Financial Sector (Collection of Data) (reporting standard) determination No. 22 of 2007 LRS 220.0 Large Exposures (Cth)
Financial Sector (Collection of Data) (reporting standard) determination No.22 of 2007
Reporting standard LRS 220.0 Large Exposures
Financial Sector (Collection of Data) Act 2001
I, John Roy Trowbridge, Member of APRA, delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (the Act) DETERMINE Reporting Standard LRS 220.0 Large Exposures in the form set out in the Schedule, which applies to the financial sector entities referred to 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 financial sector entities on 1 January 2008.
Dated 6 December 2007
[Signed]
John Trowbridge
Member
Interpretation
In this determination:
APRA means the Australian Prudential Regulation Authority.
Schedule
Reporting Standard LRS 220.0 Large Exposures comprises the 11 pages commencing on the following page.
Reporting Standard LRS 220.0
Large Exposures
Objective of this reporting standard
This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001. It requires all registered life insurance companies to report to APRA, in general, on a quarterly and an annual basis in relation to large exposures.
This reporting standard outlines the overall requirements for the provision of relevant information to APRA. It should be read in conjunction with Form LRF 220.0 Large Exposures, and the associated instructions (both of which are attached and form part of this reporting standard).
Purpose
Information collected in Form LRF 220.0 Large Exposures (LRF 220.0) is used by APRA for the purpose of prudential supervision, including assessing compliance with prudential standards and actuarial standards where appropriate. It may also be used by the Reserve Bank of Australia, the Australian Bureau of Statistics and the Australian Securities and Investments Commission.
Application
This reporting standard applies to all life insurance companies including friendly societies (together referred to as life companies) registered under the Life Insurance Act 1995 (Life Insurance Act).
Information required
A life company must provide APRA with the information required by Form LRF 220.0 for each reporting period.
Note: the instructions for Form LRF 220.0 explain in more detail the information that is required.
The information required to be provided to APRA under this reporting standard is not intended to form part of the financial statements or the annual returns, within the meaning of section 124 of the Life Insurance Act, given by the life company to APRA.
Method of submission
The information required by this reporting standard must be given to APRA either:
(a) in electronic form using the ‘Direct to APRA’ application, applying one of the electronic submission mechanisms under that application; or
(b) by completing Form LRF 220.0 on paper and mailing the completed form to APRA
Note: the ‘Direct to APRA’ application software and paper forms may be obtained from APRA.
Reporting periods and due dates
Subject to paragraph 7, a life company must provide the information required by this reporting standard:
(a) in unaudited form - in respect of each quarter based on the financial year
of the life company; and
(b) in audited form - in respect of each financial year of the life company.
Note 1: this means that this form will be submitted five times for a full financial year.
Note 2: the annual audited form must be submitted in conjunction with the annual auditor’s report, as required under Prudential Standard LPS 310 Audit and Actuarial Requirements Paragraph 8.
APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular life company, to require it to provide the information required by this reporting standard more frequently, or less frequently, having regard to:
(a)the particular circumstances of the life company;
(b)the extent to which the information is required for the purposes of the prudential supervision of the life company; and
(c)the requirements of the Reserve Bank of Australia or the Australian Bureau of Statistics or the Australian Securities and Investments Commission.
The quarterly information required by this reporting standard in unaudited form must be provided to APRA within 20 business days after the end of the reporting period to which the information relates. The annual information required by this reporting standard in audited form must be provided to APRA within four months after the end of the reporting period to which the information relates.
APRA may grant a life company 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 a life company under this reporting standard must be the product of processes and controls that have been reviewed and tested by the auditor of the life company.
All information provided by a life company under this reporting standard must be subject to processes and controls developed by the life company for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the life company to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.
Information provided to APRA in audited form must be audited by the auditor of the life company.
Actuarial valuations and calculations included in, or used in the preparation of, the information provided to APRA must be in accordance with the actuarial standards and prudential standards in force for the reporting period. However, life companies may use reasonable estimates when preparing information that will not be audited (i.e. for the first four submissions of information for a full financial year). The instructions to Form LRF 220.0 include general principles on the use of estimates.
Authorisation
If the officer of a life company provides the information required by this reporting standard:
(a)using Direct to APRA (D2A), the officer must digitally authorise, submit the data to APRA and receive a D2A receipt number for the information to be considered given to APRA. APRA will issue ‘digital certificates’ to officers of the life company who have authority to transmit the data to APRA; or
(b)on paper, the relevant completed form must be signed on the front page by the principal executive officer or chief financial officer of the life company.
Note: information in draft returns saved at APRA using D2A will not be considered to be provided to APRA for the purposes of the life company's obligations under this reporting standard.
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 in writing each life company that is required to report under this reporting standard.
Transitional
A life company must report in accordance with this reporting standard for any reporting period ending on or after 1 January 2008. However, a life company must also report to APRA in accordance with the Prudential Rules which applied before the commencement of this reporting standard in respect of any reporting period ending before 1 January 2008.
Note: as an additional transitional measure, a life company must also report to APRA in accordance with Reporting Standard LRS 901 Transitional Arrangements 2008.
Interpretation
In this reporting standard:
business days means ordinary business days, exclusive of Saturdays, Sundays or public holidays;
principal executive officer means the principal executive officer of the life company for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the entity;
reporting period means a reporting period under paragraph 6 or, if applicable, paragraph 7.
Reporting Form LRF 220.0
Large Exposures
Instruction Guide
Introduction
LRF 220.0 Large Exposures (LRF 220.0) provides APRA with details of asset exposures greater than 1% of the value of assets of the fund and information about related party exposures. This enables APRA to monitor asset concentration risks and understand the type and extent of the funds dealings with related parties.
This Instruction Guide is designed to assist reporting entities in the completion of LRF 220.0. The Instruction Guide provides:
·general directions and notes regarding preparation and lodgement; and
·instructions relating to specific items.
General directions and notes
Reporting levels
LRF 220.0 must be completed by all life insurance companies, including friendly societies.
The form is to be completed separately for each statutory fund (approved benefit fund), except for a fund solely devoted to investment linked business, in which case the form is not required to be completed.
LRF 220.0 contains two sections:
·Section A: Large Exposures of a Fund; and
·Section B: Related Party Exposures of a Fund.
Within each section, reporting items are to be completed at total fund level, under the various categories of data required.
Unit of measurement
LRF 220.0 is to be prepared in thousands of Australian dollars (AUD). Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.
Definitions
Definitions for data reporting items required by this form have been provided where appropriate in the instructions under the section headed ‘Instructions for specific items’.
Definitions, unless specified, apply to all life insurance companies, including friendly societies as if each reference to a statutory fund, or shareholders’ fund, were a reference to an approved benefit fund, or management fund, respectively. Likewise, reference to shareholders should be taken to embrace ‘members’ of a mutual association and/or a society. The term ‘life companies’ or ‘life insurance companies’ includes friendly societies unless stated otherwise. This is in line with the usage of terms in the Life Insurance Act 1995.
Related entities
Under s16 of the Life Insurance Act 1995, whether a company is a subsidiary or a related company is to be determined in accordance with the Corporations Act 2001. The provisions of Division 6 of Part 1.2 of Chapter 1 of the Corporations Act 2001 are relevant for these purposes.
Exposures
An exposure to an entity is the aggregate of all claims, commitments and contingent liabilities arising from on- and off-balance sheet transactions with the entity. This includes equity investment in the entity.
Note: Where credit risk is unequivocally transferred from the entity to another entity by an irrevocable letter of credit or a direct guarantee, the exposure is to be recorded against the other entity.
Reporting period
Life companies are required to report the information in the reporting form on a quarterly and annual basis.
·The quarterly information is to be completed as at the end of each quarter based on the financial year of the life company, not the calendar year.
·The annual information is to be completed as at the end of the financial year of the life company.
·The financial information required in this form is to be reported as at the close of business for the last day of the reporting period.
Basis of preparation
In completing this form, unless specifically stated otherwise, institutions are to follow the basis that is used for the preparation of the annual financial statements in accordance with the Australian accounting standards.
If additional clarification is required for specific items in this form, reference should be made to the section ‘Instructions for specific items’, which is provided as a guide.
Instructions for specific items
Section A: Large Exposures of a Fund:
Include: Exposures exceeding 1% of Statutory Fund total assets, after adjusting for derivatives.
Column 1: Name of Counterparty
Unlisted or Controlled Investment Entities are to be treated on a look-through basis in accordance with Prudential Standards LPS 2.04 Solvency Standard (LPS 2.04) and LPS 3.04 Capital Adequacy Standard (LPS 3.04) (Section 5.3 in each). The look-through basis should also be consistent with that applied in LRF 300.1 Statement of Financial Position (SF and SF Eliminations).
In the case of exposures to a group of related counterparties, the exposures should be aggregated across the entities in the group by the types of exposure listed in Column 2. Each relevant type of exposure should be reported as a separate row, using the same group name for Column 1 of each row.
Column 2: Type of exposure
Use the drop-down menu to select the appropriate category (as listed from (a) to (m), in the tables contained in paragraphs 10.5.1 of LPS 2.04 and LPS 3.04 into which the particular large exposure falls.
Column 3: Major Asset Class
Use the drop-down menu to select the appropriate asset class of the exposure. This should be consistent with what is reported in LRF 420.0 Assets Backing Policy Liabilities (LRF 420.0).
Column 4-5: Direct/Indirect Exposures to Counterparty
Report the exposure amounts broken down by Direct and Indirect Exposures.
Columns 6: Total Exposure to Counterparty
The Total Exposure is calculated automatically as the sum of Columns 4 and 5.
Column 7: Details of Indirect Holdings
Report the direct holding through which the indirect exposures are held, e.g. the name of the controlled entity, associate or unit trust through which the exposure is held.
Column 8: Inadmissible Amount
Report the amount of the exposure to the counterparty that would contribute to the Inadmissible Assets Reserve in accordance with Sections 10.5 of LPS 2.04 and LPS 3.04.
Section B: Related Party Exposures of a Fund:
Part 1: Related Parties that are Financial Services Entities
Part 2: Other Related Parties
‘Financial Service Entity’ is defined in Prudential Standard LPS 7.02 General Standards.
Column 1: Name of Related Party
Report the names of the relevant individual related entities that the life company has exposures to.
Column 2: Category of Related Party
Select the appropriate category using the drop-down menu:
·Subsidiary of Life Company
·Related Entity
·Parent Entity
·Associate
·Joint Venture
·Other Related Party
Column 3: Major Asset Class
Use the drop-down menu to select the appropriate asset class of the exposure. This should be consistent with what is reported in LRF 420.0.
Column 4: Amount of Exposure
Report the gross exposure amount.
Columns 5-7: Related Party Details
Report the following financial details of the Related Party: Fair Value of net assets, Assets, and Liabilities.
Column 8: Inadmissible Amount
Report the amount of the exposure to the Related Party that would contribute to the Inadmissible Assets Reserve in accordance with LPS 2.04 and LPS 3.04.
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0
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