Financial Sector (Collection of Data) determination No. 6 of 2005 (Cth)
Financial Sector (Collection of Data) determination No. 6 of 2005
Reporting Standard GRS 130.3 (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 130.3 (2005)
Off Balance Sheet Business – Credit Support Received
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, off balance sheet exposures in the form of credit support received.
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 130.3 Off Balance Sheet Business – Credit Support Received (Form GRF 130.3) designated for a ‘Licensed Insurer’ and ‘Consolidated Insurance Group’ and the associated instructions (which are attached and all form part of this reporting standard); and
·Prudential Standard GPS 110 Capital Adequacy for General Insurers and Guidance Notes GGN 110.1, GGN 110.2, GGN 110.3, GGN 110.4 and GGN 110.5.
Purpose
Data collected in each version of Form GRF 130.3 is used by APRA for the purpose of prudential supervision including assessing an insurer’s compliance with Prudential Standard GPS 110.0 Capital Adequacy for General 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 130.3 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 130.3 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 4 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 in relation to the information provided under paragraph 3 read with subparagraph 6(b) must be provided to APRA by the time specified in subparagraph 8(b) of this reporting standard (unless an extension is granted under paragraph 10).
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 the 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 130.3
Off-Balance Sheet Business – Credit Support Received
Instruction Guide
Introduction
This form captures information on any guarantees or other form of direct credit support provided to the insurer (reinsurer). This information will be included in the calculation of the capital adequacy charge. Refer to GGN 110.4 Investment Risk Capital Charge.
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. 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
This form is to be completed by:
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
Consolidated insurance groups (refer to form for ‘Consolidated Insurance Group’).
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 Insurance Act 1973), 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).
Unit of measurement
This form is to be prepared in thousands of Australian dollars (AUD). 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.
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.
Specific instructions
GGN 110.4 Investment Risk Capital Charge outlines the treatment of eligible collateral and guarantees as risk mitigants.
The capital charge for Investment Risk may be reduced where the insurer holds certain types of collateral against an asset, or where the asset has been guaranteed, as a means of reducing risk.
The form is broken into 2 parts:
Part A - Eligible Collateral Provided to Reporting Insurer; and
Part B - Guarantees Provided to Reporting Insurer
Part A - Eligible Collateral Provided to Reporting Insurer
Where an insurer possesses recognised collateral against an asset, it may apply the Investment Risk Capital Factor relevant to the collateral to the value of the asset (instead of applying the capital factor that would otherwise apply to the asset). Collateral will be recognised only to the extent that it takes the form of a charge, mortgage or other security interest in, or over, an Eligible Collateral Item.
Eligible Collateral Items are cash, Government securities, or debt obligations where the obligor has a counterparty rating in Grade 1, 2 or 3. The ‘Eligible Collateral Item’ must also be held for the period for which the asset is held. Where the market value of the collateral does not cover the full value of the asset, only that part of an asset that is covered by collateral may be assigned the Investment Capital Factor applicable to the collateral.
This form facilitates the calculation of whether the insurer is able to claim a reduction in the investment capital charge as calculated in the Investments forms. Accordingly the insurer’s investments are to be entered into the Investments Form (and capital calculation) without adjusting for any guarantee or eligible collateral.
Note: if the eligible collateral supports more than one asset type which each have different investment capital factors, you will be required to separately record each type of asset to correctly calculate the reduction in the investment capital charge. In this case record each different type of asset (that has a different investment capital factor) on separate lines and allocate the eligible collateral provided between these different assets (e.g. could be prorated based on the proportion of each type of supported asset to the total value of supported assets).
A brief outline of the required data for each column in the form is provided to assist in completion:
Name of entity providing the eligible collateral to the reporting insurer
Disclose the name of the entity that is providing the eligible collateral to the reporting insurer.
Market value of the eligible collateral items provided as credit support for assets of the Insurer $'000
Where there is various Eligible collateral items (i.e. mix of assets satisfying columns (2) – (4)), which support the one asset type of the reporting insurer, allocate the eligible assets according to the appropriate columns (i.e. don’t lump them all into the one column or total column).
Cash or Government securities
Cash and Government securities to be ‘Eligible Collateral’ must be held for the period for which the asset is held. These reporting items should be brought to account at the market value of the outstanding balance where appropriate.
Cash
Eligible cash refers to Australian and foreign currency notes and coins of the reporting entity. Include notes and coins in transit between any branches or offices of the reporting entity.
Do not include any deposits at call or short term or any such funds held as part of the Insurer’s investments portfolio.
Government securities
Eligible government securities refers to securities issued by the following (as outlined in Attachment 1 of GGN 110.4 Investment Risk Capital Charge):
(a) Australian Commonwealth Government;
(b) Australian State or Territory government; or
(c) The national government of a foreign country where:
The security has a grade 1 counterparty rating; or, if not rated,
The long term foreign currency counterparty rating of that country is Grade 1.
Debt Obligation with a counterparty rating of Grade 1
This can be determined in accordance with Attachment 2 of GGN 110.4 Investment Risk Capital Charge.
Input the market value of such debt obligations in this column.
Debt Obligation with a counterparty rating of Grade 2
This can be determined in accordance with Attachment 2 of GGN 110.4 Investment Risk Capital Charge.
Input the market value of such debt obligations in this column.
Debt Obligation with a counterparty rating of Grade 3
This can be determined in accordance with Attachment 2 of GGN 110.4 Investment Risk Capital Charge.
Input the market value of such debt obligations in this column.
Total Eligible Collateral Provided
Represents the sum of columns (2) – (4). This field is automatically calculated by the form.
Assets of the insurer that are subject of the credit support.
Under these columns report only the value of assets that are subject to the credit support.
Investment capital factor of assets being supported
Input the investment capital factor that is applicable for the type of asset being supported (by the eligible collateral). Attachment 1 of GGN 110.4 Investment Risk Capital Charge outlines the investment capital factors that are applicable for each type of asset.
If the eligible collateral supports more than one asset type which have different investment capital factors, you will be required to separately record each type of asset to correctly calculate the reduction in the investment capital charge. In this case record each different type of asset (that has a different investment capital factor) on separate lines and allocate the eligible collateral provided between these different assets (e.g. could be prorated based on the proportion of each type of supported asset to the total value of supported assets).
Market value of assets subject to credit support $’000
Record the market value of the assets that are subject to the credit support.
Related Entity (place a "P" for parent entity, “S” for subsidiaries entity or “O” for other related party in column)
For each credit support provided to the Insurer, disclosure the nature of the counterparty providing the support if it is a related party, by marking the appropriate column (parent entity “P”, subsidiary “S”, or other related party “O”).
Related party has the same meaning as defined in AASB 1017 ‘Related Party Disclosure’. AASB 1017 defines related party to include the parent entity of the Insurer, controlled entities, associates, joint ventures and directors of the licensed insurance entity and other entities that are deemed to be related in accordance with AASB 1017.
In accordance with AASB 1017 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.
Adjustment to Investment Capital Charge
This field automatically calculated the required reduction in the investment capital charge (as calculated in accordance with the GRF 140 series) due to the support of the ‘Eligible Collateral Items’.
Part B - Guarantees Provided to Reporting Insurer
Assets of the reporting insurer that have been explicitly, unconditionally and irrevocably guaranteed for their remaining term to maturity by a guarantor with a counterparty rating (or for governments, the long-term foreign currency credit rating) of Grades 1, 2 or 3 may be assigned the Investment Capital Factor that would be applicable to the guarantor.
Guarantees provided to an insurer by its own parent or a related entity are not eligible for this treatment. Refer to previous page for definition of related entity.
Where the value of the guarantee does not cover the full market value of the asset, only that part of an asset that is covered by the guarantee may be assigned the Investment Capital Factor applicable to the guarantor.
This form facilitates the calculation of whether the insurer is able to claim a reduction in the investment capital charge as calculated in the GRF 140 series. Accordingly the insurer’s investments are to be entered into the GRF 140 series (and capital calculation) without adjusting for any guarantee.
Name of entity providing guarantee
Disclose the name of the entity that is providing the guarantee or direct credit support to the reporting insurer.
Value of the Guarantee Received in Relation to Assets of the Insurer $'000
Disclose the value of the guarantee received by the reporting insurer that is supporting specific assets of the insurer.
Counterparty rating Grade of Guarantor
Input the APRA rating grade applicable for the counterparty giving the guarantee (i.e. ratings 1 – 5). Refer to Attachment 2 of GGN 110.4 Investment Risk Capital Charge for a table relating APRA rating grades to accepted market counterparty rating bands (e.g. S&P counterparty rating bands)
Assets of the Insurer that are subject of the credit support
Investment Capital Factor of Assets Being Supported by the Guarantee
Input the investment capital factor that is applicable for the type of asset being supported (by the guarantee). Attachment 1 of GGN 110.4 Investment Risk Capital Charge outlines the investment capital factors that are applicable for each type of asset.
If the guarantee supports more than one asset type which have different investment capital factors, you will be required to separately record each type of asset to correctly calculate the reduction in the investment capital charge. In this case record each different type of asset (that has a different investment capital factor) on separate lines and allocate the eligible guarantee provided between these different assets (e.g. could be prorated based on the proportion of each type of supported asset to the total value of supported assets).
Market Value of the assets subject to the credit support
Report the value of the assets that are subject to the credit support (market/fair value should be used).
Related Entity
For each guarantee to the Insurer, disclosure the nature of the counterparty providing the support if it is a related party, by marking the appropriate column (parent entity “P”, subsidiary “S”, or other related party “O”).
Related party has the same meaning as defined in AASB 1017 ‘Related Party Disclosure’. AASB 1017 defines related party to include the parent entity of the insurer, controlled entities, associates, joint ventures and directors of the licensed insurance entity and other entities that are deemed to be related in accordance with AASB 1017.
In accordance with AASB 1017 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.[2]
[2]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.
Adjustment to Investment Capital Charge
This field automatically calculated the required reduction in the investment capital charge (as calculated in accordance with the Investment Forms) due to the support of the guarantor.
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