Financial Sector (Collection of Data) (reporting standard) determination No. 78 of 2008 GRS 301.0 (2008) Reinsurance Assets and Risk Charge (Cth)
Financial Sector (Collection of Data) (reporting standard) determination No. 78 of 2008
Reporting Standard GRS 301.0 (2008) Reinsurance Assets and Risk Charge
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 registration of this instrument on the Federal Register of Legislative Instruments.
Dated 16 October 2008
[Signed]
Charles Littrell
Executive General Manager
Policy, Research and Statistics
Interpretation
In this Determination
APRA means the Australian Prudential Regulation Authority.
Federal Register of Legislative Instruments means the register established under section 20 of the Legislative Instruments Act 2003.
Schedule
Reporting Standard GRS 301.0 (2008) Reinsurance Assets and Risk Charge comprises the 33 pages commencing on the next page.
Reporting Standard GRS 301.0 (2008)
Reinsurance Assets 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, information on their financial position.
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 301.0 Reinsurance Assets and Risk Charge (Form GRF 301.0); and
any prudential standards referenced in the attached instructions. .
Purpose
Data collected in Form GRF 301.0 is used by APRA for the purpose of prudential supervision including assessing an insurer’s compliance with the capital standards.
Application and commencement
This reporting standard applies to all insurers for reporting periods commencing on or after 1 July 2008.
Information required
An insurer must provide APRA with the information required by the Form GRF 301.0 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 301.0 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 by paragraphs 3 and 4 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.
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 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 (relating to the information required by paragraphs 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 appointed 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 appointed 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 subparagraphs 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:
(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 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 July 2008 in accordance with the reporting standard that this reporting standard replaced.
Interpretation
In this reporting standard:
appointed auditor means an auditor appointed under paragraph 39(1)(a) of the Insurance Act t;
business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays;
capital standards means the prudential standards which relate to capital adequacy as defined in Prudential Standard GPS 001 Definitions;
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 applicable, 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 301.0
Reinsurance Assets and Risk Charge
General Overview
Introduction
GRF 301.0 Reinsurance Assets and Risk Charge provides APRA with the necessary information on reinsurance assets[1] and to calculate the applicable risk charges on such assets.
[1] Reinsurance Assets has the same meaning as in Prudential Standards GPS 001 Definitions (GPS 001).
Risk Charge
The calculation of the applicable risk charges on an insurer’s (and reinsurer’s) on-balance sheet exposures to reinsurance assets are based on the prescribed method outlined in Prudential Standards GPS 114 Capital Adequacy: Investment Risk Capital Charge (GPS 114). The aggregate of the risk charges calculated in this form is included in the calculation of the insurer’s minimum capital requirement.
For Category C insurers[2], the risk charge will be applied to reinsurance assets that are deemed inside Australia under section 116A of the Insurance Act 1973 (the Act). For all other insurers, the risk charge will be calculated based on their reinsurance assets whether they are deemed inside Australia or outside Australia.
[2] Category C insurer has the same meaning as in Prudential Standards GPS 001 Definitions.
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 Act. This means that:
the completed form for the financial year must be audited by the Appointed 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 entities
This form is to be completed by:
Category C insurer - branch insurers (or reinsurers) of a foreign parent insurer (or reinsurer) (a 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).
Instruction Guide
Introduction
This Instruction Guide is designed to assist in the completion of GRF 301.0 Reinsurance Assets and Risk Charge. The instruction guide provides:
General directions and notes for preparation and lodgement; and
Explanatory notes for specific items.
Definitions
Definitions for data reporting items required by this form have been provided where possible in the instructions under the section headed ‘Specific Instructions’.
Unit of Measurement
GRF 301.0 Reinsurance Assets and Risk Charge 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’.
The general requirements of AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ for translation are:
Foreign currency monetary items[3] outstanding at the reporting date must be translated at the spot rate[4] at the reporting date.
[3] 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.
[4] Spot rate means the exchange rate for immediate delivery.
Foreign currency non-monetary items[5] that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction.
[5] 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 recognized in profit and loss.
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 301.0 Reinsurance Assets and Risk Charge.
Basis of preparation
With the exception of the definition, recognition and measurement requirements of the items listed below, general insurers are requested to follow the Australian accounting standards regarding the definition, recognition and measurement of assets, notably AASB 1023 ‘General Insurance Contracts’.
Outstanding Claims Provision;
Reinsurance Recoveries;
Premium Liabilities;
Expected Reinsurance Recoveries;
Non-Reinsurance Recoveries;
Deferred Reinsurance Expense; and
Deferred Acquisition Costs.
The interpretation and required measurement basis for these items listed above are specified in these instructions.
Recognition of items for regulatory reporting purposes not recognised under AASB 1023:
Premium Liabilities
For regulatory reporting, this is a new liability item and is measured on a prospective basis.
Expected reinsurance recoveries (associated with Premiums Liabilities).
For regulatory reporting this is disclosed in the statement of financial performance and is measured on a prospective basis similar to Premiums Liabilities.
The non-recognition of items for regulatory reporting purposes that are recognised under AASB 1023:
Unearned premiums provision.
This item is not recognised for prudential reporting as premium revenue is recognised fully from date of acceptance of risk.
Deferred reinsurance expense.
This item is not recognised for prudential reporting purposes as reinsurance premiums paid are recognised as an expense fully from date of acceptance of reinsurance by reinsurer(s).
Deferred acquisition costs are expensed fully when paid/payable as a component of underwriting expenses for the purposes of prudential reporting.
The reasons for the changes to the accounting treatment for the areas outlined above are provided below.
Premium Liabilities and Expected Reinsurance and Non-Reinsurance Recoveries
AASB 1023 requirements
AASB 1023 does not have a requirement for the recognition and measurement of Premium Liabilities and Expected Reinsurance Recoveries.
APRA requirements
Prudential Standards GPS 310 Audit and Actuarial Reporting and Valuation (GPS 310) requires a prospective basis to the recognition and measurement of premiums liabilities. For the purposes of the APRA prudential forms, Premium Liabilities are to be recognised as a liability in GRF 300.0 Statement of Financial Position. In addition the creation of (and movement in) Premium Liabilities is to be recognised and disclosed as a component of claims expense in GRF 310.0 Statement of Financial Performance (i.e. “claims expense attributable to future years”). Under this approach claims expense will have two separately identifiable components, one relating to the Outstanding Claims Provision (OCP - current year and prior year claims) and the other relating to the Premiums Liabilities (PL - relating to future years).
APRA considers that the concept of Premium Liabilities is a more effective means of recognising potential risk over the term of the policy written, compared to the accounting concept of premium ‘earned/unearned’.
Given the prospective basis required by GPS 310 to measure and recognise Premium Liabilities, it is appropriate to recognise expected reinsurance recoveries and non-reinsurance recoveries as assets that reflect the level of reinsurance cover and the availability of non-reinsurance recoveries associated with the Premium Liabilities recognised. The expected reinsurance and non-reinsurance recoveries are deducted from the Premium Liabilities for the purposes of calculating the insurance capital charge and will be addressed in the actuary’s report.
For the APRA prudential forms, this introduces new asset items in GRF 300.0 Statement of Financial Position and GRF 310.0 Statement of Financial Performance. Under this approach reinsurance and non-reinsurance recoveries will have two separately identifiable components, one relating to the OCP (current year and prior year claims) and the other relating to the PL (i.e. relating to future years).
Small insurers[6] may use accounting data as a proxy for APRA reporting purposes in valuing its premium liabilities and expected reinsurance recoveries on premium liabilities in the following manner:
[6] Small insurer has the same meaning as in GPS 001.
· For premium liabilities – small insurers may use AASB 1023 Unearned premium provision less deferred acquisition costs.
· For expected reinsurance recoveries on premium liabilities – AASB 1023 Deferred reinsurance expense.
Definition of insurance business
Insurers are to follow the definition of insurance business provided in section 3 of the Act. The Act provides that insurance business means the business of undertaking liability, by way of insurance (including reinsurance), in respect of any loss or damage, including liability to pay damages or compensation, contingent upon the happening of a specified event, and includes any business incidental to insurance business as so defined, but does not include:
(a)Life insurance business;
(b)Accident insurance business undertaken solely in connection with life insurance business;
(c)Pecuniary loss insurance business carried on solely in the course of carrying on banking business and for the purposes of that business by the ADI;
(d)Business in relation to the benefit provided by a friendly society or a trade union for its members or their dependants;
(e)Business in relation to the benefits provided for its members or their dependants by an association of employees of employees and other persons that is an organisation within the meaning of Schedule 1B the Workplace Relations Act 1996;
(f)Business in relation to a scheme or arrangement under which superannuation benefits, pensions or payments to employees or their dependants (and not to any other persons) on retirement, disability or death are provided by an employer or an employer’s employees or both, wholly through an organization established solely for that purpose by the employer or the employer’s employees or by both;
(g)Business in relation to a scheme or arrangement for the provision of benefits consisting of:
(i)the supply of funeral, burial or cremation services, with or without the supply of goods connected with any such service; or
(ii)the payment of money, upon the death of a person, for the purpose of meeting the whole or a part of the expenses of and incidental to the funeral, burial or cremation of that person;
and no other benefits, except benefits incidental to the scheme or arrangement;
(h)business undertaken by a person, being a carrier, carrier’s agent, forwarding agent, wharfinger, warehouseman or shipping agent, relating only to the person’s liability in respect of goods belonging to another person and in the possession, or under the control, of the first-mentioned person for the purpose of the carriage, storage or sale of those goods;
business undertaken by a person, being an innkeeper or lodging-house keeper, relating only to the person’s liability in respect of goods belonging to another person and in the possession or under the control of a guest at the inn or lodging-house of which the first-mentioned person is the innkeeper or lodging-house keeper or deposited with the innkeeper or lodging-house keeper for safe custody;
(j)the business of insuring the property of a religious organization where the person carrying on the business does not carry on any other insurance business;
(ja) health-related business within the meaning of section 131-15 of the Private Health Insurance Act 2007 carried on by a private health insurer within the meaning of that Act through a health benefits fund within the meaning of that Act;
(k)health insurance business within the meaning of Division 121 of the Private Health Insurance Act 2007, carried on by a private health insurer within the meaning of that Act; or
(l)reinsurance business carried on by:
(i)a body corporate incorporated in a foreign country; or
(ii)an unincorporated body established, under a law of a foreign country, that under that law may sue or be sued, or may hold property in the name of its secretary or of an office holder of the body duly appointed for that purpose;
that is not a general insurer.
Inside Australia
Section 28 of the Insurance Act, 1973 (the Act) requires all general insurers to maintain assets in Australia (excluding goodwill and other amounts excluded by Prudential Standards GPS 120 Assets in Australia (GPS 120)) of a value that equals or exceeds the total amount of the general insurer’s liabilities in Australia.
Requirement to maintain assets Inside Australia
This requirement is designed to ensure that the total value of assets held within the jurisdictional reach of APRA and the Australian courts is sufficient to meet a general insurer’s Australian liabilities. It assists in the application of subsection 116(3) of the Insurance Act 1973, which provides that in the winding up of a general insurer, the assets in Australia shall not be applied in the discharge of its liabilities other than its liabilities in Australia unless all the Australian liabilities have first been discharged.
Reinsurance
The Act permits certain reinsurance assets to be regarded as assets in Australia. For the purposes of the Act, an amount is taken to be an asset in Australia of a general insurer if:
(a)the insurer expects to recover the amount under a contract of reinsurance entered into with a person outside Australia; and
(b)the amount relates to claims in respect of liabilities in Australia of the insurer, whether or not the claims have been paid by the insurer; and
(c)under the terms of the contract, payments by way of reinsurance are to be made in Australia.
Reinsurance Assets due from non-APRA-authorised reinsurers
Different treatment is accorded to certain reinsurance assets[7] due from a ‘non-APRA-authorised reinsurer’[8] as specified in GPS 114.
[7] Subject to transition rules relating to such reinsurance recoverables.
[8] Non-APRA-authorised reinsurers have the same meaning as in GPS 001.
The applicable investment risk charge is calculated in accordance with GPS 114 based on whether the amount is recoverable from ‘APRA-authorised reinsurers’[9] or non-APRA-authorised reinsurers. Different investment risk charges apply for reinsurance recoverables due from non-APRA-authorised reinsurers on and from the second balance date after the end of the financial year in which the event giving rise to the recoverables occurred. These risk charges apply only to the extent that the reinsurance recoverables are not supported by collateral, guarantee or a letter of credit and on contracts incepting on or after 31 December 2008.
[9] APRA-authorised reinsurers have the same meaning as in GPS 001.
Where reinsurance recoverables are supported by collateral, guarantee or a letter of credit, only the risk charges applying to the counterparty providing the support will be applied as calculated in GRF 130.3 Off Balance Sheet Business – Credit Support Received.
For the purposes of determining the amount of reinsurance recoverable, if there is an offsetting arrangement between the insurer and the reinsurer that results in premium being withheld by the insurer in lieu of claim payments, the withholding of that premium is taken to be payment. However, if there is a requirement for offsets to be approved by the reinsurer the date of the offset request is taken to be the date of the request for payment.
Limited Risk Transfer Arrangements
An insurer must submit to APRA details of all proposed Limited Risk Transfer Arrangements[10] for approval prior to entering into such arrangements. APRA may approve a Limited Risk Transfer arrangement as either a reinsurance arrangement or a financing arrangement.
[10]Limited Risk Transfer Arrangements are defined in GPS 230 Reinsurance Management.
APRA will generally consider a Limited Risk Transfer Arrangement to be a reinsurance arrangement where the purpose and effect of the arrangement is to genuinely transfer significant insurance risk from the insurer to another re(insurer).
A Limited Risk Transfer Arrangement that is approved by APRA as a reinsurance arrangement must be treated accordingly by the insurer for prudential purposes.
A Limited Risk Transfer Arrangement that is approved by APRA as a financing arrangement must be accounted for by the insurer so that:
(a)the arrangement has a legitimate purpose and effect; and
(b)the arrangement will not misrepresent, or is not designed to disguise, a material risk to the insurer’s current or continuing profitability, solvency or capital adequacy from any party.
The terms and conditions of the financing arrangement will determine the appropriate accounting treatment for prudential purposes.
Where APRA determines that a Limited Risk Transfer Arrangement is to be treated as a financing arrangement, the insurer must not treat the arrangement as reinsurance for the purpose of determining the minimum capital requirement under the Capital Standards[11] or as reinsurance for any other purpose.
[11] “Capital Standards” refers collectively to the prudential standards relating to capital adequacy as defined under Prudential Standard GPS 001.
Related party disclosure
For the purposes of this form, related bodies corporate are to be interpreted consistently with the meaning as 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.
Instructions for specific items
Insurers are to indicate "Yes" or "No" in GRF 301.0 Reinsurance Assets and Risk Charge on whether the reporting entity is a branch insurer. A branch insurer is a Category C insurer as defined in Prudential Standard GPS 001 Definitions (GPS 001).
Total Amount
Category C insurers, that do not have any dealings/balances “outside of Australia”, are not required to complete the column titled “Total Amount” within this form. Where a Category C insurer does have dealings/balances that are outside of Australia, then the amount reported under the column titled “Total Amount” must include the sum of the amounts that are outside of Australia and amounts "Inside Australia".
All other insurers, must complete the column titled "Total Amount" whether the insurer has any dealings/balances that are outside of Australia or not.
Amount –Inside Australia
The amounts reported under this column must be only those amounts deemed inside Australia under section 116A of the Act.
Category C insurers, must complete the column titled "Amount – Inside Australia" within this form, whether the insurer has any dealings/balances outside of Australia or not. Where a Category C insurer does have dealings/balances outside of Australia, then the insurer must also complete the column titled "Total Amount".
For all other insurers, this column titled "Amount – Inside Australia" is only required to be completed where the insurer has dealings/balances outside of Australia. In which case, the column titled "Total Amount" is also required to be completed.
Investment Capital Factor %
This column for each form discloses the appropriate investment capital factor for the asset type in accordance with GPS 114.
Investment Risk Charge
This column for each form will calculate the appropriate investment risk charge in accordance with GPS 114.
Reinsurance recoverable on outstanding claims
Reinsurance recoverable has the same meaning as in Prudential Standard GPS 001 Definition, where any amounts due to an insurer from a reinsurer that arises from the recognition of Outstanding Claims Liabilities referred to in the capital standards[12] and GPS 310. This is distinguished from expected reinsurance recoveries[13] and forms part of reinsurance assets.
[12] Capital standards has the same meaning as in GPS 001.
[13] Expected reinsurance recoveries has the same meaning as in GPS 001.
Report assets which derive from reinsurance activities, other than unpaid premiums subject to the specific comments where a legal right of set-off exists.
Include the amount due from reinsurers or retrocessionaires. Reinsurance recoverables on outstanding claims is the reinsured portion of the outstanding claims provision to be recovered from reinsurers on settling the outstanding claims provision. Measurement of the outstanding claims is to be in accordance with GPS 310 (and not in accordance with the requirements of AASB 1023). Accordingly estimation of reinsurance recoveries relating to the outstanding claims provision is to be estimated on a basis similar with the measurement of the claims liabilities to which it relates.
Reinsurance Documentation Test
The amounts reported under items 1.4 to 1.7 and 1.9 should only include the amounts due from reinsurers under reinsurance contracts that meet the reinsurance documentation test[14], specified in GPS 112 Capital Adequacy: Measurement of Capital (GPS 112).
[14]Subject to transition rules relating to this deduction.
Report the net amount due from reinsurers under reinsurance contracts that do not meet the reinsurance documentation test in items 1.8. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Governing Law Requirements
The amounts reported under items 1.4 to 1.7 should only include the amounts due from reinsurers under reinsurance contracts entered into by the insurer incepting on or after 31 December 2008 that meet the ‘governing law requirements’[15], specified in Prudential Standard GPS 230 Reinsurance Management (GPS 230). GPS 230 specifies that (except for Category E insurers[16]):
[15]Governing law requirements are specified within paragraph 31 of Prudential Standard GPS 230 Reinsurance Management.
[16] Category E insurer has the same meaning as in GPS 001.
ØThe governing law of the reinsurance contract is Australian law; and
ØAny disputes that fall to be determined by a court are to be heard in an Australian court.
Report the net amount due from reinsurers under reinsurance contracts that do not meet the governing law requirements in items 1.9. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Reinsurance receivables overdue for more than six months
The amounts reported under items 1.4 to 1.6 should not include the amounts that are receivable from reinsurers that have been overdue for more than six months. GPS 114 specifies that with effect from 1 January 2009, applicable risk charge of 100% applies to a reinsurance recoverable due from non-APRA-authorised reinsurers if:
Ø The recoverable has become a receivable (i.e. it is due and payable); and
Ø The receivable is overdue for more than six months since a request for payment has been made to the reinsurer; and
Ø There is no formal dispute between the insurer and reinsurer in relation to that receivable. Where any dispute between the insurer and reinsurer in relation to a receivable arising from a reinsurance recoverable would have been taken into account in the valuation processes provided for under GPS 310.
Report the amount of the receivable that is overdue for more than six months in item 1.7.
Reinsurance Assets from non-APRA-authorised reinsurers
As mentioned above, different investment risk charges are applicable to certain reinsurance recoverables[17] due from non-APRA-authorised reinsurers calculated in accordance with GPS 114.
[17] Subject to transition rules relating to such reinsurance recoverables.
GPS 114 also applies different risk charges to reinsurance recoverables due from non-APRA-authorised reinsurers on and from the second balance date after the end of the financial year in which the event giving rise to each recoverable occurred.
Disclosure is required as follows:
1.1Amounts recoverable on reinsurance contracts and outstanding claims
Report the amount due from reinsurers on reinsurance contracts related to outstanding claims, including amounts recoverable from non-APRA-authorised reinsurers. This value should include amounts recoverable on paid claims.
1.2Provision for doubtful debts
Include the value of any recoveries where it is determined that collection is considered doubtful (full or partial).
1.3Net amount recoverable
This is automatically calculated by the form and represents the value of the reinsurance recoveries due from reinsurers on reinsurance contracts related to outstanding claims after deducting any associated provision for doubtful debts disclosed.
Disclose the net amount recoverable on reinsurance contracts on outstanding claims as follows:
1.3.1 Of which: Current Assets
Current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide AASB 101 provides that a current asset is an asset that is expected to mature or be realised within a 12 month period.
1.3.2 Of which: Non Current Assets
Non current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide, AASB 101 provides that a non current asset is an asset that is expected to be held, mature or not to be released for a period greater than 12 months.
1.3.3 Total net reinsurance recoverables receivable from related parties
Include the amount of reinsurance recoverables on reinsurance contracts and outstanding claims that are recoverable from entities deemed to be related entities of the insurer. For the purposes of this form, related entity has the meaning as set out earlier in this instruction guide.
1.3.4 Total net amounts recoverable on reinsurance contracts reported in item 1.3, that relate to claims recognised in the calculation of the Outstanding Claims Provision (i.e. other than reinsurance recoveries relating to claims that have been paid).
Of the total value reported in item 1.3, report the value of reinsurance recoveries that relates to claims that are recognised in the value reported for the Outstanding Claims Provision reported in item 18 and item 27 of GRF 300 Statement of Financial Position. Exclude reinsurance recoveries that relate to claims that have been paid.
1.4Net amount recoverable on reinsurance contracts and outstanding claims from APRA-authorised reinsurers
Record the net amount recoverable on reinsurance contracts from APRA-authorised reinsurers according to their counterparty rating as follows.
Note: Until 1 January 2009, also include the net amount recoverable on reinsurance contracts from non-APRA-authorised reinsurers.
1.4.1 Grade 1 or 2
1.4.2 Grade 3
1.4.3 Grade 4 or unrated
1.4.4 Grade 5
1.5Net amount recoverable on reinsurance contracts and outstanding claims from non-APRA-authorised reinsurers except for amounts outstanding on and from second balance date after the financial year in which the event occurred
Record the net amount recoverable on reinsurance contracts and outstanding claims from non-APRA-authorised reinsurers except for amounts outstanding on and from second balance date after the financial year in which the event occurred.
From 1 January 2009, include the net amounts recoverable from non-APRA-authorised reinsurance recoverables due on all reinsurance contracts.
Disclose the amounts according to the reinsurer’s counterparty rating:
1.5.1 Grade 1 or 2
1.5.2 Grade 3
1.5.3 Grade 4 or unrated
1.5.4 Grade 5
1.6In relation to reinsurance arrangements entered into on or after 31 December 2008, net amount recoverable on reinsurance contracts and outstanding claims from non-APRA-authorised reinsurers that are amounts outstanding on and from second balance date after the event occurred
From 1 January 2009, record the net amount recoverable on reinsurance contracts incepting on or after 31 December 2008 from non-APRA-authorised reinsurers that are amounts outstanding on and from the second balance date after the end of the financial year in which the event giving rise to the recoverables occurred regardless of whether the reinsurance recoverables are supported by collateral, guarantee or a letter of credit.
Where there is collateral, guarantee or a letter of credit supporting the reinsurance recoverable, the adjustment to the risk charge will be reflected in GRF 130.3 Off Balance Sheet Business – Credit Support Received.
Note: The disclosure relating to amounts which are supported by security arrangements in Australia requests disclosure of the net amounts to the extent that the reinsurance recoverables are supported by collateral, guarantee or a letter of credit.
Disclose the amounts according to the reinsurer’s counterparty rating:
1.6.1 Grade 1
1.6.1.1Of which supported by security arrangements in Australia
1.6.2 Grade 2
1.6.2.1Of which supported by security arrangements in Australia
1.6.3 Grade 3
1.6.3.1Of which supported by security arrangements in Australia
1.6.4 Grade 4 or unrated
1.6.4.1Of which supported by security arrangements in Australia
1.6.5 Grade 5
1.6.5.1Of which supported by security arrangements in Australia
1.7Net amount receivable from non-APRA-authorised reinsurers which are overdue for more than 6 months
From 1 January 2009, record the net amount recoverable on reinsurance contracts due from non-APRA-authorised reinsurers, if:
(a)the recoverable has become a receivable (i.e. it is due and payable); and
(b)the receivable is overdue for more than six months since a request for payment has been made to the reinsurer; and
(c)there is no formal dispute between the insurer and reinsurer in relation to that receivable.
1.8Net amount related to reinsurance contracts that do not meet the reinsurance documentation test
If the insurer has not complied with the threshold levels of reinsurance documentation set out in GPS 112, during the first and second transition periods, then all reinsurance recoveries receivable will be deducted from the Tier 1 capital of an insurer.
Compliance with the thresholds is assessed by calculating the percentage of reinsurance recoveries that are derived from reinsurance arrangements meeting the reinsurance documentation test compared with total reinsurance recoveries.
A reinsurance arrangement meets the reinsurance documentation test if the arrangement:
(a)complies with the two month rule and six month rule under GPS 230;
(b)fails to comply with the those rules as at the date of the relevant deadline but:
(i) subsequent to the deadline specified under the two month rule, the reinsurance arrangement is documented in accordance with the other requirements of the two month rule (in which case the reinsurance arrangement is treated as meeting the reinsurance documentation test until the reinsurance arrangements fail the six month rule); or
(ii) subsequent to the deadline specified under the six month rule, the reinsurance arrangement is documented in accordance with the other requirements of the six month rule; or
(c)is otherwise treated by APRA under GPS 230 as complying with the two month rule and six month rule.
After the second transition period, reinsurance recoveries receivable under each reinsurance arrangement that does not meet the reinsurance documentation test will be deducted from the Tier 1 capital of the insurer.
The key dates in the transition periods, in relation to an insurer, are as follows:
Table 1
| Balance Dates | 30 June | 30 September | 30 November | 1 December | 31 December | 31 March |
| First day of first transition period | 30 June 2007 | 30 September 2007 | 30 November 2007 | 1 December 2007 | 31 December 2007 | 31 March 2008 |
| Last day of first transition period | 29 June 2008 | 29 September 2008 | 29 November 2008 | 30 November 2008 | 30 December 2008 | 30 March 2009 |
| First day of second transition period | 30 June 2008 | 30 September 2008 | 30 November 2008 | 1 December 2008 | 31 December 2008 | 31 March 2009 |
| Last day of second transition period | 29 June 2009 | 29 September 2009 | 29 November 2009 | 30 November 2009 | 30 December 2009 | 30 March 2010 |
The threshold levels of reinsurance documentation are as follows:
Table 2
| Threshold level of reinsurance documentation | Application period |
| 60 per cent of reinsurance recoveries receivable by value must be derived from reinsurance arrangements that meet the reinsurance documentation test | First transition period |
| 80 per cent of the reinsurance recoveries receivable by value must be derived from reinsurance arrangements that meet the reinsurance documentation test | Second transition period |
Report the net amount related to reinsurance contracts that do not meet the reinsurance documentation test. This amount is deducted from capital, as such it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
1.9Net amount recoverable under reinsurance contracts that do not meet governing law requirements
Report the net amounts due from reinsurers under reinsurance contracts entered into by the insurer incepting on or after 31 December 2008 that do not meet the ‘governing law requirements’[18], specified in Prudential Standard GPS 230 Reinsurance Management (GPS 230). GPS 230 specifies that (except for Category E insurers[19]):
[18]Governing law requirements are specified within paragraph 31 of Prudential Standard GPS 230 Reinsurance Management.
[19] Category E insurer has the same meaning as in GPS 001.
ØThe governing law of the reinsurance contract is Australian law; and
ØAny disputes that fall to be determined by a court are to be heard in an Australian court.
This amount is deducted from capital, as such it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Expected reinsurance recoveries on premium liabilities
“Expected reinsurance recoveries” has the same meaning as in GPS 001. It means any amounts due to an insurer from a reinsurer that arise from the recognition of Premium Liabilities referred to in the capital standards[20] and GPS 310. This is distinguished from reinsurance recoverables and forms part of reinsurance assets.
[20] Capital Standards has the same meaning as in GPS 001.
Where advice of an Appointed Actuary is required in regard to the valuation of the premium liabilities, the Appointed Actuary should also consider the estimation of the expected reinsurance recoveries on the premium liabilities recognised. Actuarial judgement should be used in the application of the principles of GPS 310 in those circumstances.
Expected reinsurance recoveries do not include other forms of reinsurance assets or other form of non-reinsurance recoveries. Non reinsurance recoveries are amounts that may be recovered under arrangements other than reinsurance arrangements. These include salvage and subrogation.
Recognition of expected reinsurance recoveries on premiums liabilities will vary according to the type of reinsurance contract:
-Proportional reinsurance and all facultative
Expected reinsurance recoveries on premiums liabilities are to be recognised, by the direct insurer, from the date the underlying risk is accepted and the outwards reinsurance expense is recognised.
-Excess of loss
Where excess of loss reinsurance is used, the recognition depends on the basis of the cover being either on a ‘risks attaching during the period of reinsurance’ basis or ‘losses occurring during the period of insurance’ basis.
‘Losses occurring during the period of reinsurance’:
Where the risk profile is evenly distributed throughout the year, insurers must recognise 50 per cent of the reinsurance expense and expected reinsurance recoveries in the current period. The reinsurance expense and expected reinsurance recoveries for the remaining 50 per cent of the period are to be recognised at the midpoint of the period for the reinsurance cover. Where the risk profile of the insurer is not evenly distributed throughout the year, the insurer will need to recognise the apportionment of reinsurance expense and expected reinsurance recoveries on the same business pattern as their risk profile. For seasonal insurers, with all policies incepting on the one date, all reinsurance expense and expected reinsurance recoveries will need to be recognised from the date of acceptance by the reinsurer(s) of the reinsurance contract.
‘Risks attaching during the period of reinsurance’:
For these contracts the reinsurance expense and the expected reinsurance recoveries are to be recognised on the date of acceptance by the reinsurer.
“Expected reinsurance recoveries” is to be allocated according to the counterparty grades set out below and in the form, which are detailed in GPS 114. The investment risk charge will be calculated based on the capital factor applicable to the rating grades.
Note: the amounts recorded in item 2.4 and 2.5 should not include expected recoveries from reinsurance contracts that do not fully meet the reinsurance documentation tests in GPS 112. Instead this should be reported under item 2.6. This amount is deducted from capital, as such it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Also do not include expected recoveries from reinsurance contracts that do not meet the governing law requirements in item 2.4 to 2.5. Instead report the amount under item 2.7.
Reinsurance Assets from non-APRA-authorised reinsurer
As mentioned above, different investment risk charge is applicable to certain reinsurance assets[21] due from non-APRA-authorised reinsurers calculated in accordance with GPS 114. The applicable investment risk charge is calculated in accordance with GPS 114 based on whether the amount is recoverable from APRA-authorised reinsurers or non-APRA-authorised reinsurers.
[21] Subject to transition rules relating to such reinsurance assets.
Reinsurance assets due from non-APRA-authorised reinsurers arising from reinsurance contracts incepting prior to 31 December 2008 are treated as if they were reinsurance assets from APRA-authorised reinsurers for the purposes of calculating the investment risk capital charges until 1 January 2009.
2.1Amount of expected reinsurance recoveries on premium liabilities
Report the total of expected reinsurance recoveries on premium liabilities.
2.2Provision for doubtful debts
Include the value of any recoveries where it is determined that collection is considered doubtful (full or partial).
2.3Net amounts of recoveries
This is automatically calculated by the form and represents the value of the reinsurance recoveries after deducting any associated provision for doubtful debts disclosed. The net balance is used in the calculation of the applicable investment risk charge.
Disclosure is required as follows:
2.3.1Of which: Current Assets
Current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide AASB 101 provides that a current asset is an asset that is expected to mature or be realised within a 12 month period.
2.3.2Of which: Non Current Assets
Non current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide, AASB 101 provides that a non current asset is an asset that is expected to be held, mature or not to be released for a period greater than 12 months.
2.4Net amount of expected reinsurance recoveries on premium liabilities due from APRA-authorised reinsurers
Report the amount of expected reinsurance recoveries on premium liabilities due from APRA-authorised reinsurers according to their counterparty ratings as follows:
2.4.1Grade 1 or 2
2.4.2Grade 3
2.4.3Grade 4 or unrated
2.4.4Grade 5
2.5Net amount of expected reinsurance recoveries on premium liabilities due from non-APRA-authorised reinsurers
Report the amount of expected reinsurance recoveries on premium liabilities due from non-APRA-authorised reinsurers according to their counterparty ratings as follows:
2.5.1Grade 1 or 2
2.5.2Grade 3
2.5.3Grade 4 or unrated
2.5.4Grade 5
2.6Net amounts related to reinsurance contracts that do not meet the reinsurance documentation test
The treatment of expected reinsurance recoveries (relating to premium liabilities) which relate to reinsurance contracts that do not meet the reinsurance documentation will be similar to the treatment of item 1.8.
Report the net amounts related to reinsurance contracts that do not meet the reinsurance documentation test. As this amount is being deducted from capital, no risk capital factor is being applied.
2.7Net amounts of recoveries under reinsurance contracts that do not meet governing law requirements
The treatment of expected reinsurance recoveries (relating to premium liabilities) which relate to reinsurance contracts that do not meet the governing law requirements under GPS 230, will be similar to the treatment of item 1.9.
Report the net amounts of recoveries under reinsurance contracts that do not meet the governing law requirements. As this amount is being deducted from capital, no risk capital factor is being applied.
Other reinsurance assets
As mentioned above, different investment risk charge is applicable to certain reinsurance assets[22] due from non-APRA-authorised reinsurers calculated in accordance with GPS 114. The applicable investment risk charge is calculated in accordance with GPS 114 based on whether the amount is recoverable from APRA-authorised reinsurers or non-APRA-authorised reinsurers.
[22] Subject to transition rules relating to such reinsurance assets.
Reinsurance assets due from non-APRA-authorised reinsurers arising from reinsurance contracts incepting prior to 31 December 2008 are treated as if they were reinsurance assets from APRA-authorised reinsurers for the purposes of calculating the investment risk capital charges until 1 January 2009.
3.1.Amount of other reinsurance assets
Report any other asset, which relates to reinsurance, including deposits retained by reinsurers. This should include amounts that do not meet the reinsurance documentation test and amounts that do not meet the governing law requirements.
3.2.Provision for doubtful debts
Include the value of any recoveries where it is determined that collection is considered doubtful (full or partial).
3.3.Net amounts of other reinsurance assets
This is automatically calculated by the form and represents the value of the reinsurance recoveries after deducting any associated provision for doubtful debts disclosed. The net balance is used in the calculation of the applicable investment risk charge.
3.3.1 Of which: Current Assets
Current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide AASB 101 provides that a current asset is an asset that is expected to mature or be realised within a 12 month period.
3.3.2 Of which: Non Current Assets
Non current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide, AASB 101 provides that a non current asset is an asset that is expected to be held, mature or not to be released for a period greater than 12 months.
3.4.Net amount of other reinsurance assets receivable from APRA-authorised reinsurers
Report the net amount of other reinsurance assets receivable from APRA-authorised reinsurers according to their counterparty ratings as follows:
3.4.1.Grade 1 or 2
3.4.2.Grade 3
3.4.3.Grade 4 or unrated
3.4.4.Grade 5
3.5.Net amount of other reinsurance assets receivable from non-APRA-authorised reinsurers
Report the net amount of other reinsurance assets receivable from non-APRA-authorised reinsurers according to their counterparty ratings as follows:
3.5.1.Grade 1 or 2
3.5.2.Grade 3
3.5.3.Grade 4 or unrated
3.5.4.Grade 5
3.6.Net amounts related to reinsurance contracts that do not meet the reinsurance documentation test
The treatment of other reinsurance assets which relate to reinsurance contracts that do not meet the reinsurance documentation will be similar to the treatment of item 1.8.
Report the net amounts related to reinsurance contracts that do not meet the reinsurance documentation test. As this amount is being deducted from capital, no risk capital factor is being applied.
3.7.Net amounts of recoveries under reinsurance contracts that do not meet governing law requirements
The treatment of other reinsurance assets which relate to reinsurance contracts that do not meet the governing law requirements under GPS 230, will be similar to the treatment of item 1.9.
Report the net amounts of recoveries under reinsurance contracts that do not meet governing law requirements. As this amount is being deducted from capital, no risk capital factor is being applied.
Net reinsurance assets
This is automatically calculated by the form and represents the sum of the reinsurance assets net of associated provision for doubtful debts reported in items 1.3, 2.3 and 3.3.
0
0
0