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Capital Requirements for Retail Services

By Debbie Willis,2014-05-18 00:54
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For capital guaranteed investment account policies, the Minimum Reserve Ratio is likelyGenerally no capital requirements imposed under Corporations Law

APPENDIX 3: CURRENT CAPITAL ADEQUACY REQUIREMENTS

     FOR NON-BANK RETAIL FINANCIAL SERVICES

     PRODUCTS

    Institution Products Capital Requirements

     LIFE INSURANCE ACT 1995 Life Insurance

    Companies Initial capital requirements $10

    million plus,

    ? solvency reserves; and

    ? capital adequacy reserves

    together (“Minimum Reserves”).

    The solvency standard is designed

    so that at any time from the assets

    of a statutory fund the fund can

    meet all policy and other liabilities

    referable to it at that time as they

    become due.

    The capital standard is so that there

    are sufficient assets in each

    statutory fund to provide adequate

    capital to conduct the business of

    the fund.

     ? Risk products, including life ? In general, for risk

    insurance, disability products, the Minimum

    insurance, trauma insurance Reserve Ratios are not

    material in relation to the (Comment: Asset and companies’ liabilities as a liability risk). whole.

     ? Investment products (super ? For capital guaranteed

    and non-super), including investment account policies,

    insurance bonds, both single the Minimum Reserve

    and regular premium. Ratio is likely to be high, a

    likely range being 10% to May be: 15%.

    ? capital guaranteed

     (Comment: Asset risk).

    A3-1

    Institution Products Capital Requirements

     ? not capital guaranteed ? For non-capital

    guaranteed/non (Comment: No risk). participating investment May be: linked policies (both super

    and investment only), the ? participating Minimum reserve Ratio is

    ? non-participating likely to be between 1%

    and 2%

    Annuities, which may be: ? For annuities in payment,

    the Minimum Reserve ? allocated, Ratio could be significant at (Comment: No risk) between 10% and 20%.

    ? fixed term (Comment: Asset

    risk)

    ? life

     (Comment: Asset and

    liability risk)

    Risk Insurance including: INSURANCE ACT 1973 General Insurance

    Companies Minimum solvency insurance of the ? property

    greatest of: ? sickness

    ? $2 million ? accident and unemployment

    ? 15% of net outstanding ? mortgage insurance claim provisions, and

    (Comment: Asset and ? 20% of net premium liability risk) income per annum.

    Note: In practice, insurers operate,

    and indeed the ISC expects, capital

    holdings which are significantly

    higher, possibly up to 35%. Deposits PRUDENTIAL STANDARDS Building Societies

    ISSUED BY THE AUSTRALIAN (Comment: Asset risk) FINANCIAL INSTITUTIONS

    COMMISSION

    Minimum of 8% of “risk loaded

    assets”. Each type or class of assets

    is given a risk weighting, from

    which a total risk weighting is

    calculated.

    A3-2

    Institution Products Capital Requirements

Deposits PRUDENTIAL STANDARDS Credit Unions

    ISSUED BY THE AUSTRALIAN (Comment: Asset risk) FINANCIAL INSTITUTIONS

    COMMISSION

    Minimum of 8% of “risk loaded

    assets”. Each type or class of assets

    is given a risk weighting, from

    which a total risk weighting is

    calculated. Super investment products SUPERANNUATION Superannuation

    (INDUSTRY) SUPERVISION Trustees Can be invested: ACT 1994 ? through life company ? $5 million NTA or statutory funds (see above) or

    ? benefit of guarantee of $5 ? directly. million, or (Comment: No risk) ? custodian with NTA $5

    million.

    CORPORATIONS LAW Public Unit Trust ? Non-super trust schemes

    Managers ? No initial capital ? Invest directly in assets.

    requirements ? Liability risk from buy back

    ? Dealers licence may impose covenant.

    minimal liquidity security (Comment: No product risk) requirements

    [Note: Generally does not relate to

    funds under management.]

    CORPORATIONS LAW AND Listed Investment ? Investment of subscribed

    ASX LISTING RULES Companies capital in a portfolio of

    generally listed investments. ? Generally no capital (Comment: No risk) requirements imposed

    under Corporations Law

    ? A minimum capitalisation

    of $2 million is required

    under ASX Listing Rules.

    TRUSTEES COMPANIES ACT Trustee ? Common funds

    (VIC) Companies (Comment: No risk)

    ? Requirements set down by

    the Attorney General at

    time of authorisation.

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    Institution Products Capital Requirements

    STATE FRIENDLY SOCIETY Friendly Societies ? Insurance bond products

    LEGISLATION (Comment: No risk unless

    guaranteed, then asset risk) ? No capital requirements but

    benefit funds required to ? Health, funeral and other hold solvency reserves benefits (requirement to hold not

    (Comment: Liabilities and less than 15% of assets in

    asset risk) liquid funds in each of its

    funds).

Note: Asset risk = The risk that assets will not perform to meet liabilities

    Liability risk = The risk that liabilities exceed assets.

    Does not include business risk, fraud etc.

    A3-4

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