Insurance facts and figures 2007 - PwC

Regulation and supervision
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AUTHORISED REPRESENTATIVES AND INSURANCE BROKERS
In addition to annual financial reporting requirements, under Section 912E of the
Corporations Act, ASIC can undertake surveillance checks of AFS licence holders.
ASIC has the power to vary licence conditions, as well as issue banning orders that
prohibit a person from providing financial services.
2.5 Solvency and capital adequacy requirements
GENERAL INSURANCE
Under Section 28 of the Insurance Act, authorised insurers are required to hold eligible
assets in Australia that exceed liabilities in Australia, unless otherwise approved by
APRA. Section 116A of the Insurance Act and GPS 120 Assets in Australia provide
further details of excluded assets and liabilities.
The list of ineligible assets includes:
• Goodwill;
• Other intangible assets;
• Net future income tax benefits; and
• Assets under charge or mortgage (to the extent of the indebtedness).
GPS 110 imposes an additional requirement – the insurer’s capital base must exceed
the greater of $5 million and the minimum capital requirement. Where APRA is not
satisfied as to the margin by which the capital base exceeds the minimum capital
requirement, it will require the insurer to detail a capital plan identifying the proposed
actions to improve solvency.
The capital base is calculated by measuring available capital against the quality
of the support provided by various types of capital instruments and the extent to which
each instrument:
• provides a permanent and unrestricted commitment of funds;
• is freely available to absorb losses;
• does not impose unavoidable servicing charges; or
• ranks behind policyholders and creditors in the event of wind-up.
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