09 April 2008

DOFIs exemptions finalised

Exemptions for direct offshore foreign insurers ("DOFIs") from the requirement to be authorised by APRA have been finalised by the Australian Treasury. Although the details have slightly changed, the general thrust of the exemptions is the same as that proposed in September last year.

In this Alert we'll highlight the main changes.

Exemption 1: High value insureds

High value insureds must satisfy one of the following tests:

• the consolidated gross operating revenue for the financial year of the insured and the entities it controls (if any) is $200 million or more; or
• the value of the consolidated gross assets at the end of the financial year of the insured and the entities it controls (if any) is 200 million or more; or
• the insured and the entities it controls (if any) have at least 500 employees (increased from 300 as proposed in September) at the end of the financial year.

The Treasury has not adopted the proposed alternative tests based on aggregate premium or the amount of insurance cover purchased.

Exemption 2: Atypical risks

These are now settled as:

• nuclear
• war
• terrorism
• satellite or space
• biological risk
• medical clinical trials
• aviation liability
• shipowners’ protection and indemnity other than for pleasure crafts.

The AFSL holding intermediary will be required to warn insureds using this exemption of the risks of using an insurer not authorised in Australia.

Exemption 3: Customised exemption

This exemption would cover insureds who do not fall within the first two, and who have a unique risk that cannot be placed with an authorised insurer. The criteria have now been settled as:

• a lack of market capacity;
• a material difference in price;
• a difference in non-price terms and conditions bearing a material impact on the business or consumer; and
• material benefits accruing from continuity of an ongoing relationship between a given insurer and the business or consumer.

The AFSL holding intermediary will be required to warn insureds using this exemption of the risks of using an insurer not authorised in Australia.

Exemption 4: A new exemption

An arrangement with a DOFI that is required by the law of a foreign jurisdiction will be exempt.

What's next?

Draft regulations embodying these exemptions will be released for public comment this month.

The Financial Sector Legislation Amendment (Discretionary Mutual Fund and Direct Offshore Foreign Insurers) Act 2007 commences on 1 July 2008, but DOFIs who have applied for authorisation from APRA but have not received this authorisation by 1 July 2008 will still be able to operate under transitional arrangements.