Financial Sector (Collection of Data) (reporting standard) determination No. 65 of 2006 Reporting Standard GRS 130.0 (2007) Off-Balance Sheet Business – Credit Substitutes Provided and Risk Charge (Cth)
Financial Sector (Collection of Data) (reporting standard) determination No. 65 of 2006
Reporting Standard GRS 130.0 (2007) Off-Balance Sheet Business – Credit Substitutes Provided and Risk Charge
Financial Sector (Collection of Data) Act 2001
I, John Roy Trowbridge, a delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (the Act) and subsection 33(3) of the Acts Interpretation Act 1901:
REVOKE Reporting Standard GRS 130.0 (2005) Off-Balance Sheet Business – Credit Substitutes Provided and Risk Charge which is in force as at the date of this determination (the old standard); and
DETERMINE Reporting Standard GRS 130.0 (2007) Off-Balance Sheet Business – Credit Substitutes Provided and Risk Charge in the form set out in the Schedule (the new standard), which applies to the financial sector entities referred to in paragraph 2 of the new standard.
Under section 15 of the Act, I DECLARE that the new standard shall begin to apply, and the old standard shall cease to apply, on the later of 1 January 2007 and the date of registration on the Federal Register of Legislative Instruments.
Dated 15 December 2006
[signed]
………………………
John Trowbridge
Member
Interpretation
In this Determination
APRA means the Australian Prudential Regulation Authority.
Schedule
Reporting Standard GRS 130.0 (2007) Off-Balance Sheet Business – Credit Substitutes Provided and Risk Charge comprises 17 pages commencing on the next page.
Reporting Standard GRS 130.0 (2007)
Off-Balance Sheet Business – Credit Substitutes Provided and Risk Charge
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 direct credit substitutes.
This reporting standard outlines the overall requirements for the provision of this information to APRA. It should be read in conjunction with:
Form GRF 130.0 Off Balance Sheet Business – Credit Substitutes Provided and Risk Charge (Form GRF 130.0) and the associated instructions (which are attached and all form part of this reporting standard); and
Prudential Standard GPS 110 Capital Adequacy.
Purpose
Data collected in Form GRF 130.0 is used by APRA for the purpose of prudential supervision including assessing an insurer’s compliance with Prudential Standard GPS 110 Capital Adequacy.
Application and commencement
This reporting standard applies to all insurers on and from 1 January 2007.
Information required
An insurer must provide APRA with the information required by Form GRF 130.0 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 the ‘Direct to APRA’ application, applying one of the electronic submission mechanisms under that application; or
(b)by manually completing Form GRF 130.0 on paper and mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales.
Where the information is submitted by means of an agent to whom the insurer has outsourced the function of providing the information on the insurer’s behalf, the agent may only provide the information in accordance with subparagraph 4(b) if the agent has contacted APRA and advised that the agent cannot submit the information in electronic form under subparagraph 4(a).
Note: the Direct to APRA application software and paper forms may be obtained from APRA.
Reporting periods and due dates
Subject to paragraph 6, 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 from an insurer by paragraph 3 read with subparagraph 5(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.
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 5(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 5(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 5(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 annual information required by paragraph 3 read with subparagraph 5(b) must be provided to APRA by the time specified in subparagraph 7(b) of this reporting standard (unless an extension is granted under paragraph 8).
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 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 the officer of an insurer provides the information required by this reporting standard:
(a)under subparagraph 4(a), the officer must digitally sign, authorise and encrypt the information (for which purpose APRA’s certificate authority will issue digital certificates, for use with the ‘Direct to APRA’ application, to officers of the insurer who have authority from the insurer to transmit data to APRA); or
(b)under subparagraph 4(b), the completed form must be signed in accordance with paragraph 13.
If an insurer provides the information required by this reporting standard through an agent under either subparagraph 4(a) or (b), the agent will not be required to sign or authorise the information. However, the insurer must:
(a)obtain from the agent a paper copy of the completed form as provided to APRA (whether it was provided under subparagraph 4(a) or (b)); and
(b)cause the paper copy to be signed in accordance with paragraph 13; and
(c)lodge the signed paper copy with APRA by mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales, by the relevant due date (unless APRA, in writing, waives the requirement to lodge the signed paper copy with APRA by varying this reporting standard in relation to the insurer).
Note: APRA may, for example, determine to waive the requirement under subparagraph 12(c) where an insurer has undertaken to retain the signed copy of the completed form for an agreed period of time.
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:
(c)the Principal Executive Officer of the insurer; or
(d)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.
Transition
An insurer must report in relation to a reporting period ending prior to 1 January 2007 in accordance with the reporting standard that this reporting standard replaced.
Interpretation
In this reporting standard:
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;
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.
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 5(a) or (b) or, if appropriate, paragraph 6.
A reference to a prudential standard means the prudential standard, made under section 32 of the Insurance Act, mentioned in the reference, as amended from time to time. If the prudential standard has been revoked and replaced, the reference shall be taken to be to the prudential standard that has replaced it.
Reporting Form GRF 130.0
Off Balance Sheet Business - Credit Substitutes Provided and Risk Charge
Instruction Guide
Introduction
This form is used to calculate the capital charge applicable for an insurer’s (and reinsurer’s) off-balance sheet exposures for capital adequacy purposes (refer to GPS 110 Capital Adequacy).
Audit requirements
The form relating to authorised insurance entities and reinsurance entities is required to be subject to audit review and testing.
The scope and nature of audit testing required is outlined in the applicable Auditing and Assurance Guidance Statement issued by the Auditing and Assurance Standards Board.
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
Forms are to be completed for the following reporting entities only where required:
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); and
Authorised reinsurance entities (reference to licensed insurer in the form means total operations of the licensed entity).
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 121 ‘The Effects of Changes in Foreign Exchange Rates’.
The general requirements of AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ for translation are:
Foreign currency monetary items[1] outstanding at the reporting date must be translated at the spot rate[2] at the reporting date.
[1] Monetary items are defined to mean units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
[2] Spot rate means the exchange rate for immediate delivery.
Foreign currency non-monetary items[3] that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction.
[3] Examples of non-monetary items include amounts prepaid for goods and services (e.g. prepaid rent); goodwill; intangible assets; physical assets; and provisions that are to be settled by the delivery of a non-monetary asset.
Foreign currency non-monetary items that are measured at fair value will be translated at the exchange rate at the date when fair value was determined.
Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with AASB 139 ‘Financial Instruments: Recognition and Measurement’. However, those foreign currency derivatives that are not within the scope of AASB 139 ‘Financial Instruments: Recognition and Measurement’ (e.g. some foreign currency derivatives that are embedded in other contracts) remain within the scope of AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.
For APRA purposes equity items must be translated using the foreign currency exchange rate at the date of investment or acquisition. Post acquisition changes in equity are required to be translated on the date of the movement.
As foreign currency derivatives are measured at fair value, the currency derivative contracts are translated at the spot rate at the reporting date.
Exchange differences should be recognised in profit and loss in the period which they arise. For foreign currency derivatives, the exchange differences would be recognised immediately in profit and loss if the hedging instrument is a fair value hedge. For derivatives used in a cash flow hedge, the exchange differences should be recognised directly in equity.
The ineffective portion of the exchange differences in all hedges would be recognised in profit and loss.
4. Translation of financial reports of foreign operations.
A foreign operation is defined in AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ as meaning an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.
·Exchange differences relating to foreign currency monetary items that form part of the net investment of an entity in a foreign operation, must be recognised as a separate component of equity.
·Translation of financial reports should otherwise follow the requirements in AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.
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.
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 Reporting Standard GRS 130.0 Off-Balance Sheet Business – Credit Substitutes Provided and Risk Charge.
Related parties
Where this term is used or referenced in these forms, related parties is to be interpreted consistently with its definition and meaning as contained in AASB 124 ‘Related Party Disclosures’.
In accordance with AASB 124, related party means a party that directly or indirectly through one or more intermediaries:
(a)controls, is controlled by or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);
(b)has significant influence over the entity or has joint control over the entity; or
(c)is an associate (as defined in AASB 128 ‘Investments in Associates’) of the entity; or
(d)is a joint venture in which the entity is a venturer (see AASB 131 ‘Interests in Joint Ventures’); or
(e)is a member of the key management personnel of the entity or its parent; or
(f)is a close member of the family of any individual referred to in (a), (b) or (e); or
(g)is an entity that its controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (e) or in (f); or
(h)is a post-employment benefit plan for the benefit of the employees of the entity, or of any entity that is a related party of the entity.
Specific instructions
Non market related items
This term ‘non market’ refers to items that are not transacted in financial markets.
Transactions relating specifically to financial market products such as derivative financial instruments are not to be included in this form. Transactions and exposures to derivative financial instruments are recorded in GRF 160.0 Derivatives Activity and Risk Charge.
Principal amount
For locally incorporated insurers (including reinsurers), report the principal amount (refers to the face value or gross amount) for off-balance sheet transactions, which give rise to credit exposures.
Counterparty Grade of Obligation/Asset over which the Credit Substitute has been Written
Report the off-balance sheet business on the basis of the Counterparty Grade of Obligation/Asset over which the Credit Substitute has been written.
Refer to GPS 110 Capital Adequacy for details of counterparty grades.
The relevant asset grades and the applicable investment capital factors are:
| Asset Grade | Assets to be included in the grade | Investment capital factor |
| 1 | Debt obligations of: · The security has a Grade 1 counterparty[4] rating, or if not rated, · The long-term, foreign currency counterparty rating of that country is Grade 1. | 0.5% |
| 2 | Debt obligations maturing or redeemable in less than one year with a rating of Grade 1 or 2. | 1.0% |
| 3 | Debt obligation maturing or redeemable in one year or more with a rating of Grade 1 or 2. Reinsurance recoveries and other reinsurance assets due from reinsurers with a counterparty rating of Grade 1 or 2. | 2.0% |
| 4 | Debt obligation maturing or redeemable in one year or more with a rating of Grade 3. Reinsurance recoveries and other reinsurance assets due from reinsurers with a counterparty rating of Grade 3. | 4.0% |
| 5 | Debt obligation maturing or redeemable in one year or more with a rating of Grade 4. Reinsurance recoveries and other reinsurance assets due from reinsurers with a counterparty rating of Grade 4. | 6.0% |
| 6 | Debt obligation maturing or redeemable in one year or more with a rating of Grade 5. Reinsurance recoveries and other reinsurance assets due from reinsurers with a counterparty rating of Grade 5. Listed equity instruments. Units in listed trusts. | 8.0% |
| Free hold real estate, unlisted equity instruments or units in unlisted trusts | Direct holdings of real estate. Unlisted equity instruments. Units in unlisted trusts. | 10.0% |
[4] Refer to GPS 110 Capital Adequacy for the details of counterparty grades.
Categories of off-balance sheet business
The categories of off-balance sheet transactions are as follows:
Direct Credit Substitutes
This includes any irrevocable off-balance sheet obligations, which carry the same credit risk as a direct extension of credit. The following are examples constituting a direct credit substitute (i.e. the risk of loss depends on the creditworthiness of the counterparty, or the party on which a potential claim is acquired):
An undertaking to make a payment to a third party in the event that a counterparty fails to meet a financial obligation; or
An undertaking to a counterparty to acquire a potential claim on another party in the event of default by that party.
This includes potential credit exposures arising from the issue/provision of following:
guarantees;
credit derivatives (i.e. selling credit protection);
standby letters of credit serving as financial guarantees for loans, securities and any other financial liabilities; and
Bill endorsements
Trade-related contingencies
Contingent liabilities arising from trade-related obligations which are secured against an underlying shipment of goods. This includes documentary letters of credit issued, acceptances on trade bills, shipping guarantees issued and any other trade-related contingencies.
Sale & Repurchase Agreements (“Repos”)
This relates to arrangements whereby an insurer sells a loan, security or other asset to another party with a commitment to repurchase the asset at an agreed price on an agreed future date.[5] Any assets acquired by an insurer under reverse repos (i.e. purchase and resale agreements) are to be treated as collateralized loans to the counterparty.[6]
[5]These transactions are risk weighted according to the type of assets or the issuer of securities and not according to the counterparty with whom the transaction is made, where the credit risk associated with the underlying asset which has been sold (temporarily under a repo or with recourse) or purchased, remains with the insurer.
[6]The appropriate risk weight to be applied to a reverse repo transaction is determined on the basis of the counterparty to the transaction or the underlying asset if it is an eligible collateral security.
Assets Sold With Recourse
This includes any asset sales (to the extent that such assets are not included in on-balance sheet) by an insurer where the holder of the asset is entitled to “put” the asset back to the insurer within an agreed period or under certain prescribed circumstances, e.g. deterioration in the value or credit quality of the asset concerned.
Forward Asset Purchases
This includes commitments to purchase at a specified future date and on pre-arranged terms, an asset from another party, including written put options on specified assets with the character of a credit enhancement.
Written put options expressed in terms of market rates for currencies or financial instruments bearing no credit risk are excluded from risk assets.
For the purposes the APRA forms do not include market related securities that are recorded on a trade date basis and transacted in accordance with accepted financial market settlements periods. Such securities are to be included in the respective investments forms. These do not constitute forward asset purchases for the purposes of GRF 130.0 Off Balance Sheet Business – Credit Substitutes Provided and Risk Charge.
Partly Paid Shares and Securities
This includes any amounts owing on the uncalled portion of partly paid shares and securities held by an insurer, which represent commitments with certain drawdown by the issuer at a future date.
Placements of Forward Deposits
This relates to any agreement between an insurer and another party whereby the insurer will place a deposit at an agreed rate of interest with that party at a predetermined future date.
Surety Bonds
Record the total value of surety bonds which are treated as a type of direct credit substitute by the insurer. The risk charge will be automatically applied to 25 per cent of the value of the surety bond business as specified in GPS 110 Capital Adequacy.
All Other Non-Market-Related Off-Balance Sheet Items
Record all other off balance sheet non-market related items that are not specifically covered in the form
Total Non-Market-Related Off-Balance Sheet Business
This is the total of all values disclosed for items listed in the form. This figure will be automatically calculated by the form.
Of Which Total Business that is Deemed as Inside Australia
Of the value recorded for “Total Non-Market-Related Off Balance Sheet Business”, report the value that relates to business that is deemed to be recorded as Inside Australia. Refer to GPS 120 Assets in Australia for further information.
Investment Capital Factors
These are the applicable investment capital factors (percentages) that are to be applied to the exposures. The investment capital factors are based on counterparty/asset rating grades and are set out in GPS 110 Capital Adequacy.
Required Risk Charge
Represents the required risk charge for each counterparty/asset rating grade specified (i.e. columns). This is calculated based on the total non-market-related off balance sheet business per counterparty/asset rating grade and the appropriate investment capital factor. This figure will be automatically calculated by the form.
Total Off-Balance Sheet Required Risk Charge
Represents the aggregate required risk charge for all exposures to each counterparty/asset rating grade specified (i.e. columns). This amount is automatically calculated by the form and will be included in the calculation of the insurer’s minimum capital requirement.
Total Non-Market-Related Off-Balance Sheet Business (total of item 10) which are provided to related parties:
Of the total non-market off balance sheet business/exposure disclosed in the table (i.e. total of items disclosed in number 10), report that amount which has been provided to related parties or in relation to related parties as listed in the form.
Parent entity
Of the total off-balance sheet business that is reported in this form, disclose amounts that are with/from the parent entity of the licensed insurer.
Controlled entities/Controlled entities of the parent entity
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 off-balance sheet business that is reported in this form, disclose amounts that are with/from these entities.
Associates/Joint Ventures
Of the total off-balance sheet business that is reported in this form, disclose amounts that are with/from Associates or Joint Ventures of the licensed insurer. Associates and Joint Ventures are defined in accordance with AASB 131 ‘Interests in Joint Ventures’ and AASB 128 ‘Investments in Associates’.
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 that is not specifically identified above. Refer to the definition of related parties as defined in the general section of this instruction guide.
0
0
0