Cth). k) Contracts of reinsurance are governed mainly by the common law principles of insurance law. In Australia, they are specifically excluded from the provisions of the Insurance Contract Acts 1984 (Cth) 20 and the Financial Services Reform Act 2001 (Cth). 21 Reinsurance contracts are however covered by the Insurance Act 1973 (Cth) 22 and therefore reinsurers are required to obtain authorisation from APRA (as discussed above). 4. Are foreign insurers and/or reinsurers required to be licensed or registered to underwrite and sell insurance/provide capacity in your jurisdiction? 23 a) In addition to the regulation discussed above, there are additional requirements for foreign insurers in Australia. For example, foreign insurer applicants must demonstrate that the arrangements for reporting to foreign insurer parents or head offices are adequate. 24 Foreign insurer applicants must also satisfy APRA that they are subject to Hawke, op cit, p. 3. Hawke, op cit, p. 3. Hawke, op cit, p. 3. Insurance Contract Acts 1984 (Cth), section 9(1)(a). Financial Services Reform Act 2001 (Cth), section 765A(1)(g). The definition of "insurance business" in Insurance Act 1973 (Cth) section 3 is defined to include reinsurance. Please note: This answer is limited to the licence and registration requirements for insurers and reinsurers selling or providing capacity to sell insurance; not the licence and registration requirements for reinsurers selling or providing capacity to sell reinsurance. Hawke, op cit, p. 28.
5 adequate prudential supervision in their home country. 25 In considering the standard of supervision exercised by the home supervisor, APRA will have regard to the Insurance Core Principles and the Insurance Core Principles Methodology promulgated by the International Association of Insurance Supervisors. 26 b) Foreign-incorporated applicants may seek to set up a locally incorporated head office to carry on insurance business in Australia (foreign-owned subsidiary). Alternatively, a foreign-incorporated insurer may seek an authority to operate in Australia through a branch (foreign insurer). There are no restrictions on the number, size, or mix of operations of foreign-owned subsidiaries or foreign insurers operating in the Australian market. A foreign-incorporated insurer may hold a dual authority to operate both through a foreign-owned subsidiary and as a foreign insurer. 27 c) To ensure adequate protection of policyholders, authorised foreign-owned subsidiaries and foreign insurers are subject to the same legislative and prudential requirements as Australian-owned and incorporated insurers. For this reason, the requirements for foreign insurance carriers wishing to set up a head office and foreign insurance carriers seeking directly to establish branches will be dealt with together. 28 d) There are however specific exceptions to these requirements in place for Lloyd's underwriters. Lloyd's are automatically authorised to carry on an insurance business in Australia, subject to certain conditions What is the applicable legislation or regulations governing insurers and/or reinsurers in your jurisdiction? Australian Accounting Standards Corporations Act 2001 (Cth) Insurance Act 1973 (Cth) (in force) Insurance Regulation 2002 (Cth) (in force) Insurance Regulations 1974 (Cth) (in force before 1 July 2002) Insurance Acquisitions and Take-Overs Act 1991 (Cth) Insurance (Agents and Brokers) Act 1984 (Cth) Insurance Contracts Act 1984 (Cth) Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) Financial Sector (Collection of Data) Act 2001 (Cth) Financial Sector (Shareholdings) Act 1998 (Cth) Financial Services Reform Act 2001 (Cth) Life Insurance Act 1995 (Cth) National Health Act 1953 (Cth) APRA Guidance Note - Guidelines on Authorisation of General Insurers, February APRA Guidance Note - Guidelines on Authorisation of General Insurers, February Hawke, op cit, p. 77. Hawke, op cit, p. 77. Insurance Act 1973 (Cth), section 93(1).
6 Trade Practices Act 1974 (Cth) 6. Is an unlicensed insurer or reinsurer entitled to sell insurance/provide capacity to sell insurance in your jurisdiction? 30 a) To provide general insurance or reinsurance services in Australia, insurers must be authorised under the Insurance Act 1973 (Cth). A person commits an offence if they carry on an insurance business without authorisation. 31 b) To obtain authorisation, the applicant insurer must be incorporated and apply in writing to APRA.. APRA may authorise the carrying on of a Life or General (but not combined) insurance business, upon appropriate conditions relating to prudential matters. APRA has discretion to either authorise the application or refuse the application. 32 APRA will only authorise suitable applicants who have the capacity and commitment to conduct insurance business with integrity, prudence and professional skill, on a continuing basis. 33 c) In addition to these requirements, insurers must be registered under Life Insurance Act 1995 (Cth) to provide life insurance services in Australia. 7. If an insurer and/or reinsurer is licensed and registered in another jurisdiction will that be accepted for the purposes of licensing and registering in your jurisdiction? a) To provide insurance services in Australia, foreign insurers must be authorised insurers in their home country, as well as comply with the additional Australian requirements discussed above. b) Foreign insurer applicants must have received consent from their home supervisor for the establishment of an insurance operation in Australia. 34 Only applicants who are authorised insurers in their home country will be granted authorities to operate as foreign insurers. 35 The requirements for foreign insurance carriers wishing to set up a head office and to establish branches are all contained in the Australian Prudential Regulatory Authority Guidance Note - Guidelines on Authorisation of General Insurers Please note: This answer is limited to unlicensed insurers and reinsurers selling or providing capacity to sell insurance; not unlicensed insurers and reinsurers selling or providing capacity to sell reinsurance. Insurance Act 1973 (Cth), section 10. Insurance Act 1973 (Cth), section 12. Hawke, op cit, p. 26. APRA Guidance Note - Guidelines on Authorisation of General Insurers, February Hawke, op cit, p. 28. Australian Prudential Regulatory Authority Guidance Note - Guidelines on Authorization of General Insurers, February 2002.
7 c) Furthermore, an insurance agent who represents a foreign insurer is a "foreign insurance agent". The Australian insurance legislation emphasises that the foreign insurance agent is the agent of the insurer and enumerates certain statutory responsibilities of the foreign insurance agent to both the insured and the insurance company. This entity does not "undertake liability" in the terms of the Australian insurance legislation. The extent to which the entity is involved in accepting or rejecting the risk, issuing the policy and related documents, receiving and holding or investing the premium, and paying claims is governed by the contract between the foreign insurance agent and the insurance company, as well as by Australian corporate and tax law Does the applicable regulator in your jurisdiction have a website? If so, what is the website? APRA - ASIC Are the forms to become licensed or registered in your jurisdiction available on the regulator s website? APRA - no forms available ASIC - no forms available 37 Hawke, op cit, p. 28.
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