2008 facts figures Insurance and PricewaterhouseCoopers Insurance facts and figures 2008 pwc.com/au Editor: Kim Smith Publication Team: Antoinette Chan Melissa Colbert Alexandra Russ Sarah Lane Amy Johnson Contributors: Alexandra Russ Lisa Simpson Amy Ellison Mark Falvo Amy Johnson Melissa Colbert Andrew McPhail Meera Talwar Angela Linus Nina Woeste Annie Guo Pat Murray Billy Bennett Peter Kennedy Carol Zhang Rajiv Khana Damian Hollingsworth Rebecca Wong Daniel Keating Ruchi Goenka Darren Mack Ruchira Gupta Diego Ascani Saurabh Sah Don Campbell Scott Fergusson Eoin Reville Serge Laville Jason Slade Tim Jenkins Joey Long Vijaya Rajan This publication is designed to provide an overview of the accounting, tax and regulatory environment relating to insurance. Information contained in this booklet is based on the law and Government announcements as at 15 April 2008. The information represents a summary of the significant features and should be used as a guide only. Readers are advised that before acting on any matter arising in this publication, they should discuss the situation with a PricewaterhouseCoopers Insurance partner. Insurance Facts & Figures 2008 © 2008 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 120,000 people in 144 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 89399 Regulation and supervision | 2 Insurance facts and figures 2008 Contents Introduction 2 1 Industry information 3 Top 15 general insurers 4 Top 15 life insurers 6 Top 15 health insurers 8 Top 10 government insurers 10 Investment performance indicators 12 Inflation indicators 14 General insurance 15 Life insurance 20 Health insurance 22 2 Regulation and supervision 25 2.1 Key developments (May 2007 – April 2008) 26 2.2 Framework 37 2.3 Authorisation 41 2.4 Supervision and compliance 47 2.5 Solvency and capital adequacy requirements 62 2.6 Investment policy 72 2.7 Reinsurance 73 3 Policyholder protection 81 3.1 Developments 82 3.2 Framework 82 3.3 Financial services license 83 3.4 Product disclosure, insurance business and insurance contracts 85 3.5 Pricing and competition 87 3.6 Sales practice regulation 89 3.7 Ability to pay claims 90 3.8 Use of personal information 91 3.9 Sources of redress 92 ii | Insurance facts and figures 2008 4 Financial reporting 95 4.1 Developments 96 4.2 Framework 101 • Australian Accounting Standards Board 101 • Australian Securities Exchange 102 • Private Health Insurance Administration Council (PHAIC) 102 • Medicare Australia 102 • Australian Prudential Regulation Authority 104 • Australian Securities And Investments Commission 104 • Life Insurance Actuarial Standards Board (ceased with effect from 31st December 2007) 105 4.3 Accounting standards 105 4.4 Annual accounts 124 4.5 Other returns 127 4.6 Key dates 133 5 Taxation 139 5.1 Developments 140 5.2 Corporate taxation 141 5.3 Personal taxation 150 5.4 Levies and premium taxation 151 5.5 Stamp duty 153 5.6 Key dates 158 6 Insurance legislation 161 6.1 Commonwealth legislation 162 6.2 State and territory legislation 168 6.3 Industry codes 168 7 Insurance directory 169 7.1 Government authorities 170 7.2 Industry associations 174 7.3 Complaints review services 185 7.4 Registered general insurers 187 7.5 Registered life insurers 191 7.6 Registered health insurers 192 7.7 Government insurers 193 7.8 PwC Australian offices and industry experts 194 PricewaterhouseCoopers | iii Glossary AASB Australian Accounting Standards Board ACCC Australian Competition and Consumer Commission ADI Authorised Deposit-Taking Institution AFSL Australian Financial Services Licence AGAAP Australian Generally Accepted Accounting Priciples 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 FICS Financial Industry Complaint Service FID Financial Information Declaration FSR Financial Services Reform GAAP Generally Accepted Accounting Principles GST Goods and Services Tax HCCS High Cost Claims Scheme HIC Health Insurance Commission (now Medicare Australia) iv | Insurance facts and figures 2008 HPPA Hospital Purchaser Provider Agreements IAA Institute of Actuaries of Australia IASB International Accounting Standards Board IBD Insurance Brokers Disputes Limited 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 LIASB Life Insurance Actuarial Standards Board LMI Lenders Mortgage Insurers LTHC Life Time Health Cover LVR Loan-to-Value Ratio MAA Motor Accidents Authority MCR Minimum Capital Requirements 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 PricewaterhouseCoopers | v 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 UMP SP United Medical Protection Support Payment UPR Unearned Premium Reserve VPST Virtual Pooled Superannuation Trust vi | Insurance facts and figures 2008 Introduction PricewaterhouseCoopers | 1 The Turning Point Welcome to the annual PricewaterhouseCoopers’ Insurance Facts and Figures which shows 2007 as the turning point for results in the insurance sector. Facts and figures A few highlights from the past year: • Whilst the 2007 results remain robust, there was a clear upward trend in loss ratios for the general insurance sector • The life insurance sector continued to show strong results in 2007 albeit the rate of profit growth started to slow • The health insurance sector saw two major insurers demutualise to provide greater access to capital • Overall, all sectors of the insurance industry remain strongly capitalised. These trends will be more pronounced during 2008 as the full impact of increasing claims activity, softening investment markets, and volatility in pricing flow through the industry. Whilst this will mean a more challenging operating environment, the underlying fundamentals of the industry remain strong. I hope you find our 2008 edition of Facts and Figures interesting and informative as you deal with the many challenges ahead. Kim Smith Australian Insurance Leader PricewaterhouseCoopers 2 | Insurance facts and figures 2008 1 | Industry information Top 15 general insurers 4 Top 15 life insurers 6 Top 15 health insurers 8 Top 10 government insurers 10 Investment performance indicators 12 Inflation indicators 14 General insurance 15 Life insurance 20 Health insurance 22 PricewaterhouseCoopers | 3 Top 15 general insurers Ranking Measure: Performance: Underwriting Investment Net earned premium Result after tax result result Entity Year Current Prior Prior % Current Prior Current Prior Current Prior end $m $m Rank Change $m $m $m $m $m $m 1 QBE Insurance Group 12/07 10,210 8,158 1 25% 1,438 1,200 1,132 822 1,925 1,483 2 Insurance Australia Group 06/07 6,743 6,132 2 10% 407 533 724 905 629 862 3 Suncorp A 06/07 3,472 2,527 4 37% 460 241 493 446 683 484 4 Allianz Australia 12/07 2,035 1,991 5 2% 103 213 285 243 317 349 5 Wesfarmers 06/07 888 783 6 13% 95 130 72 35 84 87 6 Zurich Australian 12/07 706 700 7 1% (19) 104 157 161 595 232 Insurance 7 Munich Re 12/07 606 521 9 16% 144 96 84 77 161 109 8 Swiss Re 12/07 430 523 8 -18% 44 150 64 66 45 123 9 RACQ 12/06 377 347 10 9% 68 26 48 51 80 54 10 Genworth Financial 12/06 347 191 - 82% 193 161 79 67 176 149 Mortgage Insurance 11 AIG (American Home 12/07 268 225 12 19% 70 62 38 39 58 55 Assurance) 12 Chubb Insurance 12/07 241 245 11 -2% 17