Insurance facts and figures 2009 Editor: Scott Fergusson Publication Team: Alexandra Russ Antoinette Chan Amy Johnson Michelle Tickle Angela Linus Tony Kamberi Contributors: Adam Taylor Michael Garrod Alex Ta Nicole Spencer Alexandra Russ Nishika D’Cruz Amy Ellison Pat Murray Amy Johnson Pawan Kr Mundhra Andrew McPhail Peter Kennedy Angela Linus Peter Lurie Annie Guo Rajiv Khana Billy Bennett Sam Hinchliffe Damian Hollingsworth Samuel Lee Daniel Keating Sarah Long Darren Mack Scott Hadfield Deborah Chesney Serge Laville Elaine Bian Shaun Mahony Joanne Gorton Surayez Rahman Kim Smith Suruchi Joshi Klynton Hankin Tim Jenkins Lisa Simpson Tony Cook Meera Talwar Wayne Russell Michael Flanderka This publication is designed to provide an overview of the accounting, tax and regulatory environment relating to insurance in Australia. Information contained in this booklet is based on the law and Government announcements as at 15 April 2009. The information presented in this publication should be used as a guide only and does not represent advice. Before acting on any matter arising in this publication, readers should consider seeking advice from a PricewaterhouseCoopers insurance expert (contact details are provided at the end of this publication). Insurance Facts & Figures 2009 © 2009 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 155,000 people in 153 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. (“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.) WL 115955 Insurance facts and figures 2009 Contents Foreword 6 1 General Insurance 9 Introduction - Scott Hadfield 10 1.1 Statistics 12 1.2 Key developments 24 1.3 Regulators of general insurance 30 1.4 Supervision and compliance 37 1.5 Solvency and capital adequacy requirements 48 1.6 Reinsurance 61 1.7 General insurance financial reporting 66 1.8 General insurance taxation 82 2 Life Insurance 93 Introduction - Tony Cook 94 2.1 Statistics 96 2.2 Key developments 98 2.3 Regulators of life insurance 100 2.4 Supervision and compliance 104 2.5 Solvency and capital adequacy requirements 111 2.6 Reinsurance 114 2.7 Life insurance financial reporting 115 2.8 Life insurance taxation 125 3 Health Insurance 135 Introduction - Wayne Russell 136 3.1 Statistics 138 3.2 Key developments 142 3.3 Regulators of health insurance 144 3.4 Supervision and compliance 146 3.5 Solvency and capital adequacy requirements 147 3.6 Reinsurance 151 3.7 Health insurance financial reporting 152 3.8 Health insurance taxation 158 4 Insurance Brokers 161 Introduction - Billy Bennett 162 4.1 Key developments 164 4.2 Regulators of insurance brokers 165 4.3 Supervision and compliance 166 4.4 Solvency and capital adequacy requirements 169 4.5 Insurance brokers financial reporting 171 4.6 Insurance brokers taxation 173 5 Policyholder Protection 177 5.1 Key developments 178 5.2 Framework 179 5.3 Product disclosure, insurance business and insurance contracts 183 5.4 Pricing and competition 185 5.5 Sales practice regulation 188 5.6 Ability to pay claims 190 5.7 Use of personal information 191 5.8 Sources of redress 192 6 Insurance Directory 195 6.1 Government authorities 196 6.2 Industry associations 200 6.3 Complaints review services 211 6.4 General insurers authorised to conduct new or renewal business 212 6.5 Registered life insurers 216 6.6 Registered health insurers 218 6.7 Government insurers 220 7 PwC in the Insurance Industry 223 7.1 PwC in the insurance industry 224 7.2 Contacting PwC 224 7.3 Insurance and financial services publications since December 2008 225 7.4 PwC Australian offices and insurance industry experts 228 Glossary AASB Australian Accounting Standards Board ACCC Australian Competition and Consumer Commission ADI Authorised Deposit-Taking Institution AFSL Australian Financial Services Licence AHIA Australian Health Insurance Association AIFRS Australian Equivalents to International Financial Reporting Standards AML Anti-Money Laundering APRA Australian Prudential Regulation Authority ARPC Australian Reinsurance Pool Corporation ASIC Australian Securities and Investments Commission ASX Australian Securities Exchange ATO Australian Tax Office AUASB Auditing and Assurance Standards Board AUSTRAC Australian Transaction Reports and Analysis Centre BCM Business Continuity Management CEO Chief Executive Officer CFO Chief Financial Officer CPI Consumer Price Index CTF Counter-Terrorism Financing CTP Compulsory Third Party DAC Deferred Acquisition Costs DAM Decreasing Adjustment Mechanism DOFI Direct Offshore Foreign Insurer ECS Exceptional Claims Scheme FASB Financial Accounting Standard Board FATF Financial Action Task Force FCR Financial Condition Report FID Financial Information Declaration FOS Financial Ombudsman Service FSR Financial Services Reform GAAP Generally Accepted Accounting Principles GST Goods and Services Tax HCCS High Cost Claims Scheme HPPA Hospital Purchaser Provider Agreements IAA Institute of Actuaries of Australia IASB International Accounting Standards Board IBNER Incurred But Not Enough Reported IBNR Incurred But Not Reported ICA Insurance Council of Australia IFRS International Financial Reporting Standards ILVR Insurance Liability Valuation Report KYC Know Your Customer LAT Liability Adequacy Test LMI Lenders Mortgage Insurance LVR Loan-to-Value Ratio MAA Motor Accidents Authority MCR Minimum Capital Requirement MDO Medical Defence Organisation MER Maximum Event Retention MII Medical Indemnity Insurer MOU Memorandum of Understanding MSE Management Services Element NIBA National Insurance Brokers’ Association NOHC Non-Operating Holding Company OCR Outstanding Claims Reserve PAIRS Probability and Impact Rating System PDS Product Disclosure Statement PHIAC Private Health Insurance Administration Council PHIO Private Health Insurance Ombudsman PML Probable Maximum Loss PST Pooled Superannuation Trust RAS Reinsurance Arrangement Statement RD Reinsurance Declaration RE Responsible Entity REMS Reinsurance Management Strategy RHBO Registered Health Benefits Organisation RMD Risk Management Declaration RMS Risk Management Strategy ROCS Run-off Cover Scheme SEA Segregated Exempt Assets SO Senior Officer from Outside Australia SPV Special Purpose Vehicle Stage 2 Stage 2 of APRA’s general insurance reforms TOFA Taxation of Financial Arrangements UPR Unearned Premium Reserve VPST Virtual Pooled Superannuation Trust Foreword 6 | Insurance facts and figures 2009 It is with great pleasure that we welcome you to the 2009 edition of PwC’s Insurance Facts and Figures. There is no doubt that Australian insurers are being challenged by the ongoing global financial crisis and the effects of severe weather events. The financial impacts are evident in the financial statistics found within this publication. However, it is for these very events that the Australian insurance industry exists - to help members of our community get through tough times. The insurance industry should take pride in its role in protecting the livelihood, health and assets of Australians and in its response to events such as the terrible Victorian bushfires. Serving the community well in these difficult conditions will help grow the trust that is key to filling the under-insurance void in our country. We have enjoyed preparing this publication and hope you find it a helpful and relevant reference. Best wishes Kim Smith Scott Fergusson Australian Insurance Leader Insurance Sector Leader – Assurance PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers | 7 General Insurance 1 Introduction - Scott Hadfield 10 1.1 Statistics 12 1.2 Key developments 24 1.3 Regulators of general insurance 30 1.4 Supervision and compliance 37 1.5 Solvency and capital adequacy requirements 48 1.6 Reinsurance 61 1.7 General insurance financial reporting 66 1.8 General insurance taxation 82 Introduction Scott Hadfield 10 | Insurance facts and figures 2009 The world is a different place. The slight increases in credit spreads some 18 months ago have emerged as lead indicators of the worst economic environment since the Great Depression. Who would have thought that the likes of Lehman Brothers would fail and we would see such high profile problems at companies like AIG. Everyone has been impacted but it is fair to say that core general insurance business, weather events aside, have escaped relatively unscathed. Asset liability matching strategies have been tested, investments have been impacted and claims activity has increased, but fundamentally the industry remains strong. We are, however, still in the midst of a very difficult environment. Ongoing challenges include: • Capital management – What are the sensitivities to current capital levels? How are any potential impacts being mitigated? • Responding to increased claims activity – History shows that in times of financial stress claims tend to increase. The current environment also brings heightened exposure in the Professional Indemnity and Directors and Officers lines. • Adequate pricing – Premium rates in commercial are likely to stabilise and maybe even increase in 2009 overall. Nevertheless