Financial Sector (Collection of Data) determination No. 19 of 2005 (Cth)
Financial Sector (Collection of Data) determination No. 19 of 2005
Reporting Standard GRS 310.1 (2005)
Financial Sector (Collection of Data) Act 2001
I, Charles Watts Littrell, a delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (‘the Act’) MAKE the reporting standard set out in the Schedule, which applies to financial sector entities of the kind specified in paragraph 2 of the reporting standard.
Under section 15 of the Act, I DECLARE that the reporting standard shall begin to apply to those entities on the later of 1 July 2005 and the date of registration on the Federal Register of Legislative Instruments.
Dated 21 June 2005
[signed]
……………………............
Charles Littrell
Executive General Manager
Policy, Research and Statistics Division
APRA
Interpretation
In this Notice
APRA means the Australian Prudential Regulation Authority.
Schedule
Reporting Standard GRS 310.1 (2005)
Premium Revenue and Reinsurance Expense
Objective of this reporting standard
This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001 (the Collection of Data Act). It requires general insurers (insurers), including foreign general insurers (foreign insurers) operating in Australia through branch operations, to report to APRA, generally on a quarterly and annual basis, information on premium revenue and reinsurance expense.
This reporting standard outlines the overall requirements for the provision of this information to APRA. It should be read in conjunction with:
·the versions of Form GRF 310.1 Premium Revenue and Reinsurance Expense (Form GRF 310.1) designated for a ‘Licensed Insurer’ and ‘Consolidated Insurance Group’ and the instructions to those versions of the form (which are attached and all form part of this reporting standard).
Purpose
Data collected in Form GRF 310.1 is used by APRA for the purpose of prudential supervision of insurers.
Application and commencement
This reporting standard applies to all insurers and shall begin to apply to those entities on the later of 1 July 2005 and the date of registration on the Federal Register of Legislative Instruments.
Information required
An insurer must provide APRA with the information required by the version of Form GRF 310.1 designated for a ‘Licensed Insurer’ for each reporting period.
An insurer that is a highest parent entity in relation to a consolidated insurance group must also provide APRA with the information required by the version of Form GRF 310.1 designated for a ‘Consolidated Insurance Group’ for each reporting period.
Forms and method of submission
The information required by this reporting standard must be given to APRA either:
(a)in electronic form, using one of the electronic submission mechanisms provided by the ‘Direct to APRA’ (also known as ‘D2A’) application; or
(b)manually completed on paper, which must be faxed or mailed to APRA’s head office.
Note: the Direct to APRA application software and paper forms may be obtained from APRA.
Reporting periods and due dates
Subject to paragraph 7, an insurer must provide the information required by this reporting standard:
(a) in respect of each quarter based on the financial year (within the meaning of the Corporations Act 2001) of the insurer; and
(b) in respect of each financial year (within the meaning of the Corporations Act 2001) of the insurer.
Note: The annual information required by paragraph 3 read with subparagraph 6(b), together with certain annual information required by other reporting standards, will form part of the insurer’s yearly statutory accounts within the meaning of section 3 of the Insurance Act 1973 (the Insurance Act). This means that the information must be audited in accordance with paragraph 49J(1)(a) of the Insurance Act. Under subsection 49J(3), the auditor must give the insurer a certificate relating to the yearly statutory accounts, and that certificate must specify the matters provided for in the prudential standards. (The annual information required from a highest parent entity under paragraph 5 read with subparagraph 6(b) is not required to be audited. APRA proposes to determine an exemption, under section 7 of the Insurance Act, in relation to the obligations under Part IV Division 4 of the Act in respect of the auditing of this information.)
APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular insurer to require it to provide the information:
(a) more frequently (if, having regard to the particular circumstances of the insurer, APRA considers it necessary or desirable to obtain information more frequently for the purposes of the prudential supervision of the insurer); or
(b) less frequently (if, having regard to the particular circumstances of the insurer and the extent to which it requires prudential supervision, APRA considers it unnecessary to require the insurer to provide the information as frequently as provided by subparagraph 6(a) or (b)).
The information required by paragraph 3 of this reporting standard from an insurer must be provided to APRA by the following times:
(a) in the case of the quarterly information required by subparagraph 6(a) – 20 business days after the end of the reporting period to which the information relates; and
(b) in the case of the annual information required by subparagraph 6(b) – 4 months after the end of the reporting period to which the information relates.
Note: Paragraph 49L(1)(a) of the Insurance Act provides that the auditor’s certificate required under subsection 49J(3) of that Act must be lodged with APRA in accordance with the prudential standards. The prudential standards provide that the certificate must be submitted to APRA together with the yearly statutory accounts. Accordingly, the auditor’s certificate relating to the annual information required by paragraph 3 read with subparagraph 6(b) must be provided to APRA by the time specified in subparagraph 9(b) of this reporting standard (unless an extension is granted under paragraph 11).
The information required by paragraph 4 of this reporting standard from an insurer that is a highest parent entity must be provided to APRA by the following times:
(a) in the case of the quarterly information required by subparagraph 6(a) – 30 business days after the end of the reporting period to which the information relates; and
(b) in the case of the annual information required by subparagraph 6(b) – 4 months after the end of the reporting period to which the information relates.
APRA may grant an insurer an extension of a due date in writing, in which case the new due date for the provision of the information will be the date on the notice of extension.
Quality control
The information provided by an insurer under this reporting standard (other than the information required from a highest parent entity under paragraph 4) must be the product of processes and controls that have been reviewed and tested by the approved auditor of the insurer. This will require the auditor to review and test the systems, processes and controls supporting the reporting of the information to ensure that they produce accurate data and are otherwise reliable. This review and testing must be done on an annual basis or more frequently if necessary to enable the approved auditor to form an opinion on the accuracy and reliability of the data.
The information provided by an insurer under this reporting standard must be subject to processes and controls developed by the insurer for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the insurer to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.
Authorisation
If an insurer submits information under this reporting standard using the ‘Direct to APRA’ software, it will be necessary for an officer of the insurer to digitally sign, authorise and encrypt the relevant data. For this purpose, APRA’s certificate authority will issue ‘digital certificates’, for use with the software, to officers of the insurer who have authority from the insurer to transmit the data to APRA.
If information under this reporting standard is provided in paper form, it must be signed on the front page of the relevant completed form by either:
(a) the Principal Executive Officer of the insurer; or
(b) the Chief Financial Officer of the insurer (whatever his or her official title may be).
Minor alterations to forms and instructions
APRA may make minor variations to:
(a) a form that is part of this reporting standard, and the instructions to such a form, to correct technical, programming or logical errors, inconsistencies or anomalies; or
(b) the instructions to a form, to clarify their application to the form
without changing any substantive requirement in the form or instructions.
If APRA makes such a variation it must notify insurers in writing.
Transitional
If a reporting period of an insurer ended on 30 June 2005, or ends after that date, the insurer must report under this reporting standard in respect of that reporting period.
Interpretation
In this reporting standard:
Accounting Standard AASB 1024 means the accounting standard so designated made by the Australian Accounting Standards Board, being the accounting standard that applied in respect of reporting periods (within the meaning of that accounting standard) commencing immediately before 1 January 2005;
approved auditor means an auditor who has been approved by APRA under section 40 of the Insurance Act;
business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays;
consolidated insurance group means a group comprising:
(a) an insurer that is a highest parent entity; and
(b) each subsidiary under the control (within the meaning of Accounting Standard AASB 1024) of that insurer, whether the subsidiary is incorporated in Australia or not;
foreign insurer means a foreign general insurer within the meaning of the Insurance Act;
Note: A reference to a ‘branch’ or ‘branch operation’ is a reference to the Australian operations of a foreign insurer.
highest parent entity means an insurer that satisfies all of the following conditions:
(a) it is incorporated in Australia;
(b) it has at least one subsidiary under its control (within the meaning of Accounting Standard AASB 1024); and
(c) it is not itself a subsidiary of an insurer that is incorporated in Australia;
Insurance Act means the Insurance Act 1973;
insurer means a general insurer within the meaning of the Insurance Act;
Note: In the forms and instructions, a reference to an ‘authorised insurer’, ‘authorised insurance entity’ or ‘licensed insurer’ is a reference to an insurer, and a reference to an ‘authorised reinsurance entity’ is a reference to an insurer whose business consists only of undertaking liability by way of reinsurance.
Principal Executive Officer means the principal executive officer of the insurer for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the insurer;
reporting period means a period mentioned in subparagraph 6(a) or (b) or, if applicable, paragraph 7.
A reference to a prudential standard or guidance note means the prudential standard or guidance note, made under section 32 of the Insurance Act, mentioned in the reference, as amended from time to time. If the prudential standard or guidance note has been revoked and replaced, the reference shall be taken to be to the prudential standard or guidance note that has replaced it.
Reporting Form GRF 310.1
Premium Revenue and Reinsurance Expense
Instruction Guide
Introduction
The purpose of this form is to provide information on premiums and reinsurance expenses by class of business, which supports the summarised underwriting result disclosed in GRF 310.0 Statement of Financial Performance. This instruction guide is designed to assist in the completion of the Statement of Premiums and of Reinsurance Expense and provides general directions for preparation and lodgment and explanatory notes for specific items
The form reports the following:
data by class of business (direct business and Reinsurance);
total premium revenue split between:
insurance business written (directly by the insurer and by inward reinsurance);
business received or written indirectly through underwriting pools or joint ventures; and
portfolio transfers to the accepting insurer;
premiums received (cashflow basis); and
outward reinsurance premiums as reinsurance expense.
Audit requirements
The form relating to authorised insurance entities and reinsurance entities is required to be subject to audit review and testing. The forms relating to the consolidated insurance group reporting unit is not subject to audit review and testing.
The scope and nature of audit testing required is outlined in the applicable Audit Guidance Statement issued by the Auditing and Assurance Board of the Australian Accounting Research Foundation.
Information provided in the form in respect of a financial year of an insurer forms part of the insurer’s ‘yearly statutory accounts’ within the meaning of section 3 of the Insurance Act 1973 (the Act). This means that:
the completed form for the financial year must be audited by the approved auditor of the insurer (see paragraph 49J(1)(a) of the Act);
the insurer must make such arrangements as to enable the auditor to do this (subsection 49J(2));
the auditor must give the insurer a certificate relating to the completed form (and other completed forms that are part of the insurer’s yearly statutory accounts), which must contain statements of the auditor’s opinion on the matters required by the prudential standards to be dealt with in the certificate (subsection 49J(3));
the certificate must be lodged with APRA as provided for in the prudential standards (paragraph 49L(1)(a)), namely by the due date for lodging the form in respect of the financial year for the insurer.
Reporting entity
Forms are to be completed for the following reporting entities where appropriate:
Branch insurers of a foreign parent insurer (reference to licensed insurer in the form means total operations of the branch, excluding the parent operations);
Authorised insurance entities, including mutual entities (reference to licensed insurer in the form means total operations of the licensed entity);
Authorised reinsurance entities (reference to licensed insurer in the form means total operations of the licensed entity); and
4. Consolidated insurance groups.
Note: the form for the consolidated insurance group is only required to complete the information requirements on the form. No risk change is applied to the consolidated insurance group at this stage.
For the purposes of APRA prudential reporting, the consolidated insurance group is interpreted as the accounts incorporating the highest parent entity in a group structure, that is an Australian authorised general insurance entity (for the purposes of the Act), and includes all subsidiaries, associates and joint ventures (registered both in Australia and overseas) of that parent entity.
For the purposes of this form, the highest parent entity in the corporate group does not include a company (e.g. non-operating holding company) that is not an authorised general insurance entity.
Definition of subsidiaries should be consistent with the requirements of Australian accounting standards AASB 1024 ‘Consolidated Accounts’ and definition of associates should be consistent with AASB 1016 ‘Accounting for Investments in Associates’.
Exemptions from the Consolidated Insurance Group requirements
Australian authorised insurers which do not have any subsidiaries are not required to complete the forms for this reporting unit.
Australian authorised insurers which have subsidiaries, but the financial position of the consolidated insurance group is not materially different from that of the licensed insurance entity, are not required to complete the forms for this reporting unit (i.e. the subsidiaries do not have any material dealings/balances).
Definitions
Definitions for data reporting items required by this form have been provided where possible in the instructions under the section headed ‘Specific Instructions’. In addition, the ‘Glossary of Terms’ also contains a list of definitions of common data reporting items.
Unit of measurement
Amounts denominated in a currency other than Australian currency are to be converted to AUD in accordance with AASB 1012 ‘Foreign Currency Translation’.
The general requirements of AASB 1012 for translation are:
Foreign currency monetary items outstanding at the reporting date must be translated at the spot rate at the reporting date; and
Other items outstanding at the reporting date must not be retranslated subsequent to initial recognition of the transaction.
Monetary items are defined to mean money held and assets and liabilities that are to be received or paid in fixed or determinable amounts of money (e.g. claims payments, reinsurance recoveries).
Monetary items arising under foreign currency derivative contracts at the reporting date must be translated as follows:
Where the exchange rate is fixed in the contract, at that fixed exchange rate; and
Where the exchange rate varies, at the spot rate at the reporting date.
The general requirements of AASB 1012 for accounting treatment of exchange differences arising on translation are:
Exchange differences must be recognised as either revenues or expenses in the calculation of net profit or loss on GRF 310.3 Investment and Other Operating Income and Expense, in the reporting period in which the exchange rates change; and
Exchange differences arise in respect of foreign currency monetary items which is directly attributable to the acquisition, construction or production of an asset that takes a long period of time to get ready for its intended use or sale, must be capitalised (net of any effects of a hedge) as part of the cost of that asset.
Translation of financial reports of foreign operations.
(A foreign operation is defined in AASB 1012 as meaning an entity for which financial reports are prepared in a foreign currency, and includes branches, associates and subsidiaries).
Exchange differences relating to foreign currency monetary items that form part of the net investment of an entity in a self-sustaining foreign operation, must be recognised as revenues or expenses in the calculation of net profit or loss on GRF 310.3 Investment and Other Operating Income and Expense, in the reporting period in which the exchange rates change.
However on incorporation of that foreign operation into the entity’s financial report (i.e. the preparation of consolidated group accounts), the translation of the financial reports of a self sustaining foreign operation as at the reporting date must be done using the current rate method (see below). Any exchange differences, together with any income tax expense (income tax revenue) must be taken directly to the foreign currency translation reserve within equity.
A self-sustaining foreign operation is defined in AASB 1012 as meaning a foreign operation that is financially and operational independent of the entity and whose operations do not normally expose the entity to foreign exchange gains and or losses.
Translation of financial reports of an integrated foreign operation must be translated as at the reporting date using the temporal method (see below) and any exchange differences must be recognised as revenues or expenses in the calculation of net profit and loss.
An integrated foreign operation is defined in AASB 1012 as a foreign operation that is financially and operationally interdependent, either directly or indirectly with the entity, and whose day to day operations normally expose the entity to foreign exchange gains or losses.
Reporting period
Insurers are required to report the information in the reporting form on a quarterly and annual basis.
The quarterly information is to be completed in respect of each quarter based on the financial year of the insurer, not the calendar year.
The annual information is to be completed in respect of the financial year of the insurer.
The financial information requested in this form is to be reported as at the last day of the reporting period on a financial year to date basis of the insurer. See the Reporting Requirements table for details.
Reporting lag
This form must be lodged for each of the reporting units, within the number of business days after the end of the quarter as set out in the Reporting Requirements table.
Basis of preparation
Unless specifically mentioned in these instructions insurers are not to following the recognition and measurement requirements of the Australian accounting standards in completing this form.
The interpretation and required measurement basis for items listed in the form are specified in these instructions and also outlined in the introduction to the reporting package.
Netting
Unless otherwise specifically stated, institutions are allowed to take advantage of netting agreements in relation to disclosure of data items in this form. Institutions are to comply with the prerequisite for netting outlined in Australian accounting standards notably AASB 1014 ‘Set-off and Extinguishment of Debt’.
Related party disclosure
Amounts due from, loans to, debentures of, shares in, or units in a trust or body corporate that is related to the insurer are to be disclosed for items of assets and liabilities where indicated in the form. For the purposes of this form, related bodies corporate are to be interpreted consistently with the meaning as in AASB 1017. AASB 1017 provides that related party means, in relation to a reporting entity any:
(a) other entity that at any time during the financial year, has control or significant influence over the reporting entity; or
(b) other entity that at any time during the financial year, is subject to control or significant influence by the reporting entity; or
(c) other entity that, at any time during the financial year, is controlled by the same entity that controls the reporting entity. Referred to as a situation in which entities are subject to common control; or
(d) other entity that, at any time during the financial year, is controlled by the same entity that significantly influences the reporting entity; or
(e) other entity that, at any time during the financial year, is significantly influenced by the same entity that controls the reporting entity; or
(f) director of the reporting entity or any of their director-related entities; or
(g) director of any other entity identified as a related party under any of paragraphs (a) to (e), or any of their director-related entities;
but excludes any other entity (except those identified as a related party under paragraph (f)) where the related party relationship results solely from normal dealings of:
(h) financial institutions; or
authorised trustee corporations; or
(j) fund managers; or
(k) trade unions; or
(l) statutory authorities; or
(m) government departments; or
(n) local governments.[1]
[1]Extracted from ICAA Members' Handbook December 2001 issue, AASB 1017.
AASB 1017 defines director-related entities as meaning “the spouses of such directors, relatives of such directors or spouses and any other entity under the joint or several control or significant influence of such directors, spouses or relatives”.
Relative in relation to a person is defined in the Corporations Law to mean the spouse, partner, son, daughter, or brother or sister of the person.
Specific instructions
Classes of Insurance Business
Direct Business
The classes of business for companies that are not specialist reinsurers are as follows:
Houseowners/Householders (H & H)
This class covers the common H & H policies inclusive of:
Contents;
Personal property;
Arson; and
Burglary.
Public liability normally attaching to these products are to be separated and included in Public and Product Liability class of business – item 8.
Commercial Motor Vehicle
Motor vehicle insurance (including third party property damage) other than insurance covering vehicles defined below under Domestic Motor Vehicle. It includes long and medium haul trucks, cranes and special vehicles and policies covering fleets.
Domestic Motor Vehicle
Motor vehicle insurance (including third party property damage) covering private use motor vehicles including utilities and lorries, motor cycles, private caravans, box and boat trailers and other vehicles not normally covered by business or commercial policies.
Travel
Insurance against losses associated with travel including loss of baggage and personal effects, losses on flight cancellations and overseas medical costs.
Fire and Industrial Special Risks (ISR)
Fire
Includes all policies normally classified as 'Fire' and includes:
sprinkler leakage;
subsidence;
windstorm;
hailstone;
crop;
arson; and
loss of profits and any extraneous risk normally covered under fire policies, e.g. flood.
ISR
Standard policy wordings exist for this type of policy. All policies which contain such standard wordings or where the wording is substantially similar are to be classified as ISR.
Marine
Includes Marine Hull (including pleasure craft), Marine Cargo (including sea and inland transit insurance).
Aviation
Aviation (including aircraft hull and aircraft liability).
(VIII). Mortgage
Insurance against losses arising from the failure of debtors to meet financial obligations to creditors or under which payment of debts is guaranteed. It includes lease guarantee.
Consumer Credit (CCI)
Insurance to protect a consumer's ability to meet the loan repayments on personal loans and credit card finance in the event of death or loss of income due to injury, illness or unemployment.
Other Accident
Includes the following types of insurance:
Miscellaneous accident (involving cash in transit, theft, loss of money);
All risks (baggage, sporting equipment, guns);
Engineering when not part of ISR or Fire policy;
Plate glass when not part of packaged policy (e.g. houseowners /householders)
Guarantee (Insurance Bonds);
Live Stock;
Pluvius; and
Sickness and Accident (which provides stated benefits where the insured is killed or suffers loss of specific parts of the body or is prevented from carrying out the insured’s normal occupation. In addition, regular benefits may be paid over a short period of time (typically less than 3 years), noting that continuous disability policies are now considered to be Life Insurance Policies and should not be provided by general insurance companies).
Other
All other insurance business not specifically mentioned elsewhere. It includes, for example:
All guarantees (e.g. fidelity Guarantee)
Trade Credit;
Extended Warranty (includes insurance by a third party for a period in excess of the manufacturer's or seller’s normal warranty;
Kidnap and Ransom; and
Contingency.
Compulsory Third Party Motor Vehicle (CTP)
This class consists only of CTP business.
(XIII). Public and Product Liability
Public Liability covers legal liability to the public in respect of bodily injury or property damage arising out of the operation of the insured's business. Product Liability includes policies that provide for compensation for loss and or injury caused by, or as a result of, the use of goods. and also environmental clean-up caused by pollution spills where not covered by Fire and ISR policies.
Also will include builders warranty insurance.
(XIV). Professional Indemnity (PI)
Includes Directors' and Officers' liability insurance plus legal expense insurance. Cover for legal expenses general included in this type of policy.
Employers' Liability (EL)
Includes:
Workers' compensation;
Seamen's compensation; and
Domestic workers compensation.
Reinsurance Business
The classes of business for companies that are specialist reinsurers are as follows:
Facultative
Proportional
Excess of loss.
Facultative Reinsurance.
The reinsurance of individual risks by offer and acceptance wherein the reinsurer has the “faculty” (option) to accept or reject each offer by the ceding company.
Proportional Reinsurance.
A proportional treaty is an agreement between an insurer and a reinsurer in which the reinsurer shares an identical proportion of the premiums and losses of the ceding company.
Excess of Loss Reinsurance.
Reinsurance which, subject to a specified limit, indemnifies the ceding company against the loss in excess of a specified retention. This type of reinsurance can involve:
any one risk reinsurance;
any one event reinsurance;
catastrophe reinsurance;
aggregate excess of loss reinsurance; and
stop loss reinsurance.
Reinsurance non-split
This line item classification disclosed under Reinsurance class of business is to be used where it is not possible for the insurer to separately slit out all the classes of reinsurance businesses. However as required by GGN 110.3 Insurance Risk Capital Charge, where an insurer writes inwards reinsurance business and is unable to split this business into the classes and types listed in Table 2 of that guidance note, they are to use the highest casualty factors on their outstanding claims liabilities.
Where an insurer writes inwards reinsurance which spans multiple classes and the insurer cannot readily split the contract between classes, APRA suggests that the contract should be allocated using one of the following methods:
(a) allocate the contract to the category which represents the greatest exposure; or
(b) allocate the contract to the category representing the greatest premium income.
An insurer that writes inwards reinsurance is free to choose which of the above methods it uses, or may use another appropriate method, provided the same method is used for all contracts and all subsequent periods.
Premium revenue
The recognition of premium revenue in this form should be measured on a basis that is consistent with the measurement of Premium Liabilities as measured in accordance with GPS 210 Liability Valuation for General Insurers. Premium revenue is to be disclosed by type of business (direct business and inward reinsurance business), and premium revenue is to be recognised in line with the following:
Premium revenue is to be recognised fully upfront when the business is written (i.e. at the attachment date) as soon as the amount can be reliably measured. For reasons of practicality, attachment date may be determined in accordance with the provisions of AASB 1023 i.e. many insurers may use a basis of recognition that attempts to approximate this date. These bases are predicated on assumptions; for example, a direct insurer may assume that risk attaches to all policies from the middle of the month in which they are written, and a reinsurer may assume, in relation to premiums ceded to it, that risk attaches from the assumed attachment date of the underlying direct insurance policies or of the indemnity periods. Such bases are acceptable provided that they do not result in the recognition of a materially different amount of premium revenue in a particular financial year than would be the case if recognition occurred from the date of attachment of risk for each policy;
Premium revenue will need to be discounted where premium revenue under an insurance contract is to be received beyond the current year of cover. In these instances use discount rates as required in measuring claims liabilities in accordance with GPS 210 Liability Valuation for General Insurers;
Premiums written is only to be recognised as revenue when the insurer is on risk for the insurance cover provided (i.e. contract for insurance);
Premium revenue includes the value of future premium receipts under existing insurance contracts through to the end of the period insurance covered and is to reflect the probability of lapses or cancellations by policyholders and a measurement of cash flows from future renewals but only to the extent that the inclusion of renewals are uncancelable and are unfavourable to the insurer;
Premium revenue excludes cash flows from future insurance contracts and investment returns from current or future investments;
Premium revenue excludes amounts collected on behalf of third parties i.e. government stamp duty and taxes;
Levies charged to customers are to be included as premium revenue such as fire service levies. Such levies are expenses of the insurer rather than government charges directly upon those insured. The amount paid by the insurer to government authorities does not depend on the amounts collected from those insured in relation to the levies and charges;
Premiums refunds and rebates are to be deducted from premium revenue;
For installment premium policies, the amount of the annualised premium is to be used;
Where premium is calculated on an adjustment basis, the estimated annual premium is to be brought to account, with the estimated premium being replaced by the actual amount as it becomes known. Where premium is accepted on a deposit basis the full annual premium is to be brought to account; and
Premium revenue must be gross of reinsurance expense.
The difference in accounting treatment between AASB 1023 and regulatory reporting purposes is outlined below:
AASB 1023 requirements
Under AASB 1023 premium written is recognised as premium revenue on an earned/unearned basis. That component that is unearned is recognised as a liability – “Unearned Premium Provision”. While the APRA prudential standards have changed the accounting recognition requirements for Outstanding Claims Liabilities and Premium Liabilities, it is silent on the accounting treatment for the recognition of premium revenue.
APRA requirements
It is important to consider the accounting treatment underlying the recognition of Premium Liabilities comparative to that for unearned premium provision, specifically the profit and loss treatment. The earned/unearned basis for recognition of premium revenue prescribed by AASB 1023 is not appropriate for the APRA prudential forms as it is not consistent with the APRA framework for measuring insurance liabilities under GPS 210 Liability Valuation for General Insurer. The objective of the measurement of Premium Liabilities is to recognise potential future claim liabilities arising out of new insurance business written (on a prospective basis). Accordingly to be consistent, it is more appropriate to recognise premiums written up front as premium revenue.
For the “Direct business” and “Reinsurance” business, amounts are to be reported as follows:
Business written:
Include value of insurance business written directly by the insurer. Include inward reinsurance premiums under the “Reinsurance” section of Type of Business column. Inward reinsurance includes amounts, which relate to inward facultative reinsurance and to inward treaty reinsurance.
Do not include business sourced through insurance intermediaries such as co-insurance, underwriting pools or Joint Ventures, or portfolio transfers. These are to be disclosed in separate columns.
Underwriting pools/joint ventures
Only include premium revenue from business sourced through insurance intermediaries such as co-insurance, underwriting pools or Joint Ventures.
Insurance business allocated through underwriting pools and coinsurance arrangements by an entity acting as agent must be accounted for by the accepting insurer as direct insurance business (AASB 1023 ‘Financial Reporting of General Insurance Activities’).
Joint ventures are to be interpreted as defined by the Australian Accounting standards AASB 1006 ‘Interests in Joint Ventures’.
Direct insurers or reinsurers may form underwriting pools or enter coinsurance arrangements as vehicles for jointly insuring particular risks or types of risks. Premiums, claims and other expenses are usually shared in agreed ratios by insurers involved in these arrangements. Many underwriting pools and coinsurance arrangements involve the acceptance of risks by an entity acting as an agent for pool members or coinsurers. The entity receives premiums and pays claims and expenses, and allocates shares of the business to each pool member or coinsurer in agreed ratios. As the entity acting as agent is effectively not an insurer, the business allocated to pool members and coinsurers is not reinsurance business. Pool members and coinsurers will need to treat such business allocated to them as direct insurance business.[2]
[2] Extracted from ICAA Members' Handbook June 2001 issue, AASB 1023.
Some underwriting pools and coinsurance arrangements involve members of the pool or coinsurers directly underwriting risks and then passing all of those risks into the pool or arrangement. These risks are then shared among pool members or coinsurers. For this type of underwriting pool or arrangement, an insurer treats its share of the business that other insurers place with the pool or arrangement as inwards reinsurance, and the business that it writes and passes into the pool or arrangement as direct insurance business which it reinsures to the extent of the shares in the pool or arrangement of the other pool members or coinsurers. This approach results in the insurer properly reflecting its obligations to those it has directly insured and the substance of the transactions with the pool members or coinsurers.
Portfolio transfers/acquisitions
Include the amount of premium revenue arising on policies associated with business sourced through portfolio acquisition/transfer.
Portfolio transfer is a term used to describe the process by which premiums and claims on direct insurance business is transferred from one insurer to another by means of direct sale, not by reinsurance. Responsibility in relation to claims on transferred insurance business passes from the transferring insurer to the accepting insurer. The transfer must be accounted for as a portfolio assumption by the accepting insurer, and by recognising the relevant amount of premium revenue, premium liabilities and outstanding claims liabilities.
Premiums Received - cashflow basis (as a proxy the basis required by AASB 1026 can be used)
This is the amount of premiums actually received over the reporting period (on a year to date basis). Do not include premium revenue that has been included as revenue on an accrual basis. It is to be reported in aggregate for direct written business and reinsurance business.
This relates to all premiums received on a cashflow basis in the current financial year, regardless of the financial year in which the premium may have been recognised as revenue (i.e. a prior financial year).
Reinsurance expense
The recognition of Reinsurance Expense for the purposes of this form is required to be measured on a basis that is consistent with the measurement of premium revenue and Premium Liabilities as required by other prudential forms. Accordingly reinsurance expense is to be recognised fully when incurred/contracted and is not to be recognised in accordance with AASB 1023 (i.e. capitalised and amortised as an expense). The aggregate amount recognised in this form should agree to the aggregate amount disclosed in GRF 310.0 Statement of Financial Performance.
APRA requirements
Due to the change in the recognition of premium income for prudential reporting purposes (refer above), it is appropriate to recognise reinsurance expense on a consistent basis i.e. recognised fully upfront in the Statement of Financial Performance. As a result, for APRA prudential reporting (and Investment risk charge calculation), there will be no asset titled “Deferred Reinsurance Expense”.
AASB 1023 requirements
Under AASB 1023, expenses/premiums paid for reinsurance cover is required to be recognised as an expense on a basis that is consistent with the pattern of reinsurance. As a result under AASB 1023 this gives rise to the recognition of an asset – “Deferred Reinsurance Expense”, which is amortised (over a specified term/basis) to the Statement of Financial Performance as a reinsurance expense. Under AASB 1023 reinsurance expense is disclosed as an offset from premium revenue in the Statement of Financial Performance.
Total Premium Revenue and Reinsurance Expense that is associated with from the following related entities:
1.Parent entity
(Note: for the consolidated insurance group this is applicable if the ultimate parent entity is not included in the consolidated insurance group)
Of the total premium revenue and reinsurance expense that is reported as required by this form, disclose amounts that are with/from the parent entity of the licensed insurer or of the consolidated insurance group.
2.Controlled entities/Controlled entities of the parent entity
(Note: this is not applicable for the consolidated insurance group)
For branches, the line item “Controlled entities/Controlled entities of the parent entity” is to be interpreted as amounts in relation to “Controlled entities of the parent entity”, and for licensed insurance entities amounts are in relation to “Controlled entities” of the reporting insurer.
Of the total premium revenue and reinsurance expense that is reported as required by this form, disclose amounts that are with/from these entities.
3.Associates/Joint Ventures
Of the total premium revenue and reinsurance expense that is reported as required by this form, disclose amounts that are with/from Associates or Joint Ventures of the licensed insurer, or of the consolidated Insurance group. Associates and Joint Ventures are defined in accordance with AASB 1006 Joint Ventures and AASB 1016 Equity accounting for investments in associates.
4.Other related parties
Of the total premium revenue and reinsurance expense that is reported as required by this form, disclose amounts that are with/from any other related entity of the licensed Insurer or of the consolidated Insurance group that is not specifically identified above. Refer to the definition of related parties as defined in the general section of this instruction guide.
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