Financial Sector (Collection of Data) (reporting standard) determination No. 28 of 2007 LRS 410.0 Capital Measurement Statistics (Cth)

Financial Sector (Collection of Data) (reporting standard) determination No.28 of 2007

Reporting standard LRS 410.0 Capital Measurement Statistics

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 410.0 Capital Measurement Statistics 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 410.0 Capital Measurement Statistics comprises the 14 pages commencing on the following page.

Reporting Standard LRS 410.0

Capital Measurement Statistics

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 an annual basis in relation to capital measurement statistics.

This reporting standard outlines the overall requirements for the provision of relevant information to APRA. It should be read in conjunction with Form LRF 410.0 Capital Measurement Statistics, and the associated instructions (both of which are attached and form part of this reporting standard).

Purpose

1. Information collected in Form LRF 410.0 Capital Measurement Statistics (LRF 410.0) 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

1. 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

1. A life company must provide APRA with the information required by Form LRF 410.0 for each reporting period.

Note: the instructions for Form LRF 410.0 explain in more detail the information that is required.

1. 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

1. 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 410.0 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

1. Subject to paragraph 7, a life company must provide the information required by this reporting standard in audited form in respect of the financial year of the life company.

Note: 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.

1. 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.

1. The information required by this reporting standard must be provided to APRA within four months after the end of the reporting period to which the information relates.

1. 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

1. 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.

1. 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.

1. Information provided to APRA in audited form must be audited by the auditor of the life company.

1. 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.

Authorisation

1. 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

1. 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.

1. If APRA makes such a variation it must notify in writing each life company that is required to report under this reporting standard.

Transitional

1. 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

1. 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 410.0

Capital Measurement Statistics

Instruction Guide

Introduction

Form LRF 410.0 Capital Measurement Statistics (LRF 410.0) provides APRA with the necessary information on a range of key statistics by APRA Product Group, including details of the solvency and capital adequacy liabilities, as well as the actuarial assumptions adopted for capital adequacy, in respect of the main Related Product Group within each APRA Product Group.

This Instruction Guide is designed to assist reporting entities in the completion of LRF 410.0. 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 410.0 must be completed by all life insurance companies, including friendly societies.

The form is to be completed for each statutory fund (approved benefit fund).

LRF 410.0 contains two sections:

1.All Statutory Fund Products; and

2.Totals by Class of Business.

Within section 1, reporting items are to be completed for each APRA Product Group (as defined below).

Within each APRA Product Group, some data will be collected in respect of the main Related Product Group represented in the business that makes up that APRA Product Group.

Unit of measurement

LRF 410.0 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.

Reporting period

Life companies are required to report the information in the reporting form on an annual basis i.e. in respect of the financial year of the life company.

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.

Actuarial valuations and calculations included in, or used in the preparation of, the statistics must be in accordance with prudential standards.

If additional clarification is required for specific revenue or expense items in this form, reference should be made to the section ‘Instructions for specific items’, which is provided as a guide.

APRA Product Groups

For consistency of reporting across the range of forms applicable to life insurers, APRA adopts a single set of product groupings for life insurers. The following tables list the APRA product groups applicable to (1) life companies other than friendly societies, and (2) friendly societies.

Ref.	Product Group	Notes	Category
Life companies other than friendly societies
L1	Conventional Participating (Par)	Includes Whole of Life policies and Endowment policies.	Par
L2	Participating Investment Account	As defined in Section 14 of the Life Insurance Act 1995. Exclude non-participating investment account policies (refer L8, below).	Par
L3	Annuity with Longevity Risk	Annuities providing periodic payments that are dependent on the continuance of human life.	Non-par
L4	Individual Lump Sum Risk	Lump sum risk policies issued on an individual (retail) basis. Includes non-participating conventional policies.	Non-par
L5	Individual Disability Income Insurance	Disability Income Insurance policies issued to individuals.	Non-par
L6	Group Lump Sum Risk	Lump sum risk policies issued on a group (wholesale) basis.	Non-par
L7	Group Disability Income Insurance	Disability Income Insurance policies issued on a group basis.	Non-par
L8	Non-par Investment Policy	Include non-participating investment account and investment linked policies.	Non-par
L9	Annuity without Longevity Risk	Annuities providing periodic payments that are NOT dependent on the continuance of human life.	Non-par
L10	Other	Include all other products not specifically categorised above – obtain APRA’s agreement to use.	(Either can be reported)
L11	Policy Owners’ Retained Profits	Retained profits allocated to participating policy owners generally, but not yet vested as specific amounts to particular policies.	Par
L12	Shareholders’ Capital & Retained Profits	Shareholders’ capital plus retained profits allocated to shareholders.	Capital

Note that Product Groups L11 and L12 are not applicable to this form.

Rather than requiring a Related Product Group (as defined in APRA and other prudential standards) of a Life Insurer’s business to be allocated across APRA product groups, APRA will permit it to be contained wholly within one APRA Product Group.

A separate set of product groupings is adopted for Friendly Societies, as follows:

Ref.	Product Group	Notes
Friendly societies
F1	Education
F2	Investment Account	As defined in Section 14 of the Life Insurance Act 1995.
F3	Annuity & Superannuation
F4	Risk	All products classified as Defined.
F5	Prepaid Funeral	Funeral products that are classified as Defined Contribution.
F6	Investment Linked	As defined in section 14 of the Life Insurance Act 1995.
F7	Unallocated Benefit Fund Reserve	Value of benefit funds which has not been allocated to either the benefit fund members or to the management fund.
F8	Members’ Capital and Retained Profits	Members’ capital plus retained profits allocated to members.

The classification of participating and non-participating business does not apply to friendly societies. Note that Product Groups F7 and F8 are not applicable to this form.

Instructions for specific items

While these instructions apply to all life insurance companies, including friendly societies, not all items may be applicable to both: some items may not be applicable to friendly societies while others may not be applicable to life insurers.

All items are derived from the requirements of Prudential Standards LPS 2.04 Solvency Standard (LPS 2.04) and LPS 3.04 Capital Adequacy Standards (LPS 3.04). In particular, those standards apply on a gross of reinsurance basis; this includes the calculation and reporting of Capital Adequacy Liability (Item 1.1), Solvency Liability (Item 1.2), Current Termination Value (CTV), Minimum Termination Value (MTV), and ‘Greater of’ amounts. Further to this, an additional provision is made in paragraph 6.4 of LPS 2.04 which allows an item of difference to be included as an offset or addition to each of these items for Solvency. The amount(s) of such difference will be included within the amounts reported at Item 1.2 of this form. Similarly, paragraph 7.4 of LPS 3.04 allows an item of difference to be included as an offset or addition to each of these items for Capital Adequacy. The amount(s) of such difference will be included within the amounts reported at Item 1.1 of this form. (See related discussion on these aspects under the Instruction Guides for LRF 100.0 Solvency, and for LRF 110.0 Capital Adequacy.)

Section 1 All Statutory Fund Products

This section is to be completed for each class of business, as specified in the drop-down box list:

·Australia – Superannuation Business

·Australia – Ordinary Business

·Overseas – All business

The expressions ‘ordinary business’ and ‘superannuation business’ are defined in the dictionary of the Life Insurance Act 1995.

1.1.Greater of Capital Adequacy Liability and Current Termination Value

The three components below (columns 1 to 3) are determined at Related Product Group (RPG) level and then aggregated across the APRA Product Group.

Where paragraphs 7.2 and 7.3 of LPS 3.04 apply, the methodology to be followed in completing Columns 1 – 3 is outlined in the Instruction Guide for LRF 110.0 Capital Adequacy.

Column 1        Capital Adequacy Liability (where determined)

Column 2        Capital Adequacy Current Termination Value (where determined)

Column 3        Greater of Capital Adequacy Liability and Current Termination Value

Column 4        Amount of reinsurance/risk mitigation difference included in each column to the left

1.2.Greater of Solvency Liability and Minimum Termination Value and Solvency Current Termination Value

The following three columns are determined at RPG level and then aggregated across the APRA Product Group.

Where paragraphs 6.2 and 6.3 of LPS 2.04 apply the methodology to be followed in completing Columns 1 – 3 is outlined in the Instruction Guide for LRF 100.0 Solvency.

Column 1        Solvency Liability (where determined)

Column 2        Minimum Termination Value (where determined)

Column 3        Greater of Solvency Liability and Minimum Termination Value

1.3.Related Product Group Capital Adequacy Margins

The following provides information where there are multiple RPGs within the APRA Product Group, each with its specific valuation assumptions.

Column 1        Number of Related Product Groups (RPG) in this APRA Product Group

Column 2        Name of Main RPG in this APRA Product Group

Enter the name of main Related Product Group in this APRA Product Group. 

Column 3 – 16 Capital Adequacy Margin

Report this information for the main RPG named in Column 2.

The Capital Adequacy Margins are those applied to the Best Estimate assumptions in order to produce the Capital Adequacy assumptions. In completing this part of the form, life companies should refer to LPS 3.04 Section 4 for guidance.

Section 2 Totals by Class of Business

All fields in Section 2 are derived items; therefore, no value is required to be entered in this section.