2001
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES

GENERAL INSURANCE REFORM BILL 2001
EXPLANATORY MEMORANDUM

(Circulated by authority of the Minister for Financial Services and Regulation,
the Hon Joe Hockey, MP)

ISBN:  0642 460760

Table of Contents
Outline	1
Financial impact statement	2
Abbreviations	3
Regulation impact statement	4
Proposed legislation	11
Schedule 1 – Amendment of the Insurance Act 1973	12
Schedule 2 – Transitional Provisions	38
Schedule 3 – Consequential amendment of other Acts	41

1	
GENERAL INSURANCE REFORM BILL 2001
Outline
1.1	This Bill amends the Insurance Act 1973 (Insurance Act), which prudentially regulates private sector general insurers operating in Australia.
1.2	The Insurance Act, which was administered by the Insurance and Superannuation Commission (ISC) prior to the establishment of the Australian Prudential Regulation Authority (APRA) on 1 July 1998, has remained largely unchanged since its inception nearly 30 years ago.  It is widely perceived to be blunt and unresponsive in the face of market developments that have transformed the financial sector over recent years.
1.3	This Bill will modernise and strengthen the prudential requirements for authorised general insurers.  The proposed reforms are consistent with the approach of the Financial System Inquiry (Wallis Report), which argued for greater consistency in the supervisory regimes across regulated financial service providers where appropriate and practical. The Bill will introduce a regulatory framework for general insurers similar in structure to the framework for authorised deposit-taking institutions and life insurers.
1.4	The Bill’s key objectives are to: 
•	make it clear the purpose of the Insurance Act is to protect policyholders and other beneficiaries of general insurance policies; 
•	ensure the new prudential regime is more transparent and responds to the risk profile of individual general insurers; 
•	establish a regime which can adapt over time to market and regulatory developments; 
•	ensure the regulatory arrangements are in line with international codes and standards; 
•	ensure this regime is more consistent with other supervisory regimes administered by APRA; and
•	minimise compliance costs and restrictions on competition where these cannot be justified on cost/benefit grounds.
1.5	The Bill covers the following broad areas:
•	amendment of the Insurance Act to provide APRA with the power to make, vary and revoke prudential standards for the purposes of the Insurance Act;
•	expansion of the coverage of the Insurance Act to include, where appropriate, the non-operating holding company (NOHC) of a general insurer, and the subsidiaries of the general insurer and NOHC;
•	expansion of the fit and proper tests that apply to the Board and senior management of general insurers, as well as other related bodies;
•	a requirement for general insurers, with limited exceptions, to appoint an APRA approved actuary to value a general insurers liabilities and any other valuations required by the prudential standards; and
•	expansion of the obligations upon auditors and actuaries to report to APRA, on both a routine and non-routine basis.
1.5	The Bill does not incorporate amendments relating to enforcement and managing failure. The provisions of APRA-regulated Acts which deal with enforcement and managing failure are currently being reviewed, and will be the subject of later legislative amendments.
Financial impact statement
1.6	It is not envisaged that the Bill will have a financial impact on the operations of government.  APRA is self-funded through financial sector levies.

2	
Abbreviations
The following abbreviations are used in this explanatory memorandum.
AAT	‑	Administrative Appeals Tribunal 	
ADIs	‑	Authorised deposit-taking institutions	
APRA	‑	Australian Prudential Regulation Authority	
ASIC	‑	Australian Securities and Investments Commission	
Banking Act	‑	Banking Act 1959	
CALDB		Companies Auditors and Liquidators Disciplinary Board	
FLAA	‑	Financial Laws Amendment Act 1997	
IAA	‑	Institute of Actuaries of Australia	
IAIS	‑	International Association of Insurance Supervisors	
Insurance Act	‑	Insurance Act 1973	
ISC	‑	Insurance and Superannuation Commission	
NOHC	‑	Non-operating holding company	
ORR	‑	Office of Regulation Review	
RIS	‑	Regulation Impact Statement	
The Bill	‑	General Insurance Reform Bill 2001	

3	
Regulation impact statement
Problem Identification
3.1 	There are currently 161 private sector companies authorised under the Insurance Act managing $A63.1 billion in assets, or approximately 4 per cent of the total capitalisation of the Australian financial system. The prudential supervisory regime under the Insurance Act has remained relatively unchanged over its 28 year history.  As a result, the regime has become increasingly outdated and lacks the flexibility to address developments in a rapidly changing market place. The ability to protect policyholders from financial loss will be compromised if reforms and modernisation, allowing the regulator to closely track these changes, are not implemented.
3.2	APRA administers the Insurance Act.  APRA was established on 1 July 1998 as a result of the recommendations of the Financial System Inquiry (Wallis Report) and is the single prudential regulator (promoting institutional soundness) of Australian financial institutions (including authorised deposit-taking institutions (ADIs), insurance companies and superannuation funds).  To the extent practicable, APRA is seeking to harmonise its prudential supervisory requirements across different segments of the financial sector.  The purpose of this harmonisation is to: 
•	prevent contrived regulatory arbitrage between industry sectors; 
•	improve competitive equality in the interests of allocative efficiency; and 
•	more fully realise the economies of scale and scope available to a single integrated regulator such as APRA.
3.3 	The Insurance Act is out of step with other, more modern, supervisory regimes administered by APRA, notably for ADIs and life insurers.  For example, the current minimum capital requirement of $2 million is substantially lower than corresponding requirements imposed on other parts of the financial sector and is insufficient to ensure that a company has the financial resources to put in place base level risk management systems.  In addition, the current solvency requirements of the Insurance Act do not require insurers to hold capital against specific risks, such as asset risks (the risk of falls in the value of assets as a result of market downturns or through counterparty default).  This is because traditionally risk in insurance undertakings has been considered to mainly arise from the liability side of the balance sheet (uncertainty in the size, timing and frequency of claims) and insurers have typically invested in low risk, fixed interest high quality securities.  However, insurers are increasingly using riskier assets to improve profitability.
3.4	Furthermore, a lack of objective criteria for calculating liability provisions results in inconsistencies between individual insurers, so that both the regulator and the market are unable to adequately assess the risk-adjusted strength and ranking of each company.
3.5	The current solvency requirements do not distinguish between the riskiness of business undertaken, and incorrectly assume that all companies have the same mix of business.  The end result is an uneven degree of capitalisation in the industry and a lack of transparency in the supervisory regime. Different types of insurance business are riskier than others.  Where there is a potentially substantial lag between the payment of premium and any related payment of a claim (such as reinsurance and workers compensation), there is a higher risk that the amount of the premium collected will turn out to be inadequate for the risk assumed by the insurer.
3.6	Furthermore, the Insurance Act is out of step with international best practice.  In September 1997, the International Association of Insurance Supervisors (IAIS), of which APRA is a member, adopted a high level set of Insurance Supervisory Principles (Core Principles). Australia’s supervisory framework for general insurers is only partially in compliance with the IAIS Core Principles in a number of areas, such as setting requirements for governance, standard setting and stopping general insurers engaging in unsafe or unsound practices.
Objectives
3.7	The objectives of the proposed reforms are to create a supervisory regime that:
(a)	makes it clear that the Insurance Act is designed to protect policyholders and the beneficiaries of general insurance policies;
(b)	responds to the risk profile of an insurance company;
(c)	is more transparent;
(d)	is in line with international codes and standards including, in particular, the IAIS Core Principles;
(e)	is capable of adapting over time to developments in the market and improvements in supervisory techniques;
(f)	is more consistent with other supervisory regimes administered by APRA; and
(g)	minimises restrictions on competition and compliance costs for industry where these restrictions and costs cannot be justified on cost/benefit grounds.
Identification of Options
Option 1:  Modernise the approach to prudential regulation under the Insurance Act and insert a standards making power into the Insurance Act
3.8	Under this option, the Insurance Act would be amended to provide APRA with a standards making power (as already applies in ADIs and life insurance). Standards made under the Insurance Act would be disallowable instruments and subject to Parliamentary scrutiny.  A new three-tiered regulatory structure would be put in place.  At the top would sit the Insurance Act, containing the high-level principles necessary for prudential regulation.  The second tier would consist of at least four subordinate standards on capital adequacy, liability valuation, reinsurance arrangements and risk management.  These standards would set out the bulk of requirements that companies authorised under the Insurance Act would have to comply with.  Finally, a set of guidance notes would exist for each prudential standard.  These notes would set out the details of how APRA expects the standards to be interpreted in practice.
3.9	These standards would replace the current highly prescriptive prudential supervisory requirements set out in the Insurance Act with more flexible, tailored and risk specific requirements for insurers.
3.10	Under the Capital Adequacy Standard, insurers would be required to hold capital commensurate with the risk profile of the insurance business underwritten.  The minimum entry-level capital requirements would be increased from $2 million to $5 million and on-going capital requirements would be better tailored to the underlying risk profile of the insurer.  Higher risk insurers would be required to hold higher minimum capital relative to lower risk insurers.  
3.11	The Wallis Report recommended (Recommendation 33) that the regulator should be empowered to establish and enforce prudential regulations and that the standards made should not be subject to administrative review.  Consistent with this Recommendation and current practice, it is proposed that prudential decisions made by APRA under the standards would not be subject to administrative review by the Administrative Appeals Tribunal (AAT). 
3.12	The proposed Insurance Act would impose a mandatory statutory requirement on APRA to consult with stakeholders in the development or variation of these standards.  This requirement is designed to ensure that the standards are commercially realistic and cost-benefit considerations are taken into account.  However, APRA will be able to circumvent this requirement, with the Treasurer’s agreement, if it considers the delay caused by consulting would negatively impact upon the interests of policyholders.  APRA will also not be required to consult if the variations are of a minor technical nature.  
Option 2: No specific action
3.13	Under this option no amendments to the Insurance Act would be introduced and insurers would continue to be subject to the existing provisions.
Option 3: Modernise the approach to prudential regulation under the Insurance Act but do not insert a standards making power into the Insurance Act
3.14	Under this option the Insurance Act would be specifically amended to incorporate the proposed changes to the prudential framework set out in Option 1.  However, APRA would not have a standards making power under the Insurance Act.
Impact Statement
3.15	It is likely that APRA, authorised insurers and policyholders would be affected by the proposed new approach to prudential regulation.
Assessment of Costs and Benefits
Option 1:  Modernise the approach to prudential regulation under the Insurance Act and insert a standards making power into the Insurance Act
APRA
3.16	Modernisation of prudential supervisory requirements would lead to a risk-responsive regime that increases the sensitivity of regulatory requirements to the individual risk profiles of insurers.  The power to set standards would ensure that the regime keeps pace with changes in the insurance market into the future.  As a result, the capacity of insurers to meet the legitimate future claims of policyholders should be significantly enhanced.  This would improve APRA’s capacity to meet its statutory functions and significantly improve Australia’s compliance with IAIS Core Principles.  It should help to reduce the requirement for enforcement action to be taken.
3.17	A standards making power is consistent with powers conferred on APRA under the Banking Act 1959 and the Life Insurance Act 1995.  This option would, therefore, contribute to the wider policy objective of progressively harmonising the approach to supervising regulated entities across all industry sectors.
Insurers
3.18	Modernising the prudential supervisory requirements for insurers will ensure the framework is responsive to changes in commercial and international best practice.  Greater flexibility will allow APRA to respond to market developments as they occur.
3.19	The proposed Capital Adequacy Standard will generally increase the minimum statutory solvency requirement per licence.  This is likely to lead to some rationalisation of licences (for example, the top ten insurance groups hold over 40 of the 161 general insurance licences) and some merger/exit activity of ‘marginal’ insurers.  The industry as a whole maintains total solvency levels some 2.6 times current statutory requirements.  Accordingly, it is expected that most insurers will not need to materially increase their capital buffers to meet the statutory level.  
3.20	In October 2000, APRA wrote to all licensed insurers asking them to complete a calculation of their estimated capital requirements under the draft standards for each of the past three financial years.  This enabled APRA to ‘road-test’ the capital factors issued in the previous version of the standards with actual data to examine whether the resultant capital requirements were consistent and reasonable.  The ‘road test’ projected that around 41 insurers will be required to move from the current $2 million minimum solvency test to the $5 million minimum capital requirement and therefore need to raise additional capital to meet the minimum capital requirement.  Of those 41, 29 insurers have access to parent/group capital, although APRA can make no assessment of whether the parent/group would inject capital; that is a commercial decision.  There are estimated to be around 12 insurers that would have no access to a large parent/group capital injection.  It is likely that the majority of these insurers will be required to raise equity from their domestic shareholders to meet the new requirements.  
3.21	Even though some rationalisation in the industry is expected, a large number of insurers will remain, comprising a number of large and diverse groups, and a substantial number of insurers focusing on particular types of business, different regions and niche products.  The industry is expected to remain very competitive and be less concentrated than the ADI and life insurance sectors.  None of the 12 small insurers who have no access to parent/group capital are located outside capital cities.  It is not expected that the proposals will impact significantly upon existing regional and rural services and jobs.
3.22	In addition, the introduction of a risk based capital adequacy prudential standard will mean an approximate doubling of minimum statutory capital for insurers underwriting the riskier long-tail classes of insurance business.  For the average well-diversified insurer, the minimum capital requirement will increase by about 50 per cent.  About half of the insurers currently operating will need to increase their regulatory capital to meet these new requirements.
Policyholders
3.23	Policyholders may be impacted if the new risk weighted capital requirements cause insurers to increase insurance premiums.  However, as the increases in capital are designed to mainly affect higher risk business, any resultant change in premiums should similarly be limited to this area.  In some risky product lines there has been a general concern that prices have not been accurately reflecting the risk involved.  The move to raise capital on this high risk business should result in more accurate pricing of risk which increases efficiency in the economy generally.
3.24	It is not expected that premiums will increase significantly overall as a result of the new requirements, as around 110 insurers already hold sufficient excess capital to meet the proposed increased minimum statutory requirement.  
3.25	The new risk responsive requirements will force insurers to retain capital reserves that more accurately reflect the risk profile of insurance business underwritten.  This should be a positive outcome for consumers who will benefit from more effective protection under the proposed regime, and whose expectations of institutional safety are more likely to be met in practice.
Option 2: No specific action
APRA
3.26	Under this option current and emerging weaknesses in the regime would not be addressed.  This would potentially constrain APRA from effectively safeguarding the interests of policyholders in the future.
3.27	There would not be further harmonisation of the general insurance regime with that applied to other segments of the financial sector.  Australia’s supervisory regime would continue to be non-compliant with IAIS Core Principles and international best practice.
Insurers 
3.28	If this option were pursued, insurers would not be subject to any change in compliance arrangements.  However, insurers would not be encouraged to upgrade their risk measurement and management.  In addition, insurers that currently manage their risks effectively would not realise the lower compliance costs that may result from the introduction of the modernised regime.  Insurers would also continue to be restricted from utilising innovative capital instruments in meeting minimum capital adequacy requirements.
Policyholders
3.29	Policyholders would not benefit from improved security in the supervisory arrangements under this option.
Option 3: Modernise the approach to prudential regulation under the Insurance Act without inserting a standards making power into the Insurance Act
APRA
3.30	Under this option the Insurance Act would be modernised as set out in Option 1.  However, no standards making power would be inserted into the Insurance Act.
3.31	A disadvantage with this option is that the prudential supervisory regime will remain inflexible and incapable of responding to changes in market conditions.  Over time, it is likely that the Insurance Act would once again become out of date and APRA would be prevented from safeguarding the interests of policyholders in a timely and effective manner. 
3.32	Additionally, this option would be inconsistent with other legislation administered by APRA that contain a standards making power.  This option would constrain the continued harmonisation of supervisory powers across APRA.
Insurers
3.33	The impact of this option on insurers is similar to that under Option 1.  However, as it would not be possible for APRA to easily alter the prudential supervisory requirements to account for changing circumstances, the system may become inflexible and impose a burden on the industry.
Policyholders
3.34	Under this option the current prudential requirements will be reformed to better safeguard the interests of policyholders.  The disadvantage with this option, is that prudential requirements will remain relatively inflexible, and APRA will not have the power to effect appropriate changes to the regulatory framework to address inadequacies in the future.  As a result, the regulatory reforms made under this option would only protect the interests of policyholders in the short-term.
Consultation
3.35	A wide range of consultative processes have been undertaken over a long period of time with general insurers and industry bodies, including the Insurance Council of Australia and the Institute of Actuaries of Australia (IAA).  Consultative processes have included two IAA working group papers, followed by the release of three rounds of APRA Policy Discussion papers in September 1999, April 2000 and March 2001.  The Treasury also issued a discussion paper on the proposed form of this Bill in April for public comment.  These discussion papers set out the key aspects of the proposals for general insurance reform.  In addition, several drafts of the prudential standards on the valuation of insurance liabilities, reinsurance arrangements, risk management and capital adequacy and draft guidelines to be applied by APRA upon authorisation of an insurer, have been released for public comment.
3.36	As part of the development of the Capital Adequacy Standard, 53 insurers also participated in ‘road-testing’ the proposals using actual industry data.   This enabled general insurers to see how the new capital adequacy test would work applied against their own data and provided an opportunity to comment on draft prudential and statistical returns prepared by APRA for this process.  In light of the results of the ‘road test’, APRA re-calibrated the Standards and released revised draft standards and guidelines in March 2001 for further consultation.
3.37	Four industry seminars were hosted by APRA in March 1999, May 2000, September 2000 and May 2001, to consider the case and proposals for reform.  These seminars have allowed senior members of the general insurance industry, consulting firms and actuarial profession to voice their views directly to APRA.
3.38	Insurers have been generally positive towards the overarching objective to modernise the prudential supervisory requirements for the insurance industry and to give APRA a standards making power.  They have supported the move to increase the risk responsiveness of provisions under the Insurance Act.  There is no objection to the philosophy of incorporating principles of international best practice into the regulatory framework.
Conclusion and Recommended Option
Option 1 is the preferred option
3.39	Option 1 provides the most effective method to safeguard policyholder interests by shifting the focus to a risk responsive regulatory framework that requires insurers to establish adequate provisions for the risk of insurance business underwritten.  This move to a risk responsive regime would bring the Insurance Act into line with international best practice and substantially upgrade Australia’s compliance with IAIS Core Principles.
3.40	Option 1 grants APRA the power to make standards dealing with prudential matters.  This power will provide APRA with increased flexibility to develop and maintain a robust regulatory regime for general insurers.  It facilitates the continued harmonisation of the prudential supervisory requirements across all regulated financial institutions.  The standards would also be disallowable instruments and subject to Parliamentary scrutiny.
3.41	The mandatory stakeholder consultation process would assist in balancing the objectives of policyholder protection with maintaining the efficiency and competitiveness of the insurance industry.  It would also reduce the uncertainty for insurers in moving from a highly prescriptive to a more flexible regime.
3.42	It is proposed that the Insurance Act be amended to incorporate the proposals for general insurance reform identified in Option 1.
Implementation and Review
3.43	To facilitate the introduction of the new regime, it is proposed to provide for a two year transition period.  If all necessary legislative amendments were in place by the end of this year, it is proposed the new arrangements would commence on 1 July 2002.  All transitional arrangements would be phased out by 1 July 2004.
3.44	APRA would assess the adequacy of the prudential supervisory requirements under the Insurance Act on an ongoing basis, to ensure that they effectively address the risk profiles of insurers.

4	
Proposed legislation
Part 1 — Preliminary
Section 1 — Short title
4.1	Upon enactment, the Bill would be known as the General Insurance Reform Act 2001.
Section 2 — Commencement
4.2	This section provides for the commencement of the Bill on Royal Assent.  Schedule 1, which contains the substantive amendments to the Insurance Act, and Schedule 3, which contains the consequential amendments to the Insurance Act, would commence on 1 July 2002.  Schedule 2 contains the transitional provisions which commence on Royal Assent, but will be determined by APRA to commence at a particular date(s).
Section 3 — Schedule(s)
4.3	This section states that each Act specified in a Schedule to this Act is amended or repealed as set out in the relevant item in the Schedule.  Any other item in a Schedule to this Act likewise has effect according to its terms.  These Schedules are:
Schedule 1 — Amendment of the Insurance Act 1973
Schedule 2 — Transitional provisions
Schedule 3 — Consequential amendment of other Acts

5	
Schedule 1 — Amendment of the Insurance Act 1973
Clause 1 — After section 2
5.1	This clause inserts an object section into the Insurance Act.  It states that the purpose of the Insurance Act will be to protect the interests of policyholders.  This should be done in a manner consistent with the continued development of a viable, competitive and innovative general insurance industry.
5.2	Policyholders will be protected by placing restrictions on who can carry on insurance business, prudential supervision by APRA, imposing requirements on general insurers to promote prudential management and imposing primary responsibility for maintaining this protection with the directors and senior management of general insurers.
Clauses 2 to 17 — Interpretation
5.3	The Bill inserts several new definitions into section 3, and repeals certain definitions no longer relevant to the Insurance Act.
•	The amendments to the Insurance Act make a number of definitions in the current Insurance Act redundant.  For instance, most of the prudential requirements that general insurers must meet will be contained within the prudential standards.  This means that a number of technical definitions are repealed from the Insurance Act.  These include floating charge, outstanding claims provision, and premium.  Other definitions to be repealed include the definition of an actuary, bank or banker and supervised body corporate.
•	A definition of foreign general insurer will be inserted to improve the clarity of the Insurance Act.  It is defined to mean a foreign corporation within the meaning of section 51(xx) of the Constitution who is authorised to carry on insurance business in a foreign country.
•	A definition of general insurer will be inserted to improve the clarity of the Insurance Act.  It means an insurer within the meaning of section 11.  The definition includes a foreign general insurer.
•	A definition of non-operating holding company (NOHC) will be inserted.  A body corporate (the first body corporate) is a NOHC in relation to another body corporate (the second body corporate) if the second body corporate is a subsidiary of the first body corporate, and the first body corporate undertakes no business other than the ownership or control of other body corporates.
•	A definition of authorised NOHC will be inserted.  It means a body corporate, authorised under section 18, who is a NOHC of one or more general insurers.
•	A definition of NOHC authorisation will be inserted.  Its meaning is given by section 18. 
•	A definition of prudential matters will be inserted.  It means matters concerning a general insurer, authorised NOHC or the subsidiary of a general insurer or NOHC that relate to the conduct of the above mentioned entities in terms of maintaining themselves in a sound financial position, or not causing or promoting instability in the Australian financial system, or conducting their affairs with integrity, prudence and professional skill.
•	A definition of prudential standard will be inserted.  It means a standard determined by APRA under section 32.
•	A definition of senior manager will be inserted.  It defines a senior manager in terms of a general insurer as a person who has or exercises senior manager responsibilities.  These responsibilities will be set out in the prudential standards.
•	A definition of subsidiary will be inserted.  Its meaning is given by an amendment to the current section 4 of the Insurance Act.
5.4	Clause 17 indicates that a reference in the Bill to a general insurer having no liabilities in respect of insurance business carried on by it in Australia includes a reference to a general insurer who has assigned, other than by an equitable assignment, all of its interests (including rights and benefits) under all contracts of insurance in respect of insurance business carried on by it in Australia to another general insurer.
Clause 18 — Section 3A
5.5	This clause repeals section 3A.  Section 3A outlines the eligibility criteria for appointing an independent actuary to investigate all or part of an insurer’s liabilities under the current section 48A of the Insurance Act.  A similar clause has been inserted by section 49G.
Clause 19 — Section 4
5.6	Section 4 of the Insurance Act is amended to define a subsidiary for the purposes of the Insurance Act.  This clause amends this provision to make it clear it applies to subsidiaries.  The heading is replaced by a new heading to reflect this change.
Clause 20 — Subsections 5(2) to (4)
5.7	This clause repeals subsections 5(2) to (4) of the Insurance Act and inserts a new subsection 5(2). This clause will allow APRA to prescribe exceptions to the ambit of the amended Insurance Act by regulation.  The inclusion of this provision is to ensure the Insurance Act continues to remain up to date over time.  Currently, such exemptions are listed in subsections 5(2) to (4) of the Insurance Act and contain many out of date references.  It also states that insurance business carried on by the Commonwealth (and Territories) is not covered by the Insurance Act.
Clause 21 — Sections 6 and 7
5.8	This clause repeals section 6 and 7 of the Insurance Act and inserts three new items. 
5.9	The first item inserts a new section 6 into the Insurance Act, which extends the Bill to external Territories, to make it clear that the provisions of this Bill extend to all Territories.
5.10	The second item inserts a new section 7 into the Insurance Act, which is designed to grant APRA the power to determine, by order published in the Gazette, that all or specified provisions in the Insurance Act do not apply to a person, while the determination is in force.  A determination may apply to a particular person or class of persons. It may specify the period during which the determination is in force. A determination may also be made subject to specific conditions.  APRA may, by determination published in the Gazette, revoke a determination under this section.  This clause will also allow APRA to regulate those general insurers that currently fall under section 37 of the current Insurance Act.
5.11	The third item inserts a new section 7A into the Insurance Act, which makes it clear that it is an offence to do or fail to do an act which results in a breach of a condition under section 7.  The offence carries a maximum penalty of 60 penalty units.  It is an offence of strict liability and the Criminal Code will apply.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty of 60 penalty units.  APRA may issue a notice under clause 68 (section 128A) if it considers the person has continued to breach this section.  This ensures that if a breach is occurring, it is an offence from the day the notice is received and for each subsequent day the breach continues.  A penalty accrues for each day of the offence.
Clause 22 — Part III
5.12	This clause repeals the current Part III of the Insurance Act which contains the authorisation provisions.  It is replaced by Part III — Authorisation to carry on insurance business, which contains new sections from 9 through to 31.
Part III Division 1 — Need to be authorised
Section 9 — Persons other than bodies corporate and Lloyd’s underwriters carrying on insurance business
5.13	This new section makes it clear that a person commits an offence if they carry on insurance business in Australia and they are not a body corporate or a Lloyd’s underwriter, and there is no determination under section 7 that this clause does not apply to them.  The offence carries a maximum penalty of 60 penalty units.  It is an offence of strict liability and the Criminal Code will apply.  APRA may issue a notice under clause 68 (section 128A) if it considers the person has continued to breach this section.  This ensures that if a breach is occurring, it is an offence from the day the notice is received and for each subsequent day the breach continues.  A penalty accrues for each day of the offence.
Section 10 — Bodies corporate and Lloyd’s underwriters carrying on insurance business
5.14	This new section makes it clear that a body corporate or Lloyd’s underwriter commits an offence if they carry on insurance business in Australia and they are not authorised under the Insurance Act to do so, unless there is a determination under section 7 that this section does not apply to them.  The offence carries a maximum penalty of 60 penalty units.  It is an offence of strict liability and the Criminal Code will apply.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty of 60 penalty units.  APRA may issue a notice under clause 68 (section 128A) if it considers the person has continued to breach this section.  This ensures that if a breach is occurring, it is an offence from the day the notice is received and for each subsequent day the breach continues.  A penalty accrues for each day of the offence.
Section 11 — Meaning of general insurer
5.15	This new section indicates that all references to a general insurer in the Insurance Act mean a body corporate authorised under section 12 to carry on insurance business.  It also includes foreign general insurers (that is, branches of foreign general insurers).
Part III Division 2 — Authorisation to carry on insurance business
Section 12 — Obtaining an authorisation
5.16	This new section provides for a body corporate to apply in writing to APRA for an authorisation to carry on insurance business in Australia.  This application must be in a form approved by APRA.  APRA may authorise the application.  If APRA does so, it must inform the applicant in writing and publish a notice of the authorisation in the Gazette. 
5.17	The section also grants APRA the right to refuse an application.  Without limiting the circumstances in which APRA may refuse an application, it may do so if the applicant is a subsidiary of a NOHC that is not authorised under the Insurance Act.  A NOHC can be authorised under the Insurance Act in section 18.  A decision by APRA under this section is subject to review by the AAT.
Section 13 — Conditions on an authorisation
5.18	This new section provides APRA with the power to impose conditions or additional conditions, by written notice, on any authorisation it grants under section 12.  It also enables APRA to vary or revoke those conditions. These conditions must relate to prudential matters and any time APRA imposes, varies or revokes a condition, it must provide the insurer with a written notice and publish the action in the Gazette.  Failure to do so will not make the condition invalid.  If there is any contradiction between the conditions and prudential standards, the conditions have precedence.
5.19	If the general insurer is a subsidiary of a NOHC, APRA may also, under this clause, make an authorisation conditional on the NOHC being an authorised NOHC.  Division 4 of the Insurance Act provides a mechanism for a NOHC to become authorised.
Section 14 — Breach of authorisation conditions
5.20	This new section makes it clear it is an offence for a general insurer to do or fail to do an act which results in a contravention of a condition under section 13 unless there is a determination under section 7 that this section does not apply to them.  The offence carries a maximum penalty of 60 penalty units.  It is an offence of strict liability and the Criminal Code will apply.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty of 60 penalty units.  APRA may issue a notice under clause 68 (section 128A) if it considers the person has continued to breach this section.  This ensures that if a breach is occurring, it is an offence from the day the notice is received and for each subsequent day the breach continues.  A penalty accrues for each day of the offence.
Part III Division 3 — Revocation of an authorisation
Section 15 — When APRA may revoke an authorisation
5.21	This new section outlines when APRA may, with the Treasurer’s written agreement, revoke an authorisation.  APRA must be satisfied that the general insurer has no Australian liabilities in respect of its insurance business.  If this condition is met, the clause lists a number of possible trigger events that would allow APRA to revoke a general insurer’s authorisation.  These are that:
•	the insurer has failed to comply with:
-	a requirement of the Insurance Act (including the requirement to comply with the prudential standards), an instrument made for the purposes of the Insurance Act, or the Financial Sector (Collection of Data) Act 2001;
-	a direction to the insurer under the Insurance Act;
-	a condition of the insurer's authorisation;
•	it would be contrary to the national interest for the authorisation to remain in force;
•	the insurer has failed to pay;
-	an amount of levy or late penalty to which the Financial Institutions Supervisory Levies Collection Act 1998 applies; 
-	an amount of charge fixed under section 51 of the Australian Prudential Regulation Authority Act 1998; 
•	the insurer is insolvent or has inadequate capital and is unlikely to return to solvency or to have adequate capital within a reasonable period of time; or
•	the insurer has ceased to carry on insurance business in Australia.
5.22	APRA must provide written notice to the general insurer advising it is considering revoking the general insurer’s authorisation and the reasons why.  It must then provide the general insurer with at least 90 days to make submissions in relation to this notice.  The purpose of this is to provide natural justice to the general insurer.  However, APRA may, with the Treasurer’s written agreement, waive the 90 day period if it considers the time delay would be against the national interest.  If an authorisation is revoked, APRA must notify the general insurer in writing and publish a cause notice of the revocation in the Gazette, although the failure to do so does not make the revocation invalid.
Section 16 — When APRA must revoke a general insurer’s authorisation
5.23	This new section outlines when APRA must revoke a general insurer’s authorisation.  If a general insurer requests a revocation, and APRA is satisfied that the general insurer has no Australian liabilities in respect of insurance business and revoking the license would not be against the national interest, APRA must revoke the authorisation. If an authorisation is revoked, APRA must notify the general insurer in writing and publish a show cause notice of the revocation in the Gazette, although the failure to do so does not make the revocation invalid.
Section 17 — Assignment of liabilities to enable revocation
5.24	This new section allows APRA to direct a general insurer to assign its liabilities (which may include the assignment of any connected rights or benefits) in respect of insurance business, if APRA considers that it would revoke the general insurer’s authorisation under section 15 if the general insurer had no such liabilities.  This assignment must be to another general insurer or insurers and within the time specified in the direction.  The general insurer assigning its liabilities must also ask APRA to approve the proposed assignment.  This section also allows a general insurer to assign its liabilities to another general insurer for the purposes of obtaining a revocation under section 16.  The general insurer assigning its liabilities must also ask APRA to approve the proposed assignment.  An assignment under this section has no effect unless it is approved by APRA.
5.25	APRA may only approve a proposed assignment after it is satisfied that the assignment is in the interests of the policyholders of the assigning general insurer and the policyholders of the general insurer, or insurers, to whom the liabilities are being assigned, in the national interest or any other matter APRA considers relevant.  The approval must be in writing and may be made subject to specified conditions.  The general insurer must comply with the conditions of the approval, as well as provide APRA with written evidence of the assignment occurring.  It must also give reasonable notice in writing of the assignment to its policyholders.
5.26	A direction under subsection (1) of this section takes effect regardless of the requirements of the Insurance Acquisitions and Takeovers Act 1991.
Part III Division 4 — Authorisation to be a NOHC of a general insurer
Section 18 — Authorisation to be a NOHC
5.27	This new section provides for a body corporate to apply in writing to APRA to become an authorised NOHC.  Note 1 to subsection 18(1) states that a body corporate may wish to gain such an authority because APRA may refuse to grant a subsidiary of the body corporate an authorisation under subsection 12(3).  If APRA authorises an applicant it must inform the applicant in writing and publish a notice of the authorisation in the Gazette.
5.28	The purpose of granting APRA the power to authorise a NOHC is to enhance APRA’s abilities to prudentially regulate a general insurer by extending its authorisation powers to cover other entities within the corporate group that the general insurer may belong to.  This allows APRA to impose conditions on authorised NOHCs, as well as apply prudential standards under section 32.  This power to authorise NOHCs can be applied by APRA on a discretionary basis.  A decision by APRA under this section is subject to review by the AAT.
Section 19 — Conditions on a NOHC authorisation
5.29	This new section provides APRA with the power to impose conditions or additional conditions, or vary or revoke conditions, by written notice, on any NOHC authorisation it grants.  These conditions must relate to prudential matters and any time APRA imposes, varies or revokes a condition, it must provide the NOHC with a written notice and publish the action in the Gazette, although the failure to do so does not make the condition invalid.
Section 20 — Breach of conditions on a NOHC authorisation
5.30	This new section makes it clear it is an offence for an authorised NOHC to breach a condition under section 19 unless there is a determination under section 7 that this section does not apply to them.  The offence carries a maximum penalty of 60 penalty units.  It is an offence of strict liability and the Criminal Code will apply.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty of 60 penalty units.  APRA may issue a notice under clause 68 (section 128A) if it considers the person has continued to breach this section.  This ensures that if a breach is occurring, it is an offence from the day the notice is received and for each subsequent day the breach continues.  A penalty accrues for each day of the offence.
Section 21 — When APRA may revoke a NOHC authorisation
5.31	This new section outlines when APRA may, with the Treasurer’s written agreement, revoke a body corporate's NOHC authorisation. The section lists a number of possible trigger events that would allow APRA to revoke a body corporate’s NOHC authority.  These are:
•	the body corporate has failed to comply with:
-	a requirement of the Insurance Act (including the requirement to comply with the prudential standards), an instrument made for the purposes of the Insurance Act, or the Financial Sector (Collection of Data) Act 2001;
-	a direction under the Insurance Act;
-	a condition of the authorisation;
•	it would be contrary to the national interest for the authorisation to remain in force;
•	the body corporate has failed to pay;
-	an amount of levy or late penalty to which the Financial Institutions Supervisory Levies Collection Act 1998 applies; or
-	an amount of charge fixed under section 51 of the Australian Prudential Regulation Authority Act 1998; 
•	it would be contrary to the interests of policyholders of any general insurer who is a subsidiary of the body corporate for the authorisation to remain in force; or
•	the body corporate has ceased to be a NOHC of any general insurer.
5.32	APRA must provide written notice to the general insurer advising it is considering revoking the general insurer’s authorisation and the reasons why.  It must then provide the body corporate with at least 90 days to make submissions in relation to this notice.  The purpose of this is to provide natural justice.  However, APRA may, with the Treasurer’s written agreement, waive this right if APRA considers the time delay would be against the national interest or contrary to the interests of policyholders of any general insurer who is a subsidiary of the body corporate concerned.  If an authorisation is revoked, APRA must notify the body corporate in writing and publish a cause notice of the revocation in the Gazette, although the failure to do so does not make the revocation invalid.
Section 22 — When APRA must revoke a NOHC authorisation
5.33	This new section outlines when APRA must revoke a body corporate’s NOHC authorisation.  If a revocation is requested by an authorised NOHC, and APRA is satisfied that revoking the license would not be against the national interest or contrary to the interests of policyholders of any general insurer who is a subsidiary of the body corporate concerned, APRA must revoke the authorisation. If an authorisation is revoked, APRA must notify the body corporate in writing and publish a cause notice of the revocation in the Gazette, although the failure to do so does not make the revocation invalid.
Section 23 — Publication of list of authorised NOHCs
5.34	This new section allows APRA to publish, at whichever time it thinks necessary, a list of authorised NOHCs.  It may publish this in the Gazette or any other form it thinks appropriate.
Part III Division 5 — Directors, senior managers and other representatives of general insurers and authorised NOHCs
Section 24 — Disqualified persons must not act for general insurers or authorised NOHCs
5.35	Subsection 24(1) makes it clear it is an offence for a disqualified person to be or act in certain positions.  These positions are stated in the subclause as: 
•	a director or senior manager of a general insurer (other than a foreign general insurer); 
•	a director or senior manager of an authorised NOHC;
•	a senior manager of a foreign general insurer; or
•	a foreign general insurer's agent in Australia for the purpose of section 118.
5.36	Subsection 24(2) makes this an offence with a fault element.  The maximum penalty for this offence is two years imprisonment.  
5.37	Subsection 24(3) provides for a strict liability offence of 60 penalty units.
5.38	Subsection 24(4) makes it clear that it is an offence for a general insurer, foreign general insurer, or NOHC to permit a disqualified person to be or act in certain prescribed positions.  Under subsection 24(5) this offence is a fault offence with a maximum penalty of 250 penalty units. 
5.39	Subsection 24(6) makes this offence one of strict liability with a penalty of 60 penalty units.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty.
5.40	Subsection 24(7) outlines valid defences for a defendant being prosecuted under subsection 24(5).
Section 25 — Who is a disqualified person?
5.41	This new section outlines who a disqualified person is for the purposes of the Insurance Act. A person is a disqualified person if, at any time: 
•	the person has been convicted of an offence against or arising out of:
-	the Insurance Act or the Financial Sector (Collection of Data) Act 2001;
-	a law in force in Australia, or the law of a foreign country, if the offence concerns conduct relating to a financial sector company within the meaning of the Financial Sector (Shareholdings) Act 1998 or dishonest conduct; 
•	the person has been or becomes a bankrupt; 
•	the person has applied to take the benefit of a law for the relief of bankrupt or insolvent debtors; or
•	the person has compounded with his or her creditors.
5.42	Subsection 25(2) ensures any of the above references includes a reference to a person of whom an order has been made relating to an offence under section 19B of the Crimes Act 1914 or a corresponding provision of a law of a State, a Territory or a foreign country.
5.43	Subsection 25(3) notes that nothing in section 25 affects the operation of Part VIIC of the Crimes Act 1914.
Section 26 — APRA may determine that a person is not a disqualified person
5.44	This new section allows APRA to determine a person is not a disqualified person.  APRA may only do this if it satisfied that the person is highly unlikely to be a prudential risk to a general insurer, foreign general insurer or NOHC.  The purpose of this power is that it provides limited flexibility in applying fit and proper tests.  For instance, an otherwise suitably qualified person may only be disqualified due to a juvenile conviction.  In such cases, APRA may wish to waive the disqualification, subject to the person posing no prudential risk.  APRA’s decision is subject to review by the AAT.
Section 27 — APRA may remove a director or senior manager of a general insurer or authorised NOHC
5.45	This new section allows APRA to remove certain prescribed persons if it is satisfied the persons are either a disqualified person or they do not meet one or more of the criteria for fitness and propriety set out in the prudential standards. This section gives effect to principles of natural justice, by requiring that before making such a direction, APRA must give both the person and the general insurer, foreign general insurer or NOHC concerned a written notice and a reasonable opportunity to make submissions on the matter. APRA’s decision is subject to review by the AAT.
Part III Division 6 — Other matters
Section 28 — General insurer must hold sufficient assets
5.46	This new section makes it an offence for a general insurer not to hold assets in Australia (excluding goodwill and any other amount excluded by the prudential standards for the purposes of this section) of a value that is equal to or greater than the total amount of its liabilities in Australia, unless APRA has authorised an insurer to hold assets of a lesser value or this is a determination under section 7  that this section does not apply to them.  The offence carries a maximum penalty of 200 penalty units and the Criminal Code will apply.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty of 200 penalty units.  APRA may issue a notice under clause 68 (section 128A) if it considers the person has continued to breach this section.  This ensures that if a breach is occurring, it is an offence from the day the notice is received and for each subsequent day the breach continues.  A penalty accrues for each day of the offence.
Section 29 — Change of name of a general insurer or authorised NOHC
5.47	This new section requires a general insurer who changes its name to place a notice advising when this change occurred and its old and new names, in a daily newspaper or newspapers circulating widely in each State or Territory in which it carries on insurance business.  APRA must, if it is satisfied that either a general insurer or authorised NOHC has changed its name, publish by notice this fact in the Gazette, regardless of whether a general insurer has placed a notice as required in this section.  This section also makes it clear that if such a notice is published in the Gazette stating a general insurer or authorised NOHC has changed its name, their authorisation under sections 12 or 18, as the case may be, continues to have effect under the new name.
Section 30 — General insurer or authorised NOHC ceasing to exist
5.48	This new section requires APRA to publish a notice in the Gazette if it is satisfied that a general insurer or authorised NOHC has ceased to exist.
5.49	Subsection 30(2) makes it clear that if such a notice is published in the Gazette stating a general insurer or authorised NOHC has ceased to exist, their authorisation is taken to be revoked.
Section 31 — Effect of authorisation as a general insurer
5.50	This new section makes it clear that authorisation under Part III only relates to the carrying on of insurance business.
Part IIIA — Prudential supervision and monitoring of general insurers, authorised NOHCs and their subsidiaries
Part IIIA Division 1 — The prudential standards
Section 32 — APRA may determine prudential standards
5.51	This new section gives APRA the power to determine prudential standards.  These prudential standards must be complied with by either all general insurers or all authorised NOHCs, or the subsidiaries of general insurers and authorised NOHCs, or a specified class of the above mentioned entities.
5.52	Subsection 32(2) provides that a prudential standard may impose different requirements to be complied with by different classes of entities, or in different situations, or in respect of different activities.
5.53	Subsection 32(3) makes it clear that APRA must have regard to good commercial practice and the burden that prudential standards would have on general insurers, authorised NOHCs or the subsidiaries of general insurers or authorised NOHCs in making prudential standards.
5.54	The prudential standards will be disallowable instruments.
Section 33 — Requirement to consult beforehand
5.55	This new section helps ensure the prudential standards meet the requirements of subsection 32(3).  Before making or varying a prudential standard, APRA must consult with all the prescribed entities to which the prudential standard applies.  It is expected that this consultation process would take into account the requirement of subsection 32(3).
5.56	Subsection 33(3) allows APRA to not consult, with the written agreement of the Treasurer, in the event APRA is satisfied the delay caused by consulting would materially prejudice the interests of policyholders.  The purpose of this subsection is to ensure the requirements of this section do not act against the object of the Insurance Act, that is, the protection of policyholders.
5.57	Subsection 33(4) provides that APRA is also not required to consult if it is proposed to make variations to a prudential standard of a minor technical nature.  The Treasurer's agreement will not be required for these variations.  These variations should have no material impact on any entities to which the prudential standards apply.
5.58	Subsection 33(5) makes it clear that a prudential standard is not invalid because APRA has failed to comply with this section.
Section 34 — Notification of prudential standards
5.59	This new section outlines the requirements for APRA to provide notification when a prudential standard is made, varied or revoked.
5.60	Subsection 34(1) provides that a notice must be published in the Gazette as soon as practicable after APRA makes, varies or revokes a prudential standard. 
5.61	Subsection 34(2) requires that the notice must specify whether APRA made, varied or revoked a prudential standard, and in the case of a prudential standard made or varied, summarises the purpose and effect of the standard or variation.
5.62	Subsection 34(3) provides that APRA must take reasonable steps to ensure that copies of the current text of prudential standards are available for inspection and purchase.  For instance, APRA may place the prudential standards on its Internet website.
5.63	Subsection 34(4) makes it clear that the failure of APRA to comply with this section does not make an action of making, varying or revoking a prudential standard invalid.
Section 35 — Obligation to comply with the prudential standards
5.64	This new section makes it clear a general insurer, authorised NOHC or the subsidiary of a general insurer or NOHC must comply with the all prudential standards that apply to it.
Part IIIA Division 2 — Direction to comply with the prudential standards
Section 36 — Power to make a direction
5.65	This new section allows APRA to make a direction for a general insurer, authorised NOHC or the subsidiary of a general insurer or authorised NOHC, to comply with all or part of a prudential standard if APRA is satisfied the insurer, NOHC or subsidiary has breached, or is likely to breach, the prudential standard in a way that is likely to give rise to a prudential risk.
5.66	Subsection 36(2) requires that an entity which receives a direction must comply with the direction, despite anything in its constitution or in any contract or arrangement to which it is a party.
5.67	Subsection 36(3) allows APRA to revoke a direction it no longer considers necessary or appropriate by giving notice to the insurer, authorised NOHC or subsidiary.
Section 37 — Offence for failing to comply with a direction
5.68	This new section makes it clear that it is an offence to fail to comply with a direction issued under section 36.  The maximum penalty is 60 penalty units.  It is an offence of strict liability and the Criminal Code will apply.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty of 60 penalty units.  APRA may issue a notice under clause 68 (section 128A) if it considers the person has continued to breach this section.  This ensures that if a breach is occurring, it is an offence from the day the notice is received and for each subsequent day the breach continues.  A penalty accrues for each day of the offence.
Part IIIA Division 3 — Monitoring of prudential matters
Section 38 — APRA to monitor prudential matters
5.69	This new section outlines the key prudential functions of APRA for the purposes of the Insurance Act. These include: 
•	collecting and analysing information in respect of prudential matters concerning general insurers, authorised NOHCs and the subsidiaries of either of these; 
•	encouraging and promoting the carrying out, by general insurers, authorised NOHCs and the subsidiaries of either of these, of sound practices in relation to prudential matters; and 
•	evaluating the effectiveness and carrying out of those practices.
Clause 23 — Part IV
5.70	This clause repeals the existing Part IV of the Insurance Act and inserts new provisions on requirements for auditors, actuaries and accounts. The existing provisions contained in Part IV which deal with accounts are being replaced by provisions which deal with requirements in relation to auditors and actuaries, as well as accounts. 
5.71	The new Part IV incorporates new sections 39 through to 49Q.
Part IV Division 1 — The auditor and actuary of a general insurer
Section 39 — Requirement for general insurers to have an auditor and actuary
5.72	Subsection 39(1) makes it clear that a general insurer must appoint an auditor and actuary. 
5.73	Subsection 39(2) provides that a general insurer has six weeks to appoint a new auditor or actuary when the current auditor or actuary ceases that role.
5.74	Subsection 39(3) provides that the person may only hold an appointment if APRA has approved the appointment and the approval is current.
5.75	Subsection 39(4) clarifies that an appointment of an auditor or actuary cannot take effect while another appointment to the same position is current.
Section 40 — Approval of an appointment of an auditor or actuary
5.76	Subsection 40(1) provides that a general insurer must request in writing APRA’s approval of the appointment of an actuary or auditor.
5.77	Subsection 40(2) specifies that APRA’s approval is dependant on its satisfaction that the nominee meets the eligibility criteria for appointment as set out in the prudential standards, and that no current determination under section 44 is in force disqualifying the nominee from holding such an appointment.
5.78	Subsections 40(3) and (4) give effect to principles of natural justice.  Subsection 40(3) requires APRA to give the insurer notice of its decision and reasons if APRA refuses to approve a person’s appointment.  Subsection 40(4) ensures decisions made by APRA under this section are subject to review by the AAT.
Section 41 — Compliance with prudential standards
5.79	This new section makes it clear that an appointed actuary or auditor must comply with the prudential standards relating to their duties or the exercise of their powers whilst performing those duties.
Section 42 — Revocation of approval
5.80	This new section provides for APRA to revoke in writing an approval granted under section 40, if APRA is satisfied the person has failed to adequately perform their functions and duties under the Insurance Act or prudential standards, or does not meet one or more of the criteria for fitness and propriety set out in the prudential standards.  
5.81	Subsections 42(3) and (4) give effect to principles of natural justice.  Subsection 40(3) requires APRA to give the insurer notice of its decision if APRA revokes a person’s appointment.  Subsection 42(4) ensures decisions made by APRA under this section are subject to review by the AAT.
Section 43 — When a person stops holding an appointment
5.82	This new section indicates circumstances when a person no longer holds an appointment as a general insurer’s auditor or actuary. These circumstances are:
•	a person no longer meets the eligibility criteria for such an appointment set out in the prudential standards;
•	the approval of the person's appointment is revoked under section 42;
•	a determination under section 44 takes effect disqualifying the person from holding such an appointment; or 
•	the person resigns or the insurer ends the appointment by way of written notice given to the insurer or person respectively.
Section 44 — Disqualification of a person as an auditor or actuary
5.83	Subsection 44(1) enables APRA to determine that a person is disqualified from holding an appointment as an actuary or auditor of a general insurer.
5.84	Subsection 44(2) provides that APRA can only make such a determination if the person has failed to perform adequately and properly their functions and duties under the Insurance Act or prudential standards, or that the person otherwise does not meet one or more of the criteria for fitness and propriety set out in the prudential standards.
5.85	Subsection 44(3) provides that the determination takes effect on the day specified in the direction, although this must be no more than 28 days after the determination is made.
5.86	Subsections 44(4) and (5) give effect to principles of natural justice.  Subsection 44(4) requires APRA to give a copy of the disqualification notice to the person and to any affected general insurer as soon as practicable after making the determination to disqualify the person.  Subsection 44(5) ensures decisions made by APRA under this section are subject to review by the AAT.
Section 45 — When a disqualification may be revoked
5.87	This new section provides APRA with the power to revoke a disqualification made under section 44.  This may either be on the initiative of APRA or on the application of the person disqualified.
5.88	Subsection 45(3) indicates that APRA must not revoke a determination disqualifying a person unless it is satisfied that the person:
•	is likely to carry out and perform adequately and properly the functions and duties of an appointed auditor or actuary under the Insurance Act and prudential standards; and
•	meets all of the criteria for fitness and propriety in the prudential standards.
5.89	Subsections 45(4), (5) and (6) give effect to principles of natural justice.  Subsection 45(4) requires APRA to give a copy of the revocation notice to the person as soon as practicable after the revocation occurs.  Subsection 45(5) requires APRA, if it refuses to revoke a determination, to provide a written notice, including the reasons for the refusal, to the person concerned.  Subsection 45(6) ensures decisions made by APRA under this section are subject to review by the AAT.
Section 46 — Notification of appointment as an auditor or actuary
5.90	This new section requires a general insurer to provide written notification to APRA on the appointment of an auditor or actuary within 14 days of the appointment. The general insurer must provide details of:
•	the person's name; 
•	details of qualifications and experience; 
•	the date of appointment; and
•	any other matters specified in the prudential standards.
5.91	Subsection 46(2) indicates that a general insurer must provide written notification to APRA of the ending of an appointment of an auditor or actuary within 14 days of that event, and must include the date the appointment ended.
Section 47 — Exemption from requirement to appoint actuary
5.92	This new section allows APRA to determine, in writing, that one or more general insurers are exempt from the requirement to appoint an actuary. It is expected that this would be done in cases where the total insurance liabilities of the general insurer at the last reporting date were less than $20 million and any amount in respect of long-tail class of business is not material relative to the total insurance liabilities of the general insurer.  However, this is not a general rule and APRA will evaluate each exemption on a case by case basis.
5.93	The prudential standards may also allow a class of general insurers to be exempt from this requirement.  It is expected that the criteria for allowing such an exemption would be based on the small size and low risk nature of the insurance business undertaken by the exempted class of general insurers.  In such cases an actuary may add little to improving the prudential regulation for these general insurers.
Section 48 — Referring matters to the professional associations for approved auditors and actuaries
5.94	This new section provides that if APRA has revoked a person’s appointment under section 42, or made a determination under section 44, APRA may refer details of that matter to the relevant professional association, or the Companies Auditors and Liquidators Disciplinary Board.  APRA must give written notice to the person concerned at the same time that the referral is made.
Part IV Division 2 — Provision of information to APRA
5.95	This Division assumes that all references to current or former auditors and actuaries are referring to natural persons.
Section 49 — Duty of auditors and actuaries to give information when required
5.96	This new section places a requirement on a person who is or was an auditor or actuary of a general insurer (whether or not they were appointed under section 39), authorised NOHC, or a subsidiary of a general insurer or authorised NOHC, to provide information to APRA on matters pertaining to these entities, if APRA considers that the information will assist APRA in performing its functions under the Insurance Act.
5.97	Subsection 49(2) states that the person must comply with the notice and in so doing, must not provide APRA with false or misleading information.
5.98	 Subsections 49(3) and (4) make it clear a person commits an offence when they contravene subsection 49(2).  They provide for a two-tier offence regime.  The purpose of this is to put in place the toughest penalties that can apply to a natural person under Government guidelines, to reflect the at times extremely serious nature of failing to perform these duties.
5.99	Subsection 49(3) requires proof of fault and carries a maximum penalty of imprisonment for 6 months and/or 100 penalty units.
5.100	Subsection 49(4) is an offence of strict liability and carries a maximum penalty of 60 penalty units.  
5.101	The maximum penalty for fault liability provides for imprisonment as well as or as an alternative to penalty units. This is because actuaries and auditors deal with large sums of money on a regular basis, and a monetary penalty alone may be insufficient to deter those parties from engaging in a prohibited activity.
Section 49A — Additional duty of auditors and actuaries to give information
5.102	This new section places a further requirement on a person who is or was an auditor or actuary of a general insurer (whether or not they were appointed under section 39), authorised NOHC, or a subsidiary of a general insurer or authorised NOHC, to whistleblow to APRA if the person has reasonable grounds for believing certain events have taken place.  The events are stated in subsection 49A(2), and include:
•	the insurer, NOHC or subsidiary is insolvent, or there is a significant risk that it will become insolvent;
•	the insurer, NOHC or subsidiary has failed to comply with the prudential standards or a condition of its authorisation;
•	the insurer, NOHC or subsidiary has failed to comply with a requirement or direction under the Insurance Act or a requirement under the Financial Sector (Collection of Data) Act 2001;
•	an existing or proposed state of affairs may materially prejudice the interests of:
-	in the case of an auditor or actuary of a general insurer or of a subsidiary of a general insurer - the insurer's policyholders; or
-	in the case of an auditor or actuary of an authorised NOHC or of a subsidiary of an authorised NOHC - the policyholders of any general insurer who is a subsidiary of the NOHC.
5.103	This section applies unless a determination is in force under section 7 that this section does not apply to that person.
5.104	Subsections 49(3) and (4) make it clear a person commits an offence when they contravene subsection 49(2). They provide for a two-tier offence regime.  The purpose of this is to put in place the toughest penalties that can apply to a natural person under Government guidelines, to reflect the at times extremely serious nature of failing to perform these duties.
5.105	Subsection 49A(3) requires proof of fault and carries a maximum penalty of imprisonment for 6 months and/or 100 penalty units.
5.106	Subsection 49A(4) is an offence of strict liability and carries a maximum penalty of 60 penalty units.
Section 49B — Auditor or actuary may give information to APRA
5.107	This new section allows a person who is or was an auditor or actuary of a general insurer, authorised NOHC, or a subsidiary of a general insurer or authorised NOHC, to provide information to APRA, if they think that the information will assist APRA in performing its duties under the Insurance Act or the Financial Sector (Collection of Data) Act 2001.
Section 49C — Indemnity
5.108	This new section makes it clear that if person gives information to APRA in accordance with this Division, and does so in good faith and without negligence, then the person is not subject to any action, claim or demand by, or any liability to, any other person in relation to that information. 
Section 49D — Self incrimination
5.109	This new section makes it clear that qualified privilege is conferred on those persons providing information to APRA under sections 49 or 49A.
Part IV Division 3 — Investigation by an independent actuary
Section 49E — Actuarial investigation of liabilities
5.110	This new section allows APRA to give a written notice to a general insurer requiring them to appoint an actuary (who cannot be an officer of the general insurer as defined in the Corporations Act 2001, or the actuary appointed in accordance with section 39) to investigate all or a portion of a general insurer’s liabilities.  The actuary must provide a written report containing a statement of the actuary’s opinion about a number of issues outlined in subsection 49E(7).  The actuary must sign off this statement.  The section also makes it clear that the investigation will be undertaken at the general insurer’s expense.
5.111	Subsection 49E(6) states that the general insurer must provide a copy of the written report to APRA within 30 days or at such time as determined by APRA.  Section 49H allows the general insurer to request APRA reconsider a decision made under this subsection.  
Section 49F — Offence for contravening section 49E
5.112	This new section makes it clear that a general insurer commits an offence if it contravenes subsection 49E(1).  The offence carries a penalty of 100 penalty units.
5.113	Subsection 49F(2) makes this an offence of strict liability and the maximum penalty is 60 penalty units.
5.114	Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of an offence under this section a fine of up to five times the stated maximum penalty.
Section 49G — Who can be appointed as a section 49E actuary
5.115	This new section outlines eligibility criteria for who can be appointed as an actuary under section 49G.  These criteria include that the person is ordinarily resident in Australia, and that either of the following applies: 
•	that the person is a Fellow of the Institute of Actuaries of Australia; or 
•	that APRA has approved in writing the person as an actuary for the purposes of investigating all or a specified part of a general insurer's liabilities under section 49E.
Section 49H — Delegate’s decision to extend time for providing actuary’s report
5.116	This new section allows a general insurer to request APRA reconsider a decision made under subsection 49E(6)(b).  The section outlines how the request should be made, the timeframe it must be made in, and the time in which APRA must consider the request.
Part IV Division 4 — Role of auditor and actuary of a general insurer
Section 49J — Auditor's role
5.117	Subsection 49J(1) specifies the role of an auditor appointed under section 39 by a general insurer.  The auditor is required to: 
•	audit the insurer's yearly statutory accounts;
•	perform the functions of an auditor set out in the prudential standards; and 
•	prepare any reports required by the prudential standards to be prepared by the auditor.
5.118	 Subsection 49J(2) requires the general insurer to make arrangements to ensure that the auditor can perform this role.
5.119	Subsection 49J(3) requires the auditor to give the general insurer a certificate relating to the yearly statutory accounts. Prudential standards will require the certificate to deal with certain matters. The certificate must contain statements of the auditor's opinion on those matters.
5.120	Subsection 49J(4) specifies that the reports required by the prudential standards to be prepared by the auditor must deal with the matters required by the prudential standards to be prepared in the reports.
Section 49K — Actuary's role
5.121	Subsection 49K(1) specifies the role of an actuary appointed under section 39 by a general insurer. The actuary is required to: 
•	perform for the insurer the functions of an actuary set out in the prudential standards; and
•	prepare and give to the insurer any reports required by prudential standards to be prepared by the actuary.
5.122	Subsection 49K(2) requires the general insurer to make arrangements to ensure that the actuary can perform this role.
5.123	Subsection 49K(3) specifies that the reports required by the prudential standards to be prepared by the actuary must deal with the matters required by the prudential standards to be prepared in the reports.
Section 49L — Lodgment of auditor's certificate and actuary's reports
5.124	This new section makes it clear it is an offence for a general insurer to fail to lodge with APRA the auditor's certificate relating to the yearly statutory accounts required by section 49J, and any reports which the actuary is required by prudential standards to prepare required by section 49K.  The specific requirements for this lodgment can be found in the prudential standards.  This offence is one of strict liability and the maximum penalty is 60 penalty units.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty of 60 penalty units.
Part IV Division 5 — Accounts
Section 49M — Direction to provide amount for liabilities
5.125	This new section grants APRA the power, with the Treasurer’s written agreement, to give a written direction to a general insurer to make a provision in its accounts, of an amount either specified by APRA, or determined in a specified manner, for its liabilities.  The purpose of this power is to allow APRA to direct an insurer to alter its liability provisions if, for whatever reason, APRA deems it necessary that different provisions must be held to those determined under the prudential standards.  It may also be revoked, again with the Treasurer’s written agreement.  The general insurer must be provided with at least 21 days to provide the specified amount in its accounts.  This is in recognition of the possible commercial impact of such a direction.
Section 49N — Direction concerning value of assets
5.126	This new section grants APRA the power, with the Treasurer’s written agreement, to give a written direction to a general insurer to revalue its assets to an amount specified in the direction.  The purpose of this power is to allow APRA to direct an insurer to alter the value of its assets if, for whatever reason, APRA is not satisfied with the asset valuations made by the insurer under the prudential standards.  It may also be revoked, again with the Treasurer’s written agreement.
Section 49P — Failure to comply with directions
5.127	This new section makes it clear it is an offence to contravene a direction under section 49M or section 49N. The maximum penalty is 60 penalty units.  It is an offence of strict liability and the Criminal Code will apply.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty of 60 penalty units.  APRA may issue a notice under clause 68 (section 128A) if it considers the person has continued to breach this section.  This ensures that if a breach is occurring, it is an offence from the day the notice is received and for each subsequent day the breach continues.  A penalty accrues for each day of the offence.
Section 49Q — Keeping of accounting records
5.128	Subsection 49Q(1) makes it clear accounting records prescribed under the Insurance Act must be located in Australia and be either written in English, or in a form readily translatable into English.
5.129	Subsection 49Q(2) makes it clear it is an offence to contravene Subsection 49Q(1). The maximum penalty is 200 penalty units, and the Criminal Code will apply to this offence.  Under subsection 4B(3) of the Crimes Act 1914, a Court may fine a body corporate convicted of this offence a fine of up to five times the stated maximum penalty of 200 penalty units.
Clause 24 — Part IVA
5.130	This clause repeals the current Part IVA, which related to accounts of certain bodies that are related to bodies authorised to carry on insurance business.  Part IVA has been made redundant by the prudential standards.
Clause 25 — Subsection 50(1)(definition of affairs)
5.131	This amends the definition of affairs to update the reference to body corporate to specify one that is a general insurer, authorised NOHC or a subsidiary of either of those.
Clause 26 — Subsection 50(1)(definition of prescribed person)
5.132	This amends the definition of prescribed person to update the reference to body corporate to specify one that is a general insurer, authorised NOHC or a subsidiary of either of those, or a body corporate associated with the first mentioned body corporate.
Clause 27 — Subsection 50(1) (paragraph (b) of the definition of prescribed person)
5.133	This clause amends the definition of prescribed person in subsection 50(1) of the Insurance Act, to remove the word 'banker' from paragraph (b) of the definition.  This is because the requirement to maintain a principal banker within Australia is outdated and the requirement is being repealed by clause 64.
Clause 28 — Paragraph 50(2)(a)
5.134	This updates the reference ‘carries on insurance business’ to ‘is a general insurer or authorised NOHC.
Clause 29 — Subsection 50(3)
5.135	This repeals the redundant subsection 50(3) of the Insurance Act. This subsection related to Part IVA, which is repealed by clause 24.
Clause 30 — Subsection 51(1)
5.136	This clause amends this subsection to ensure it applies to general insurers and authorised NOHCs.
Clause 31 — Before paragraph 51(1)(a)
5.137	This clause ensures section 51 applies to authorised NOHCs by widening the list of concerns that might cause APRA to issue a notice under subsection 51(1).  This is because the liability concept does not apply to NOHCs.  Therefore this clause allows APRA to issue a notice if it believes a general insurer or authorised NOHC has contravened or failed to comply with a provision of the Insurance Act, or a condition or direction applicable to it under the Insurance Act.
Clause 32 — Subsection 51(2)
5.138	This clause makes it clear this subsection applies to subsidiaries.
Clause 33 — Paragraph 51(2)(c)
5.139	This clause makes it clear this paragraph applies to subsidiaries.
Clause 34 — Paragraph 51(2)(d)
5.140	This clause makes it clear this paragraph applies to subsidiaries.
Clause 35 — Subsection 51(3) and (4)
5.141	This clause repeals subsections 51(3) and (4) of the Insurance Act.  These are sunset clauses that were inserted into the Insurance Act by the Financial Laws Amendment Act 1997 (FLAA).  The FLAA removed the right to appeal to the AAT on certain prudential decisions made under the Insurance Act.  Instead, these were to be made with Ministerial consent, subject to a five year sunset clause pending a review of the operation of the non-reviewable decisions.  The purpose of making certain prudential decisions non-reviewable is to ensure APRA can react with the necessary independence and speed in the event of a financial crisis.
5.142	Since the enactment of the FLAA, the Government has changed its policy with respect to the reviewability of prudential decisions.  APRA has not received any adverse comments or complaints over the lack of administrative review since the enactment of the FLAA in 1997.
Clause 36 — Subsection 52(1)
5.143	This clause makes it clear this subsection applies to general insurers and authorised NOHCs.  A note to this clause states that the title of section 52 will change to ‘Investigation of general insurer, authorised NOHC or subsidiary’.
Clause 37 — Subsection 52(1A)
5.144	This clause makes it clear this subsection applies to subsidiaries.
Clause 38 — Subsection 52(1B)
5.145	This clause makes it clear this subsection applies to subsidiaries.
Clause 39 — Subsection 52(1B)
5.146	This clause makes it clear this subsection applies to subsidiaries.
Clause 40 — Subsection 54(1)
5.147	This clause makes it clear this subsection also applies to subsidiaries.
Clause 41 — Paragraph 54(1)(a)
5.148	This clause makes it clear this paragraph also applies to subsidiaries.
Clause 42 — Paragraph 60(2)(b)
5.149	This clause makes it clear this paragraph applies to the associates of general insurers and authorised NOHCs.
Clause 43 — Subparagraph 60(2)(c)(i)
5.150	This clause makes it clear this subparagraph applies to general insurers and authorised NOHCs.
Clause 44 — Subsection 62(1)
5.151	This clause makes it clear this subsection applies to general insurers and authorised NOHCs.
Clause 45 — Paragraph 62(1)(g)
5.152	This clause amends paragraph 62(1)(g) of the Insurance Act to take account of new terminology for liabilities.
Clause 46 — Paragraph 62(1A)(a)
5.153	This clause makes it clear this paragraph applies to subsidiaries.
Clause 47 — Subparagraph 62(1A)(b)(i)
5.154	This clause makes it clear this subparagraph applies to general insurers and authorised NOHCs.
Clause 48 — Subparagraph 62(1A)(b)(ii)
5.155	This clause makes it clear this subparagraph applies to subsidiaries.
Clause 49 — After subparagraph 62(1A)(b)(ii)
5.156	This clause makes it clear the text after subparagraph 62(1A)(b)(ii) applies to subsidiaries.
Clause 50 — Paragraphs 62(1A)(c) to (f)
5.157	This clause makes it clear these paragraphs apply to subsidiaries.
Clause 51 — Subsection 62(6)
5.158	This clause makes it clear this subsection applies to general insurers, authorised NOHCs or the subsidiary of a general insurer or authorised NOHC.
Clause 52 — Subsection 63(1) (definition of person affected by a reviewable decision of the Treasurer or APRA)
5.159	This clause substitutes a new definition of person affected by a reviewable decision of the Treasurer or APRA contained in subsection 63(1) of the Insurance Act due to new amendments to the Insurance Act and their effect on this provision.
Clause 53 — Section 94
5.160	This clause removes a redundant reference in section 94.  Part III of the current Insurance Act deals with authorisation to carry on insurance business. Part III is being repealed and replaced by a new Part, so new references to sections 9 and 10 are required.
Clause 54 — Section 99
5.161	This clause repeals section 99 of the Insurance Act and inserts a new section 99 that clarifies its intention in a more readable form.
Clause 55 — Section 102
5.162	This clause amends section 102 of the Insurance Act, by removing the reference to Part IV and inserting a reference to this Act. This is in order to clarify Parliament's intention, that the Insurance Act shall not apply to the exclusion of a law of the Commonwealth or of a State or Territory in so far as that law makes respect to accounts or accounting records of a body corporate. The title of this section is to be amended to make this clearer.
Clause 56 — Section 114
5.163	This clause repeals section 114 of the Insurance Act.  This section is redundant as the requirement to give notice of the events listed in this section will be included in the prudential standards.
Clause 57 — Subsections 115(1) and (2)
5.164	Section 115 of the Insurance Act deals with the power to require production of books. Clause 57 repeals subsections 115(1) and (2) and replaces them with two new subsections. 
5.165	The redrafted version of subsection 115(1) widens the meaning of body corporate to include general insurer, authorised NOHCs, or the subsidiary of a general insurer or NOHC. The purpose of this is to allow APRA to access information (books) from a specified related body corporate that could assist APRA in determining whether the body corporate authorised under the Insurance Act has breached the provisions of the Insurance Act. The provision also removes a reference to Part IVA which is repealed by clause 24.  Part IVA dealt with accounts of certain bodies that are related to bodies authorised to carry on insurance business. 
5.166	The redrafted version of section 115(2) repeals redundant terminology in subsection 115(2) of the Insurance Act, such as subsection 37(1).  Section 37 of the current Insurance Act is being repealed.  This allows APRA to exempt a limited class of body corporates from provisions in the Insurance Act.  General insurers that had an exemption under subsection 37(1) will be exempted under the new section 7.
Clause 58 — Subsection 115A(1)
5.167	This clause removes a reference to Part IVA of the Insurance Act which is repealed by clause 24.  It also widens the meaning of body corporate for the purposes of subsection 115A(1) of the Insurance Act to include the terms general insurer, authorised NOHC, or the subsidiary of a general insurer or NOHC. This section allows APRA to access the premises of those related body corporates specified in the section to ascertain whether a body corporate authorised under the Insurance Act has breached the provisions of the Insurance Act.  This is in order to search for, inspect, take extracts of, or copies of, any book of the body corporate.  Access must be with the consent of the body corporate.
Clause 59 — Paragraph 115A(2)(a)
5.168	The purpose of this clause is to make paragraph 115A(2)(a) of the Insurance Act consistent with clause 24.  It removes a redundant reference to Part IVA and makes it clear the subsection applies to a general insurer, authorised NOHC or the subsidiary of a general insurer or authorised NOHC.
Clause 60 — Section 116
5.169	This clause repeals the current section 116 of the Insurance Act and inserts a remodelled section 116 and a new section, 116A. Section 116 prohibited a body corporate authorised under the Insurance Act to carry on insurance business from carrying on that insurance business after commencement of the winding up of that body.  The clause specifies that in the winding up, the insurer’s assets in Australia must not be applied in the discharge of its liabilities other than its liabilities in Australia, unless it has no liabilities in Australia.  
5.170	Section 116A ensures that assets and liabilities in Australia include, for the purposes of sections 116 and 28 (General insurer must hold sufficient assets), the assets and liabilities defined in this section.
•	Nothing in section 116A excludes other assets and liabilities of a general insurer for the purposes of sections 116 and 28 if, under common law, they would be an Australian asset or liability.  Section 28 prescribes certain Australian assets (see clause 22, section 28).
5.171	An amount is taken to be an asset in Australia of the general insurer if all of the following three conditions are met:
•	the insurer expects to recover the amount under a contract of reinsurance entered into with a person who is outside Australia;
•	the amount relates to claims in respect of liabilities in Australia of the insurer, whether or not the claims have been paid by the insurer; and
•	under the terms of the contract, payments by way of reinsurance are to be made in Australia.
5.172	A liability is taken to be a liability in Australia if it is undertaken by the insurer under a contract of insurance (including reinsurance):
•	made in Australia or in respect of which a proposal was accepted or a policy issued in Australia, other than a contract:
-	that relates only to a liability contingent on an event that can happen outside Australia (not being a liability that the body corporate has undertaken to satisfy in Australia); or
-	if the insurer carries on insurance business both in and outside Australia that relates only to a liability that the insurer has undertaken to satisfy outside Australia; or
•	made outside Australia, or in respect of which a proposal was accepted or a policy issued outside Australia, if the contract:
-	relates to a liability contingent on an event that can happen only in Australia; or 
-	if the insurer carries on insurance business both in and outside Australia relates to a liability that the insurer has undertaken to satisfy in Australia; 
and any part of the arrangements leading to the making of the contract, the acceptance of the proposal or the issue of the policy took place or were made in Australia.
Clause 61 — Section 117
5.173	This clause simplifies section 117 of the Insurance Act.  Section 117 establishes requirements for a body corporate that is not incorporated in Australia and is authorised under the Insurance Act to carry on insurance business, or is connected to such a body corporate, to have an address for service in Australia.  It improves the readability of the provision and removes the redundant reference to Part IVA.
Clause 62 — Section 117A
5.174	This clause repeals section 117A of the Insurance Act.  Section 117A deals with disqualified persons holding certain positions in a body corporate.  Section 117A is made redundant by the fit and proper provisions contained in Part III Division 5 of the Bill.
Clause 63 — Subsection 118(1)
5.175	This clause replaces the current subsection 118(1) of the Insurance Act.  It makes it clear that foreign general insurers and their subsidiaries must have an individual resident in Australia appointed as their agent for the purposes of the Insurance Act.
Clause 64 — Section 119
5.176	This clause repeals section 119 of the Insurance Act.  Section 119 requires a body corporate to use particular financial institutions as its principal banker.  Section 119 is being repealed because the requirement to maintain a principal banker within Australia is outdated.
Clause 65 — Section 120
5.177	This clause repeals a redundant reference to subsection 21(3) of the Insurance Act.  It is now covered by the new subsection 10(2).
Clause 66 — Paragraph 123(1)(aa)
5.178	This clause repeals a redundant reference to section 48 of the Insurance Act.  It is now covered by the new section 49L.
Clause 67 — Subsections 128(1) and (3)
5.179	This clause repeals these subsections.  They are made redundant by the Criminal Code.
Clause 68 — After section 128
5.180	This clause inserts a new section in the amended Insurance Act.  It allows APRA to give person a written notice if it believes the person has done an act or failed to do an act in circumstances that lead to an offence occurring under sections 7A, 9, 10, 14, 20, 28, 37 or 49P.  This ensures that if a breach is occurring, it is an offence from the day the notice is received and for each subsequent day the breach continues.  A penalty accrues for each day of the offence.
Clause 69 — Subsection 129A
5.181	Section 129A of the Insurance Act enables charges to be joined in the same information or complaint in relation to the same person for any number of offences against certain provisions of the Insurance Act.  This applies where the offences relate to the doing or failing to do the same act or thing.  This clause amends section 129A to repeal those references made redundant by the Bill and insert the relevant new references.
Clause 70 — Subsections 129C(1) and (1A)
5.182	This clause makes it clear this section applies to general insurers.  The name of the section will be altered to make this clearer.
Clause 71 — Subsection 129D(1)
5.183	This clause makes it clear this subsection applies to general insurers.
Clause 72 — Subsection 129D(1)
5.184	Section 129D of the Insurance Act provides the Federal Court with the power to grant injunctions.  This clause removes an unnecessary reference to Australia.
Clause 73 — Paragraphs 129D(1)(a) and (b)
5.185	This clause makes it clear these paragraphs apply to general insurers.
Clause 74 — Subsection 129D(2)
5.186	This clause makes it clear this subsection applies to general insurers.
Clause 75 — Subsection 129(2)
5.187	This clause makes it clear this subsection applies to general insurers.
Clause 76 — Subsection 129D(2)
5.188	Section 129D of the Insurance Act provides the Federal Court with the power to grant injunctions.  This clause removes an unnecessary reference to Australia.
Clause 77 — Subsection 129D(7)
5.189	This clause makes it clear this subsection applies to general insurers.
Clause 78 — Paragraphs 129D(7)(a) and (b)
5.190	This clause makes it clear these paragraphs apply to general insurers.
Clause 79 — Subsection 129D(8)
5.191	This clause makes it clear this subsection applies to general insurers.
Clause 80 — Subsection 129D(8)
5.192	This clause makes it clear this subsection applies to general insurers.

6	
Schedule 2 — Transitional Provisions
6.1	This Schedule provides the transitional provisions for the Act.  It commences on Royal Assent. 
Clause 1 — Definitions
6.2	This clause defines terms for the purposes of the transitional provisions.
•	The term commencement means the commencement of the amendments of the Insurance Act made by Schedule 1.
•	The term new Act means the Insurance Act as in force immediately after the commencement of the amendments of the Insurance Act made by Schedule 1.
•	The term old Act means the Insurance Act as in force immediately before the commencement of the amendments of the Insurance Act made by Schedule 1.
•	The term transition period means the period starting on the commencement of the amendments of the Insurance Act made by Schedule 1 and ending 2 years after that.
Clause 2 — Early applications for authorisation to carry on insurance business
6.3	Subclause 2(1) enables APRA to determine a day before the commencement on and after which certain provisions of the new Act are to apply.  These include the provisions contained in Division 2 of Part III of the new Act, which provide for authorisation to carry on insurance business, and any other provisions of the new Act related to making or dealing with such applications.  This is to ensure that applications for authorisation under the new Act can be processed in advance of the proposed commencement date for the new arrangements of 1 July 2002.
6.4	Subclause 2(2) requires that for transparency purposes, the determination must be in writing.  Further the subclause establishes that any authorisation given before commencement does not take effect until the commencement. 
Clause 3 — Early approvals of auditors and actuaries
6.5	Clause 3 allows general insurers to appoint and APRA to approve auditors and actuaries prior to the commencement of the new Act.  These actions may take place after Royal Assent as if the relevant provisions had come into operation at that time.  This clause is for the purposes of Division 1 of Part IV of the new Act, or any other provisions in the new Act so far as they relate to such appointments.
6.6	Subclause 3(2) makes it clear that the appointment or approval given before the commencement date, takes effect on the day specified (in writing) by APRA.  This must not be before the commencement of the new Act.
Clause 4 — Application of the old Act during the transition period
6.7	Subclause 4(1) enables APRA to determine that all or specified provisions of the old Act continue to apply to a person or class of persons for a specified period during the transition period. This is to enable a smooth transition between the old and new Acts.
6.8	Subclause 4(2) clarifies that a determination may include a different specified period in respect of different provisions of the old Act, or different persons or classes of persons.
6.9	Subclause 4(3) enables APRA to make a determination subject to specified conditions.
6.10	Subclause 4(4) requires that for transparency purposes, the determination must be published in the Gazette, and has effect on publication in the Gazette according to its terms.
Clause 5 — Application of the new Act during the transition period
6.11	Subclause 5(1) enables APRA to determine that all or specified provisions do not apply to a person or class of persons for a specified period during the transition period. This is to ensure that an adequate transition for general insurers in meeting new requirements, which can be applied on a case by case basis.
6.12	Subclause 5(2) clarifies that a determination may include a different specified period in respect of different provisions of the old Act, or different persons or classes of persons.
6.13	Subclause 5(3) enables APRA to make a determination subject to specified conditions.
6.14	Subclause 5(4) requires that for transparency purposes, the determination must be published in the Gazette, and has effect on publication in the Gazette according to its terms.
Clause 6 — Body corporate covered by both the old Act and the new Act
6.15	Clause 6 applies during the transition period if a body corporate is authorised to carry on insurance business under the old Act, or a general insurer is authorised under the new Act.  It ensures the effect of determinations under clauses 3 and 4 covers provisions of both the old and new Acts that apply to the body corporate.
6.16	Subclause 6(2) states that while the determinations are in place, the body corporate is taken to be a general insurer for the purposes of provisions that apply to the body corporate in the new Act, and authorised under the old Act to carry on insurance business, for the purposes of the provisions of the old Act that apply to the body corporate.
Clause 7 — Direction to assign liabilities
6.17	Clause 7 applies where:
•	a body corporate is authorised under the old Act to carry on insurance business because of a determination under clause 4;
•	APRA considers it appropriate to vary or revoke the determination;
•	the body corporate is not authorised under the new Act to carry on insurance business, or as at 3 months before the end of the transition period the body corporate is not a general insurer under the new Act; and
•	the body corporate has liabilities in respect of insurance business carried on by it in Australia.
6.18	Subclause 7(3) ensures section 17 of the new Act is taken to apply as though the body corporate’s authorisation under the old Act to carry on insurance business were an authorisation under the new Act to carry on insurance business.  It also applies where APRA considered it would revoke the authorisation if the body corporate had no liabilities in respect of insurance business in Australia.
Clause 8 — Auditors may be taken to be appointed under the new Act
6.19	This clause enables APRA to determine (in writing) that where auditors were acting as a general insurer’s external auditor under the old Act or through the transitional period, they are taken to be appointed as auditors under the new Act.  APRA must give a copy of such a determination to the auditor and general insurer.
Clause 9 — Actuarial investigation under the old Act
6.20	This clause provides that where an actuarial investigation is already underway under the old Act, the investigation shall continue under that Act until a report is given to APRA in accordance with the provisions of the old Act.
Clause 10 — Directions to deal with the transition
6.21	This clause will enable APRA to continue to apply directions under both the old and new Act, depending on the circumstances of the general insurer.  This will enable thorough prudential supervision and enforcement of old and new requirements to continue throughout the transition period.
Clause 11 — Regulations
6.22	This clause will enable the Governor General to make regulations to deal with any other matters of a transitional nature arising from amendments to Schedule 1.

7	
Schedule 3 — Consequential amendment of other Acts
7.1	This Schedule provides for consequential amendments to be made to other Acts. It commences on 1 July 2002.
Australian Prudential Regulation Authority Act 1998
Clause 1 — Paragraph 3(2)(c)
7.2	This clause updates terminology and references in the Australian Prudential Regulation Authority Act 1998 made redundant by the amendments to the Insurance Act in Schedule 1.
Australian Securities and Investments Commission Act 2001
Clause 2 — Subsections 216(3) and (6)
7.3	This clause amends Part II Division 2 of the Australian Securities and Investments Commission Act 2001 to provide APRA with the same powers and requirements as the Australian Securities and Investments Commission (ASIC) during hearings held by the Companies Auditors and Liquidators Disciplinary Board (CALDB).  The clause inserts ‘or APRA’ after ‘ASIC’ wherever it occurs.
7.4	The purpose of these amendments is to expand APRA’s referral powers to direct certain matters to CALDB.  The purpose of this is to increase APRA’s powers to discipline auditor’s, who play a key role in ensuring general insurers are run in a prudent manner.
Clause 3 — Paragraphs 218(3)(a) and (c)
7.5	This clause amends Part II Division 2 of the Australian Securities and Investments Commission Act 2001 to provide APRA with the same powers and requirements as ASIC during hearings held by CALDB.  The clause inserts ‘or APRA’ after ‘ASIC’ wherever it occurs.
Clause 4 — Paragraph 223(1)(d)
7.6	This clause amends Part II Division 2 of the Australian Securities and Investments Commission Act 2001 to provide APRA with the same powers and requirements as ASIC during hearings held by CALDB.  The clause inserts ‘or APRA’ after ‘ASIC’.
Clause 5 — Subsections 223(2) and (3)
7.7	This clause amends Part II Division 2 of the Australian Securities and Investments Commission Act 2001 to provide APRA with the same powers and requirements as ASIC during hearings held by CALDB.  The clause inserts ‘or APRA’ after ‘ASIC’ wherever it occurs.
Clause 6 — Subsection 223(4)
7.8	This clause amends Part II Division 2 of the Australian Securities and Investments Commission Act 2001 to provide APRA with the same powers and requirements as ASIC during hearings held by CALDB.  The clause inserts ‘or APRA costs’ after ‘ASIC costs’.
Clause 7 — Subsection 223(5)
7.9	This clause amends Part II Division 2 of the Australian Securities and Investments Commission Act 2001 to provide APRA with the same powers and requirements as ASIC during hearings held by CALDB.  The clause inserts ‘or APRA’ after ‘ASIC’ wherever it occurs.
Corporations Act 2001
Clause 8 — Paragraph 462(3)(b)
7.10	This clause updates terminology and references made redundant by new concepts in the amendments to the Insurance Act and the introduction of prudential standards.
Clause 9 — Subsections 1292(1), (7), (9) and (10)
7.11	This clause provides the authority for APRA to refer matters directly to the CALDB as constituted under Part II, Division 1 of the Australian Securities and Investments Commission Act 2001.  The clause inserts ‘or APRA’ after ‘ASIC’ wherever it occurs.
Clause 10 — Subsection 1294(2)
7.12	This clause provides APRA with the same rights as ASIC during a hearing held by the CALDB.  The clause inserts ‘or APRA’ after ‘ASIC’ wherever it occurs.
Financial Sector (Collection of Data) Act 2001
Clause 11 — Paragraph 5(4)(b)
7.13	This clause deletes the reference to Part IVA of the Insurance Act, made redundant by the amendments in Schedule 1.
Financial Transactions Reports Act 1988
Clause 12 — Subsection 3(1) (definition of insurer)
7.14	This clause updates terminology and references made redundant by the amendments to the Insurance Act in Schedule 1.
Insurance Acquisitions and Takeovers Act 1991
Clause 13 — Section 4 (paragraph (a) of the definition of book outstanding claims provision)
7.15	This clause updates terminology and references made redundant by the amendments to the Insurance Act in Schedule 1.
Clause 14 — Section 4 (paragraph (a) of the definition of book unearned premiums provision)
7.16	This clause updates terminology and references made redundant by the amendments to the Insurance Act in Schedule 1.
Seafarers Rehabilitation and Compensation Act 1992
Clause 15 — Section 3 (definition of authorised insurer)
7.17	This clause updates terminology and references made redundant by the amendments to the Insurance Act in Schedule 1.