Who does this affect?

Direct offshore foreign insurers wishing to conduct new and renewal business in Australia, and entities wishing to place their insurance programmes with DOFIs, from 1 July 2008.

What do you need to do?

For more information, please contact Philip Ward T +61 2 9296 2213.

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Philip Ward  
Partner
T +61 2 9296 2213

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Ann Newbrun  
Special Counsel
T +61 2 9296 2195

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Sydney
Peter Stockdale  

Brisbane
Justin McDonnell  

Canberra
John Topfer  

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Treasury has now effected the Insurance Amendment Regulations 2008 (Regulations) which provide for limited exemption arrangements for direct offshore foreign insurers (DOFIs) (referred to in the Regulations as “unauthorised foreign insurers”) from the requirement to be authorised by APRA to carry on insurance business in Australia.

As foreshadowed by the draft Regulations, there are four exemptions:

1. High value insured exemption

A DOFI is not required to be authorised in relation to a contract of insurance where at least 1 of the policyholders is a “high value insured”. A policyholder is a high value insured if the policyholder meets one of the following criteria:

• the operating revenue of the policyholder derived in Australia for a financial year is at least $200 million or
• the value of the policyholder’s gross assets in Australia at the end of a financial year is at least $200 million or
• the number of the employees of the policyholder in Australia at the end of a financial year is at least 500.

The relevant policyholder can meet one of the above criteria on its own or as part of a “related group”. “Related group” means 2 or more associated entities (as defined the Corporations Act), or a partnership. This is different from the draft Regulations, where it was proposed that the relevant policyholder meet one of the above criteria on its own or as part of a “consolidated group” which was defined by reference to “related parties” in the Corporations Act.

The other substantial change is that under the Regulations as made a contract of insurance will fall within the high-value insured exemption where only one of the policyholders, alone or as part of a related group, meets one of the criteria listed above. Under the draft Regulations, all policyholders (alone or as part of a consolidated group) had to meet one of the criteria listed above.

2. Atypical risks exemption

A DOFI is not required to be authorised in relation to a contract of insurance for one of the following atypical risks:

• nuclear
• biological material or waste
• war
• terrorism
• healthcare related research
• space objects
• aircraft
• vessels other than pleasure craft
• equine mortality or fertility
• loss or liability incidental to a loss or liability mentioned above.

A contract of insurance which insures an atypical risk mentioned above and 1 or more other kinds of loss or liability is only a contract of insurance for an atypical risk (and therefore exempt) to the extent that it insures against the risk mentioned above.

3. Risks that cannot reasonably be placed in Australia exemption

A DOFI is not required to be authorised in relation to a contract of insurance where an Australian financial services licensee (AFSL holder), eg an insurance broker, certifies in writing that the risk insured under that contract cannot reasonably be placed with an APRA authorised general insurer.

In deciding whether the risk insured under that contract cannot reasonably be placed with an APRA authorised general insurer, the AFSL holder must be satisfied, on reasonable grounds, that:

• there is no APRA authorised general insurer that will insure against the risk; or
• the terms (including price) on which any APRA authorised general insurer will insure against the risk are substantially less favourable to the insured than the terms on which the DOFI will insure against the risk, or
• insurance with an APRA authorised general insurer would be substantially less favourable than with the DOFI because of other circumstances (eg the insured and the DOFI have a pre-existing relationship, and the maintenance of that relationship will have significant benefits for the insured).

4. Insurance required by foreign laws

A DOFI will not require APRA authorisation to issue a contract of insurance if a law of a foreign country requires that the contract be issued by an insurer, or a kind of insurer, authorised or permitted under the laws of that country to issue that kind of contract.