Reinsurers could soon be impacted by new regulation to govern offshore insurers
Reinsurers doing business in Australia could be affected by a proposal to change regulatory requirements for direct offshore foreign insurers (DOFIs).
The Federal Government released a discussion paper in December 2005, seeking comment on key findings from a 2004 inquiry that recommended changes to regulation of DOFIs. The inquiry, by former federal treasury executive director Gary Potts, stemmed from recommendations made by the HIH Royal Commission.
Currently DOFIs providing insurance in Australia are not subject to the same level of regulation by the Australian Prudential Regulation Authority (APRA) as Australian authorised insurers.
Foreign insurers must establish a subsidiary or branch in Australia and apply to the APRA for a licence or sell through a licensed agent or broker.
They are not subject to provisions of the Insurance Act because they are not considered to be "carrying on insurance business in Australia" under sections 9 and 10 of the act.
Potts found the act's "carrying on insurance business in Australia" test lacked clarity, was unnecessarily restrictive and "did not reflect the implications of the internationalisation" of insurance. He recommended the act be amended to apply to those "marketing insurance" in Australia, as opposed to "carrying on insurance business".
Exemptions were proposed for insurers domiciled in a country where there was a comparable regulatory regime and he recommended the APRA get enhanced data collection, enforcement and investigative powers to establish whether a DOFI's operations required authorisation under the act.
The government discussion paper asked whether Potts' recommendations were appropriate and what impact they would have on the Australian market if implemented.
The question for foreign reinsurers is whether they would be included in the proposed reforms. The government paper says, "The scope of the Insurance Act captures both insurance and reinsurance arrangements. To that extent, if the scope of the Insurance Act is broadened to capture DOFIs marketing insurance in Australia, unless a specific exemption is made, the business of foreign reinsurers marketing insurance in Australia will also be captured."
It asks why foreign reinsurers should be caught by the proposed regulation regime, whether the approach is consistent with international treatment of reinsurers, and what the implications for the domestic market would be if offshore reinsurers, and their brokers and agents, were forbidden to market insurance in Australia, unless they were domiciled in a country with a comparable regulatory regime.