These Rules are the Private Health Insurance (Health Benefits Fund Administration) Rules 2007.
2 Commencement
These Rules commence:
(a) if the Rules are registered before the Act commences—at the same time as the Act commences; or
(b) if the Rules are registered on or after the day on which the Act commences—on the date on which the Rules are registered,
whichever occurs first.
3 Definitions
Note: Terms used in these Rules have the same meaning as in the Act—see section 13 of the Legislative Instruments Act 2003. These terms include:
appointed actuary
approved form
assets
capital adequacy direction
capital adequacy standard
Council
cover
for profit insurer
health care provider
health benefits fund
health‑related business
net asset position
policy group
policy holder
private health insurer
officer \[of a private health insurer\]
referable
risk equalisation levy
Risk Equalisation Trust Fund
rules \[of an insurer\]
solvency direction
solvency standard
terminating management
In these Rules:
Act means the Private Health Insurance Act 2007.
approved loss absorbing subordinated debt of a health benefits fund, means a security or other debt instrument, which has been approved by the Council under rule 3A.
Australian Accounting Standards means the accounting standards issued by the Australian Accounting Standards Board.
authorised deposit‑taking institution means a body corporate in relation to which an authority under subsection 9(3) of the Banking Act 1959 is in force.
billed risk equalisation trust fund liability means the amount of risk equalisation trust fund payments, on the relevant day, for which an invoice from the Council has been received by the insurer but that have not yet been paid by the insurer.
borrowings of a health benefits fund are borrowings which would be permitted under Rule 5 of these Rules.
capital adequacy maximum default loss amount of a health benefits fund, has the meaning given by clause 13 of Schedule 3.
capital adequacy standard means the capital adequacy standard, referred to in Part 6, and as set out in Schedule 3 of these Rules.
Part Part 2 - Private Health Insurance (Health Benefits Fund Administration) Rules 2007 - Expenditure and application of health benefits funds | Zoe
capital adequacy supervisory adjustment amount of a health benefits fund, has the meaning given by clause 12 of Schedule 3.
cash has the meaning given in Australian Accounting Standards Standard 107.6.
cash management amount of a health benefits fund, has the meaning given by clause 5 of Schedule 2.
central estimate means an estimate of the mean of the range of possible outcomes of any calculation required under either the solvency standard or the capital adequacy standard.
constructive obligation has the meaning given in the liability adequacy test in Australian Accounting Standard Board Standard 137.
financial interdependency in relation to a group of related counterparties, means a circumstance in which the financial soundness of one counterparty in the group may affect the financial soundness of another counterparty in the group.
future claims liability of a health benefits fund, is the amount calculated, at a 75% probability of adequacy, in accordance with the following calculation:
(a) the sum of:
(i) future cash flows from future claims under current policies; and
(ii) the additional risk margin; and
(iii) the sum of related intangible assets and related deferred acquisition costs;
where all elements of the future claims liability calculation are defined in a manner consistent with the definitions contained in the liability adequacy test set out in the Australian Accounting Standard Board Standard 1023, except that discounting is not applied and the constructive obligation component is not included.
future claims liability amount of a health benefits fund, has the meaning given in clause 7 of Schedule 3.
group of related counterparties means two or more counterparties which are related parties, or are linked by either of the following:
(a) financial interdependency; or
(b) any other connection or relationship that might expose the counterparties in the group to a single risk.
health business revenue estimate of a health benefits fund, is its premium income estimate plus a central estimate of the gross revenue that it will earn in relation to its health related business in the 12 months after the relevant day, less any premium ceded to reinsurers in relation to health‑related business within that 12 month period.
liquidity management plan of a health benefits fund, has the meaning given in subclause 4(3) of Schedule 2.
maximum default loss means the largest uncompensated loss of the health benefits fund arising from any loss, other than losses arising from assets held with an Australian Government counterparty or deposits held with an authorised deposit‑taking institution, in relation to:
(a) any asset or any group of related assets of the health benefits fund; and
(b) any individual counterparty or group of related counterparties.
operational risk amount of a health benefits fund, has the meaning given by clause 11 of Schedule 3.
other liabilities amount of a health benefits fund, has the meaning given in clause 9 of Schedule 3.
outstanding claims liability has the meaning given by the Australian Accounting Standard Board Standard 1023, where:
(a) the risk margin applied produces a 75% probability of adequacy; and
(b) discounting is not applied; and
(c) any outstanding claims liabilities from health related business are incorporated; and
(d) receipts from the risk equalisation trust fund are incorporated.
outstanding claims liability amount of a health benefits fund, has the meaning given in clause 6 of Schedule 3.
premium income estimate of a health benefits fund, is the central estimate of the amount of health insurance business premium income that it will earn in the 12 months after the relevant day, where the premium increase assumption is the lesser of:
(a) the central estimate of the amount of revenue the private health insurer’s health benefits fund will earn in the 12 months after the relevant day; and
(b) the amount determined in accordance with the methodology published by the Council, as amended from time to time.
previously approved subordinated debt of a health benefits fund, means debt of a kind previously approved by the Council, as subordinated debt, for the purposes of the solvency standard or the capital adequacy standard established by these rules, as in force as immediately prior to 31 March 2014.
probability of adequacy means the percentile required to meet individual elements of either the solvency standard or the capital adequacy standard.
prudent liabilities amount, of a health benefits fund, has the meaning given by clause 5 of Schedule 3.
Regulations means any regulations made under the Act.
related party has the meaning given by the Australian Accounting Standards Board Standard 124.
relevant day means the day on which the calculation is based for the purposes of assessing compliance with the solvency standard or the capital adequacy standard, as the case may be.
risk equalisation trust fund accrued liability amount of a health benefits fund, has the meaning given in clause 8 of Schedule 3.
Rules means the Rules made under the Act including these Rules.
single equivalent units (SEUs) has the meaning given in Part 1, Rule 4 of the Private Health Insurance (Risk Equalisation Policy) Rules 2007.
size margin of a health benefits fund, is the lesser of:
(a) the margin based on the number of SEUs of the health benefits fund as calculated by the following formula:
0.75 × (SEUs) ^ ‑0.16; and
(b) 0.25.
solvency standard means a solvency standard, as referred to in Part 6, and set out in Schedule 2 of these Rules.
solvency supervisory adjustment amount of a health benefits fund, has the meaning given by subclause 6(2) of Schedule 2.
stress test amount of a health benefits fund, has the meaning given by subclause 10(1) of Schedule 3.
stressed net cash outflow amount of a health benefits fund means the
98th percentile estimate of the net cash outflows for a 30 day period from the relevant day, where:
(a) net cash outflow means the cash outflows from the health benefits fund less cash inflows to the health benefits fund; and
(b) cash outflows are limited to cash payments required to meet all liabilities that are, or might become, referable to the health benefits fund; and
(c) cash inflows represent cash receipts arising from:
(i) premiums payable under policies of insurance that are referable to the fund; and
(ii) income from the investment of assets of the fund held on the relevant day including amounts receivable on maturity and excluding revenues from the sale of assets, except where a binding agreement for the sale has been entered into prior to the relevant day; and
(iii) any other money due to be received by the insurer in connection with its conduct of the business of the fund.
stressed investment income estimate of a health benefits fund, has the meaning given by subclause 10(3) of Schedule 3.
stressed net margin estimate of a health benefits fund, has the meaning given by subclause 10(2) of Schedule 3.
stressed other income estimate of a health benefits fund, has the meaning given by subclause 10(4) of Schedule 3.
subordinated debt means the sum of any previously approved subordinated debt and any approved loss absorbing subordinated debt.
unbilled calculated deficit means the central estimate of the sum of all the amounts calculated for each risk equalisation jurisdiction, and under the following conditions:
(a) in accordance with Part 2, Rule 11(1)(e) of the Private Health Insurance (Risk Equalisation Policy) Rules 2007;
(b) over the period up to the relevant day;
(c) where the risk equalisation trust fund payments or receipts have accrued but have not yet been paid; and
(d) where an invoice, notice or receipt from the Council has not yet been received by the private health insurer, for that period.
unbilled gross deficit means the central estimate of the sum of the eligible benefits notionally allocated to the aged‑based pool and the high cost claimants pool, calculated for each risk equalisation jurisdiction, and under the following conditions:
(a) in accordance with Part 2, Rule 11(1)(a) of the Private Health Insurance (Risk Equalisation Policy) Rules 2007;
(b) over the period up to the relevant day;
(c) where the risk equalisation trust fund payments or receipts have accrued but have not yet been paid; and
(d) where an invoice, notice or receipt from the Council has not yet been received by the private health insurer, for that period.
uncompensated loss means the likely net loss after insurance, derivative, recoveries, and compensation.
unexpired risk liability has the meaning given in the liability adequacy test in the relevant Australian Accounting Standards Board Standard 1023.
xth percentile means the percentile with which the:
(a) net margin for the health insurance business; and
(b) investment income; and
(c) health related business income and all other income, less associated expenses;
must be measured at, in order to achieve a second percentile profit margin, incorporating allowance for correlation between (a), (b) and (c).
3A Approved loss absorbing subordinated debt
(1) An instrument or agreement of issue of approved loss absorbing subordinated debt must be approved by the Council prior to the time of issue.
(2) The Council must consider the requirements in subclause (3) and have regard to the quantum of the proposed issue and the timing for draw down, in making its decision on approval.
(3) Approved loss absorbing subordinated debt must be created by a debt instrument or agreement which meets and continues to meet the following terms and conditions:
(a) it must comprise a mechanism which specifies the conditions and process for loss absorption, through diminution of value, conversion or other means, of the instrument or agreement on a going concern basis, such that prior to non‑compliance with the capital adequacy standard the value of the debt would be reduced to the relevant extent, and if necessary exhausted; and
(b) it must have a minimum term of 10 years from the commencement of the loan; and
(c) there must be no circumstances where repayment may be accelerated or called at the lender’s or any third party’s option; and
(d) interest payments must not be payable where the payment of these would cause the fund to breach the capital adequacy standard; and
(e) interest payment obligations may be capitalised and interest may be charged on capitalised interest; and
(f) capital repayments must not be made where repayment would cause the fund to breach the capital adequacy standard; and
(g) delayed capital repayments may be subject to continuing interest charges, on the interest charge and repayment conditions specified in this paragraph.
Part 2—Expenditure and application of health benefits funds
4 Mortgages and charges
(1) For the purposes of paragraph 137‑10(3)(b) of the Act, the purpose for which a private health insurer may mortgage or charge an asset of a health benefits fund, or funds, conducted by the insurer is that the mortgage or charge is for the sole purpose of the benefit of the business of the fund or funds.
(2) A mortgage or charge referred to in subrule (1) is subject to the conditions that it:
(a) only secures a borrowing that is permitted under these Rules; and
(b) does not secure a liability that is not a liability incurred, or to be incurred, by the fund, or funds, for the business of the fund or funds; and
(c) will not adversely impact on the insurer’s ability to:
(i) maintain the capital adequacy of the fund in accordance with the capital adequacy standard; or
(ii) comply with a capital adequacy direction given to the insurer; or
(iii) maintain the standards of solvency in accordance with the solvency standard; or
(iv) comply with a solvency direction given to the insurer.
(3) A mortgage or charge is subject to the condition that:
(a) the mortgage or charge complies with the insurer’s risk management statements or policies that have been developed with the advice of the insurer’s appointed actuary and approved by the board of the insurer; or
(b) before entering into the transaction for the mortgage or charge, the insurer obtains and considers advice from its appointed actuary on the matters referred to in subrule (2) in respect of that mortgage or charge.
Note: Section 137‑15 of the Act provides that a transaction entered into in contravention of section 137‑10 is of no effect unless the Federal Court makes an order in respect of the transaction, or the transaction is included in a class of transactions specified in these Rules to be transactions to which section 137‑15 of the Act applies.
5 Borrowings
(1) For subsection 137‑10(4) of the Act, a private health insurer must not borrow money for the purposes of the business of a health benefits fund conducted by the insurer unless the borrowing is:
(a) by way of a subordinated debt; or
Note: Subordinated debt is defined in rule 3.
(b) by means of a bank overdraft; or
(c) to cover settlement of a transaction for the acquisition of an asset that is to be an asset of the fund, but only where the period of the borrowing does not exceed 90 days and the amount borrowed does not exceed 10% of the value of the assets of the fund following the acquisition; or
(d) otherwise, for the sole purpose of the benefit of the business of the fund, but only where the borrowing would not result in the total amount of principal outstanding under all borrowings, excluding the amount of a subordinate debt, exceeding the greater of 10% of the assets of the fund or 50% of the amount of free assets of the fund.
(2) In this rule, free assets of the fund means assets in excess of the capital adequacy and solvency requirements in accordance with the capital adequacy standard and solvency standard.
Note: Section 137‑15 of the Act provides that a transaction entered into in contravention of section 137‑10 is of no effect unless the Federal Court makes an order in respect of the transaction, or the transaction is included in a class of transactions specified in these Rules to be transactions to which section 137‑15 of the Act applies.
Part 3—Restructure of health benefits funds
6 Restructure under section 146‑1 of the Act
(1) A private health insurer may apply to the Council in the approved form for approval under section 146‑1 of the Act of a restructure of its health benefits fund or funds.
(2) In the application, the insurer must set out the restructure proposal (the restructure proposal) by:
(a) identifying the date on which, subject to the Council’s approval and compliance with the requirements of the Act, the Regulations and the Rules, the restructure proposal is to take effect (the restructure date); and
(b) identifying which funds of the insurer are to be restructured under the restructure proposal (the restructuring funds); and
(c) identifying the transferring fund (the transferring fund), being the fund whose policies are to become referable to another fund or other funds of the insurer (the receiving fund(s)) on the restructure date; and
(d) identifying which policy group or groups of the transferring fund are to become referable to the receiving fund(s) on the restructure date; and
(e) stating the risk equalisation jurisdiction or jurisdictions for each receiving fund and other funds of the insurer; and
(f) stating for each receiving fund whether the fund is existing or proposed; and
(g) if the restructure involves more than one receiving fund, specifying which policy group or groups are to become referable to which of the receiving funds on the restructure date; and
(h) if the restructure would result in the insurer having more than one health benefits fund in respect of a particular risk equalisation jurisdiction, explaining how that result would be consistent with section 134‑1 of the Act; and
(i) specifying which of the liabilities incurred for the purposes of the transferring fund, including policy liabilities, are to become treated as incurred for the purposes of a receiving fund on the restructure date; and
Note: The specification which is sufficient for this rule is stated in subrule (3).
(j) specifying which of the assets of the transferring fund are to become assets of a receiving fund on the restructure date; and
Note: The specification which is sufficient for this rule is stated in subrule (3).
(k) explaining why the assets and liabilities which are to be transferred under the restructure represent a reasonable estimate within the meaning of paragraph 146‑1(2)(a) of the Act of what would, immediately before the restructure, be the net asset position of the transferring fund; and
(l) if there is more than one receiving fund, explaining why the distribution of assets and liabilities between the restructuring funds is fairly distributed within the meaning of paragraph 146‑1(2)(aa) of the Act; and
(m) if it is proposed that some assets of the transferring fund will not become assets of a receiving fund, identifying the assets and stating why those assets are not to become assets of a receiving fund; and
(n) if it is proposed that some liabilities incurred for the purposes of the transferring fund are not to become treated as incurred for the purposes of a receiving fund, identifying the liabilities and stating why those liabilities are not to become treated as incurred for the purposes of a receiving fund; and
(o) explaining how the restructure will be consistent with
(i) the solvency standard; and
(ii) the capital adequacy standard.
(3) The specifications required by subrule (2) may be:
(a) by listing particular assets or liabilities; or
(b) by reference to categories of assets or liabilities; or
(c) by a combination of (a) and (b).
7 Requirements in relation to a restructure
(1) A private health insurer must submit to the Council with an application for approval of a restructure proposal:
(a) a business plan (the Business Plan) for each receiving fund covering the period of the first 36 months of operation from the restructure date including the following:
(i) a statement of the liabilities to become treated as incurred for the purposes of the fund and the assets of the fund at the restructure date; and
(ii) a budget statement for the fund for each month of the period of the Business Plan, setting out in detail:
(A) the projected income and expenditure for the fund; and;
(B) the projected assets and liabilities at the end of each month; and
(C) the projected solvency and capital adequacy position of the fund at the end of each month; and
(iii) the ratio that the projected amount of the management and administrative expenses in respect of the conduct of the fund bears to the estimated amount of premiums paid to that fund; and
(iv) a summary of proposed changes, if any, to the insurer’s marketing plan, including strategies and costs associated with the restructuring and promotion of the fund; and
(v) the estimated number of policy holders of the fund at the end of each month; and
(vi) a summary of any proposed changes to the insurer’s contractual procedures and arrangements with health service providers and other service providers; and
(vii) a summary of any proposed changes to benefits or premiums; and
(viii) particulars of any arrangements or processes necessary for the restructure to take place, including:
(A) any proposed amendments to the insurer’s constitution or rules required for the restructure to take place; and
(B) any steps required under any other law of the Commonwealth, or State or Territory required for the restructure to take place; and
(b) a statement by an officer (the certification of compliance) confirming that:
(i) the insurer is not being wound up; and
(ii) the board, or other governing body, of the insurer has considered the restructure proposal and is of the view it meets, and the operation of the restructuring funds from the restructure date in accordance with the restructure will meet, the requirements of:
(A) the Act; and
(B) any Regulations; and
(C) the Rules; and
(c) a report from the insurer’s appointed actuary (the actuary’s report) which provides the opinion of the actuary:
(i) that the aspects of the Business Plan which provide the information required in paragraph (1)(a) are well‑founded; and
(ii) that the assets and liabilities that would be transferred to the receiving fund or funds represent a reasonable estimate of what would be, immediately before the restructure, the net asset position of the transferring funds; and
(iii) about how the restructure will affect the ability of the insurer to comply with:
(A) the solvency standard; and
(B) any solvency direction to which the insurer is subject; and
(C) the capital adequacy standard; and
(D) any capital adequacy direction to which the insurer is subject,
in relation to each of the restructuring funds of the insurer at each of the following times:
(E) the restructure date; and
(F) any time over the first 36 months after the restructure date; and
(G) any time within the foreseeable future of operation of the funds beyond 36 months after the restructure date; and
(iv) about what effects the restructure is likely to have on the premiums for and benefits under:
(A) each policy group of policies which are referable to the transferring fund immediately before the restructure; and
(B) each policy group of policies which are not referable to a receiving fund immediately before the restructure; and
at each of the following times:
(C) the restructure date; and
(D) any time over the first 36 months after the restructure date; and
(E) any time within the foreseeable future of operation of the funds beyond 36 months after the restructure date; and
(d) a copy of the statement, if any, issued by the insurer in accordance with subsection 93‑20(2) of the Act about any proposed change of the rules of the insurer associated with the proposed restructure; and
(e) a copy of any statement issued in accordance with subsection 93‑20(4) about the aspect of the proposed restructure which involves the proposed change in funds to which policies are referable; and
(f) a summary of any submissions in writing (including email or other electronic form) to the insurer from a policy holder of a fund conducted by the insurer in relation to any aspect of the restructure proposal regardless of whether the submission was made in response to a statement issued under subsection 93‑20(2) or subsection 93‑20(4) of the Act or otherwise.
(2) Prior to the restructure date, the insurer must, except to the extent provided for in the Act, procure any amendment of its constitution and any of its rules required for the restructure proposal to take place.
Note: The Act contains relevant provisions in section 146‑10 and section 146‑15.
(3) Prior to the restructure date, the insurer must take all steps required under any other law of the Commonwealth, a State or a Territory required for the restructure to take place.
Note: The Act contains relevant provisions in section 146‑15.
8 Criteria for approving or refusing a restructure
(1) For the purposes of paragraph 146‑1(2)(aa) of the Act, a proposed distribution of assets and liabilities between receiving funds under a proposed restructure of a health benefits fund conducted by a private health insurer is not fairly distributed if the proposed distribution will cause, or may contribute to causing, the insurer to be in breach of:
(a) the Act; or
(b) any Regulations; or
(c) any of the Rules; or
(d) a solvency direction that applies to the private health insurer; or
(e) a capital adequacy direction that applies to the private health insurer,
at one or more of the following times:
(f) the restructure date; or
(g) any time within the first 36 months after the restructure date; or
(h) any time within the foreseeable future of operation of the restructuring funds beyond 36 months after the restructure date.
(2) Subrule (1) is not an exhaustive statement of criteria for refusing an application under section 146‑1 of the Act and does not prevent the Council from taking into account considerations other than those referred to in subrule (1) to form a view that a proposed distribution between receiving funds of assets and liabilities is not fairly distributed for the purposes of paragraph 146‑1(2)(aa) of the Act.
(3) When considering whether a restructure will result in unfairness for the purposes of paragraphs 146‑1(3)(a) or (b) of the Act, the matters the Council may take into account include, but are not limited to, the matters referred to in subrule (1).
(4) In considering an application under subsection 146‑1(1) of the Act, the Council must take into account statements made in:
(a) the application; and
(b) the restructure proposal; and
(c) the certification of compliance; and
(d) the actuary’s report,
but is not bound by those statements and may make its own inquiries which may include, without limitation, obtaining other actuarial advice.
9 How a restructure takes place
If on the restructure date:
(a) the Council has approved a restructure proposal of a health benefits fund conducted by a private health insurer; and
(b) the insurer complies with the requirements of the Rules in relation to the restructure including, without limitation, the requirements under subrule 7(2) and 7(3); and
(c) the insurer takes the steps required for establishment of any new fund(s) required for the restructure to come into effect;
then:
(d) the restructure takes place; and
(e) the relevant policies of the transferring fund become referable to the receiving fund or funds in accordance with the restructure proposal; and
(f) the liabilities incurred for the purposes of the transferring fund, including without limitation the policy liabilities, become treated as liabilities incurred for the purposes of the receiving fund or funds in accordance with the restructure proposal; and
(g) the assets of the transferring fund become assets of the receiving fund or funds in accordance with the restructure proposal.
10 Notification to interested persons of the outcome of an application
(1) If the Council or the Administrative Appeals Tribunal approves an application for approval of a restructure of a health benefits fund conducted by a private health insurer, then within 20 days of the restructure taking place, the insurer must provide to at least one adult insured under each policy, or, for a policy covering no adults, the person who pays the premium, which is being made, or has been made, referable to a receiving fund, a statement of the outcome of the application.
(2) The notification of outcome referred to in subrule (1) may be combined with the statement provided for the purposes of subsection 93‑20(4) of the Act.
(3) If the application for approval of the restructure is refused by the Council, then no later than 10 days after the time for the lodging of an application for review of the Council’s decision by the Administrative Appeals Tribunal, the insurer must provide to at least one adult insured under each policy, or, for a policy covering no adults, the person who pays the premium, which was proposed for transfer, a statement of:
(a) the outcome of the application; and
(b) whether the insurer has lodged or intends to lodge an application for review with the Administrative Appeals Tribunal.
(4) If the application for approval of the restructure is refused on application to the Administrative Appeals Tribunal, then no later than 10 days after the Tribunal’s decision being delivered, the insurer must provide to at least one adult insured under each policy, or, for a policy covering no adults, the person who pays the premium, which was proposed for transfer, a statement of the outcome of the application.
Part 4—Merger and acquisition of health benefits funds
10A Interpretation
In this Part:
financial benefit includes any consideration or payment of any kind in respect of the transfer, but does not include any benefit to a policy holder, or other insured person, arising under the policy that insures the person.
market value means the value of the business concerned if it were disposed of to an unrelated purchaser bidding in a market on an ordinary commercial basis for business of the kind disposed of, without any sort of discount or incentive for the business being offered.
not‑for‑profit insurer means an insurer which is not registered as a for profit insurer.
11 Merger and acquisition under section 146‑5 of the Act
(1) If a private health insurer (the transferee insurer) and one or more other private health insurers (the transferor insurers) enter into an arrangement (the arrangement) under which some or all of the policies that are referable to a health benefits fund or funds (transferring funds) of the transferor private health insurer or transferor private health insurers, are to become referable to a health benefits fund or funds (receiving funds) of the transferee insurer, in accordance with section 146‑5 of the Act, the following rules apply.
(2) The transferor insurer(s) and the transferee insurer must make a written and dated record of the arrangement which is signed on behalf of each party to the arrangement.
(3) The arrangement must do the following:
(a) identify the transferring fund or funds; and
(b) identify the receiving fund or funds; and
(c) identify the date, or means of determining the date, on which the arrangement is to take effect, which must not be before the Council approves the arrangement in writing (the transfer date); and
(d) state, for each transferring fund:
(i) whether all of the policies are to become referable to a receiving fund; and
(ii) if not all of the policies are to become referable to a receiving fund, specify the policy group or groups for the policies which are to become referable to a receiving fund on the transfer date; and
(e) if there is more than one receiving fund, specify for each receiving fund which policy group’s or groups’ policies are to become referable to the receiving fund on the transfer date;
(f) for each receiving fund, specify the assets of, and liabilities incurred for the purposes of, a transferring fund which are to become assets of, and become treated as liabilities incurred for the purposes of, the receiving fund on the transfer date; and
(g) provide for carrying out the requirements under the general law for the transfer of the assets and liabilities which are to be transferred under the arrangement, including obtaining relevant third‑party consents, novations of agreement and execution and lodgement of documents for execution; and
(h) without limiting the generality of paragraph (g), in relation to each asset the transfer of which to a transferee insurer at law requires registration and the transfer of which will not be complete in law on the transfer date, impose on the transferor insurer obligations to:
(i) transferee may reasonably require whether before or after the transfer date, including, without limitation, provide assistance in responding to requisitions from a registrar of titles; and
(ii) from the transfer date until registration of the transferee’s title, hold the asset on trust for the transferee on the terms set out in Schedule 1; and
(i) in relation to an asset which cannot be transferred under the general law, impose on the transferor insurer obligations to hold the asset on trust for the transferee insurer on the terms set out in Schedule 1; and
(j) without limiting the generality of paragraph (g) in relation to each liability, the transfer of which will not be completed on the transfer date, impose on each transferee insurer obligations to:
(i) take all such steps as the transferor insurer may reasonably require, whether before or after the transfer date, to achieve transfer of the liability if such transfer is possible under the general law; and
(ii) indemnify the transferor insurer against any claims made on or after the transfer date which are allegedly based on the liability with the obligation to indemnify being conditional on the transferor insurer responding to the claim in such manner as the transferee insurer may reasonably require, including, without limitation, allowing the transferee insurer at its own expense to settle the claim, take over any litigation to defend the claim, or both; and
(k) without limiting the generality of paragraph (g), provide for access for each transferee insurer to such of the business records of the transferring fund as the transferee insurer may require to act as private health insurer for the transferred policies.
(4) The specifications required by subrule (3) may be:
(a) by listing particular assets or liabilities; or
(b) by reference to categories of assets or liabilities; or
(c) by a combination of (a) and (b).
(5) If the proposed transfer of policies involves any form of financial benefit to any person, the arrangement must state the details of the financial benefit, whether or not the person to benefit is a party to the arrangement.
(6) If the proposed transfer of policies involves the transfer of policies referable to the health benefits fund of a not‑for‑profit insurer to the health benefits fund of a for profit insurer, and the transferor insurer has, or will have if the application is approved, any interest in the transferee insurer, the application for approval must provide a statement by an appropriately qualified person, independent of the insurers involved, certifying as to what would be the market value if the transfer involved the sale of the transferor insurer's health insurance business.
(7) In subrule (6), health insurance business means the assets and liabilities proposed to be transferred under the arrangement referred to in subrule (2).
12 Requirements in relation to a merger or acquisition
(1) The parties to an arrangement must submit to the Council with an application for approval of the arrangement:
(a) a copy of the arrangement;
(b) a business plan (the Business Plan) for each receiving fund covering the period of the first 36 months of operation from the transfer date including the following:
(i) a statement of the liabilities incurred for the purposes of, and assets of, the fund at the transfer date; and
(ii) a budget statement for the fund for each month of the period of the Business Plan, setting out in detail:
(A) the projected income and expenditure for the fund; and;
(B) the projected assets and liabilities at the end of each month; and
(C) the projected solvency and capital adequacy position of the fund at the end of each month; and
(iii) the ratio that the projected amount of the management and administrative expenses in respect of the conduct of the fund bears to the estimated amount of premiums paid to that fund; and
(iv) summary of proposed changes, if any, to the insurer’s marketing plan including strategies and costs associated with the implementation of the arrangement and promotion of the fund; and
(v) the estimated number of policy holders of the fund at the end of each month; and
(vi) summary of any proposed changes to the insurer’s contractual procedures and arrangements with health service providers and other service providers; and
(vii) summary of any proposed changes to benefits and premiums; and
(c) for each receiving fund, a statement by an officer for the transferee insurer (the certification of compliance) confirming that the board, or other governing body, of the insurer has considered the arrangement and is of the view that the arrangement meets, and the operation of the receiving fund from the transfer date in accordance with the arrangement will meet, the requirements of:
(i) the Act; and
(ii) any Regulations; and
(iii) the Rules; and
(d) for each receiving fund, a report from the transferee insurer’s appointed actuary (the actuary’s report) which provides the opinion of the actuary:
(i) that the aspects of the Business Plan which provide the information required in paragraph (b) are well‑founded; and
(ii) that the assets and liabilities that would be transferred to the receiving fund or funds represent a reasonable estimate of what would be, immediately before the arrangement takes effect:
(A) if there is one transferring fund—the net asset position of the transferring funds; and
(B) if there is more than one transferring fund—the sum of the net asset positions of each of the funds;
(iii) about how the arrangement will affect the ability of the insurer to comply with:
(A) the solvency standard; and
(B) the capital adequacy standard,
in relation to each of the relevant funds of the insurer at each of the following times:
(C) the transfer date; and
(D) any time over the first 36 months after the transfer date; and
(E) any time within the foreseeable future of operation of the funds beyond 36 months after the transfer date; and
(iv) about what effects the arrangement is likely to have on the premiums for, and benefits under:
(A) each policy group of the policies which are referable to the transferring fund immediately before the restructure; and
(B) each policy group of the policies which are referable to a receiving fund immediately before the restructure,
at each of the following times:
(C) the transfer date; and
(D) any time over the first 36 months after the transfer date; and
(E) any time within the foreseeable future of operation of the funds beyond 36 months after the transfer date; and
(e) for each transferring fund, a statement by an officer for the transferor insurer (the certification of compliance) confirming that the board, or other governing body, of the insurer has considered the arrangement and is of the view that the arrangement meets, and the operation of the receiving fund from the transfer date in accordance with the arrangement will meet, the requirements of:
(i) the Act; and
(ii) any Regulations; and
(iii) the Rules; and
(f) a report from the transferor insurer’s appointed actuary (the actuary’s report) which provides the opinion of the actuary:
(i) that the assets and liabilities that would be transferred to the receiving fund or funds represent a reasonable estimate of what would be, immediately before the arrangement takes effect:
(A) if there is one transferring fund—the net asset position of the transferring fund; and
(B) if there is more than one transferring fund—the sum of the net asset positions of each of the funds; and
(ii) that for each transferring fund to which subparagraph 146‑5(1)(b)(i) of the Act applies, the net asset position of the fund immediately after the arrangement takes effect will not be greater than zero; and
(iii) about how the arrangement will affect the ability of the insurer to comply with:
(A) the solvency standard; and
(B) the capital adequacy standard,
at each of the following times:
(C) the transfer date; and
(D) any time over the first 36 months after the transfer date; and
(g) a copy of the statement, if any, issued by a party to the arrangement in accordance with subsection 93‑20(2) of the Act about any proposed change of the rules of the transferor private health insurer associated with the arrangement; and
(h) a copy of any statement issued by a party to the arrangement in accordance with subsection 93‑20(4) about the aspect of the arrangement which involves the proposed change in funds to which policies are referable; and
(i) a summary of any submissions in writing (including email or other electronic form) to a private health insurer party to the arrangement from a policy holder of a policy of a fund conducted by the insurer in relation to any aspect of the arrangement regardless of whether the submission was made in response to a statement issued under subsection 93‑20(2) or subsection 93‑20(4) of the Act or otherwise.
(2) Prior to the transfer date, each party to the arrangement must, except to the extent provided for in the Act, procure any amendment of its constitution and any of its rules required for the arrangement to take place.
Note: The Act contains relevant provisions in s146‑10 and s146‑15.
(3) Prior to the transfer date, each party to the arrangement must take all steps required under any other law of the Commonwealth, a State or a Territory required for the arrangement to take place.
Note: The Act contains relevant provisions in s146‑15.
12A Transfer from an incorporated association
(1) This rule applies to an application under section 146‑5 made before 1 January 2010 where:
(a) the arrangement is between:
(i) a transferor insurer that is an incorporated association under a law of a State or Territory; and
(ii) a transferee insurer that is incorporated by or under the Corporations Act 2001; and
(b) under the arrangement:
(i) all of the assets and liabilities of the transferor insurer are being transferred to the transferee insurer; and
(ii) the transferee insurer has only one health benefits fund and that fund is the receiving fund; and
(iii) the assets and liabilities of the transferor insurer, other than any transferred by operation of the Act, are being transferred by an order made under a law of a State or Territory that deals with the transfer of assets and liabilities from an incorporated association to another corporation.
(2) If this rule applies to an arrangement, the parties to the arrangement are not required to comply with:
(a) each of paragraphs 11(3)(g) to (k) and 12(1)(b) to (i), including for the purposes of rule 14; or
(b) subrule 15(1).
13 Criteria for approving or refusing a merger or acquisition
(1) For the purposes of paragraph 146‑5(3)(b) of the Act, a proposed distribution of assets and liabilities between receiving funds under a proposed arrangement is not fairly distributed if the proposed distribution will cause, or may contribute to causing, a transferee insurer to be in breach of:
(a) the Act; or
(b) any Regulations; or
(c) any of the Rules; or
(d) a solvency direction that applies to the private health insurer; or
(e) a capital adequacy direction that applies to the private health insurer,
at one or more of the following times:
(f) the transfer date; or
(g) any time within the first 36 months after the transfer date; or
(h) any time within the foreseeable future of operation of the restructuring funds beyond 36 months after the transfer date.
(2) Subrule (1) is not an exhaustive statement of criteria for refusing an application under section 146‑5 of the Act and does not prevent the Council from taking into account considerations other than those referred to in subrule (1) to form a view that a proposed distribution between receiving funds of assets and liabilities is fairly distributed for the purposes of paragraph 146‑5(3)(b) of the Act.
(3) When considering whether a distribution between receiving funds pursuant to a restructure is fairly distributed for the purposes of paragraph 146‑5(3)(b) of the Act, the relevant matters the Council may take into account include, but are not limited to, the matters referred to in subrule (1).
(4) In considering an application under subsection 146‑5(1) of the Act, the Council must take into account statements made in:
(a) the application; and
(b) the arrangement; and
(c) the certifications of compliance; and
(d) the actuaries’ reports,
but is not bound by those statements and may make its own inquiries which may include, without limitation, obtaining other actuarial advice.
13A Additional criteria for approving or refusing a merger or acquisition
(1) For the purposes of subsection 146‑5(5), additional criteria for refusing to approve applications under section 146‑5 are specified in this rule.
(2) If the application is in respect of an arrangement which involves the transfer of policies referable to the health benefits fund of a not‑for‑profit insurer and there is any financial benefit to any person, the criteria for refusal are that the arrangement would result in a financial benefit:
(a) to any person who is not a policy holder of, or another person insured through, the health benefits fund conducted by the transferor insurer; or
(b) being distributed inequitably between policy holders, or another person insured through, the health benefits fund conducted by the transferor insurer; or
(c) not being distributed at all to policy holders of the health benefits fund conducted by the transferor insurer.
(3) If the application is in respect of an arrangement of a kind referred to in subrule 11(6), the criteria for refusal are that:
(a) the transferee insurer has not paid the market value for the transferor insurer's health insurance business; or
(b) if subrule (2) also applies to the transfer, the financial benefit in respect of the transfer does not represent the market value for the transferor insurer's health insurance business.
(4) In considering the market value of the transferor private health insurer’s health insurance business, the Council may have regard to the statement referred to in subrule 11(6) and any other information it thinks fit.
(5) If the Council requests the applicants to amend in a particular way the arrangement that is the subject of the application, it is a criterion for refusal that the applicants fail to amend the arrangement within a time specified by the Council in writing to the applicants.
14 How a merger or acquisition takes effect
If, on the transfer date:
(a) the Council has approved an arrangement; and
(b) the transferor and transferee insurer(s) have:
(i) complied with rules 11 and 12 including, without limitation, subrules 12(2) and 12(3); and
(ii) taken the actions referred to in Schedule 1,
then:
(c) each transferee insurer is substituted for the transferor insurer as the private health insurer for each policy identified in the arrangement as a policy which is to become referable to a receiving fund of the transferee insurer; and
(d) the policy operates on and from the transfer date as if all references in the policy to the transferor insurer were references to the transferee insurer; and
(e) policies referable to the transferring fund(s) become referable to the receiving fund(s) in accordance with the arrangement; and
(f) the liabilities incurred for the purposes of the transferring fund(s), including without limitation the policy liabilities, become treated as incurred for the purposes of the receiving fund(s) in accordance with the arrangement; and
(g) the assets of the transferring fund(s) become assets of the receiving fund(s) in accordance with the arrangements.
Note: Subsection 146‑5(7) of the Act provides that, for the purposes of the Act, an insurance policy that becomes referable to a health benefits fund of the transferee insurer as a result of the arrangement is treated, after the arrangement takes effect, as if it were an insurance policy issued by the transferee insurer.
15 Notification to interested persons of outcome of a section 146‑5 application
(1) If the Council or the Administrative Appeals Tribunal approves an application for approval of an arrangement for a merger or acquisition, then within 20 days of the arrangement taking effect, the private health insurers who made the application must provide to at least one adult insured under each policy, or, for a policy covering no adults, the person who pays the premium, which is being made, or has been made, referable to a receiving fund, a statement of the outcome of the application.
(2) The notification of outcome referred to in subrule (1) may be combined with the statement provided for the purposes of subsection 93‑20(4) of the Act.
(3) If the application for approval of an arrangement is refused by the Council, then no later than 10 days after the time for the lodging of an application for review of the Council’s decision by the Administrative Appeals Tribunal, the insurers must provide to at least one adult insured under each policy, or, or, for a policy covering no adults, the person who pays the premium, which was proposed for transfer, a statement of:
(a) the outcome of the application; and
(b) whether either of the insurers has lodged or intends to lodge an application for review with the Administrative Appeals Tribunal.
(4) If the application for approval of an arrangement is refused on application to the Administrative Appeals Tribunal, then no later than 10 days after the Tribunal’s decision being delivered, the appellant must provide to at least one adult insured under each policy, or, or, for a policy covering no adults, the person who pays the premium, which was proposed for transfer, a statement of the outcome of the application.
Part 5—Risk equalisation jurisdictions
16 Areas that are risk equalisation jurisdictions
For subsection 146‑1(6) of the Act, the areas specified in the following paragraphs are each a risk equalisation jurisdiction:
(a) Australian Capital Territory and New South Wales;
(b) Northern Territory;
(c) Queensland;
(d) South Australia;
(e) Tasmania;
(f) Victoria;
(g) Western Australia and the Territory of Christmas Island and the Territory of Cocos (Keeling) Islands.
17 Working out the policy group for a policy that has 2 or more policy holders whose addresses are not in the same risk equalisation jurisdiction
(1) Within 20 days of a private health insurer first being notified that a policy holder of a policy has an address which is not in the same risk equalisation jurisdiction as is the address of one or more other policy holders of the same policy, the insurer may by a written and dated determination allocate the policy to a risk equalisation jurisdiction in which one or more of the policy holders has their address.
(2) If the insurer makes a determination in accordance with subrule (1), then the policy is allocated to the risk equalisation jurisdiction in accordance with the determination and is taken to have been so allocated from the date that the insurer was notified of the difference in addresses.
(3) If the insurer relies on an allocation under subrule (1), the insurer must on written request from the Council to do so, provide access to the record of determination referred to in subrule (1).
(4) If the insurer fails:
(a) to allocate the policy to a risk equalisation jurisdiction, in accordance with subrule (1); or
(b) to provide the access referred to in subrule (3) in response to a written request from the Council,
then the policy is allocated to the risk equalisation jurisdiction which corresponds to the address of the first person named in the policy records of the insurer and is taken to have been so allocated from the date that the insurer was notified of the difference in addresses.
Part 6—Solvency and capital adequacy standards
18 Solvency standard
For subsection 140‑5(1) of the Act, a solvency standard, as set out in Schedule 2 of these Rules, is established for the purposes of Division 140 of the Act.
19 Capital adequacy standard
For subsection 143‑5(1) of the Act, a capital adequacy standard, as set out in Schedule 3 of these Rules, is established for the purposes of Division 143 of the Act.