Financial Sector (Collection of Data) (reporting standard) determination No. 80 of 2006 Reporting Standard GRS 300.0 (2007) Statement of Financial Position (Cth)

Financial Sector (Collection of Data) (reporting standard) determination No. 80 of 2006

Reporting Standard GRS 300.0 (2007) Statement of Financial Position

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 300.0 (2005) Statement of Financial Position which is in force as at the date of this determination (the old standard); and

• DETERMINE Reporting Standard GRS 300.0 (2007) Statement of Financial Position 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 300.0 (2007) Statement of Financial Position comprises 210 pages commencing on the next page.

Reporting Standard GRS 300.0 (2007)

Statement of Financial Position

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 300.0 Statement of Financial Position (Form GRF 300.0) designated for a ‘Licensed Insurer’, ‘Licensed Insurer - Inside Australia’, ‘Branch Insurer - Inside Australia’ and ‘Branch Total Operations’ and the associated instructions (which are attached and all form part of this reporting standard); and

• Prudential Standard GPS 110 Capital Adequacy.

Purpose

1. Data collected in each version of Form GRF 300.0 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

1. This reporting standard applies to all insurers on and from 1 January 2007. 

Information required

1. An insurer must:

(a)if it only writes insurance business inside Australia, provide APRA with the information required by the version of Form GRF 300.0 designated for a ‘Licensed Insurer’ for each reporting period; or

(b)if it writes insurance business both inside and outside Australia, provide APRA with the information required by:

(i)      the version of Form GRF 300.0 designated for a ‘Licensed Insurer’; and

(ii)      the version of Form GRF 300.0 designated ‘Licensed Insurer - Inside Australia’

for each reporting period.

1. A foreign insurer must provide APRA with the information required by the versions of Form GRF 300.0 designated for a ‘Branch Insurer - Inside Australia’ and ‘Branch Total Operations’ for each reporting period.

Forms and 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 manually completing Form GRF 300.0 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 5(b) if the agent has contacted APRA and advised that the agent cannot submit the information in electronic form under subparagraph 5(a).

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, 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.

1. 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)).

1. The information required by paragraph 3 of this reporting standard from an insurer, and paragraph 4 from a foreign insurer, must be provided to APRA by the following times:

(a)in the case of the quarterly information required by subparagraph 6(a) – 20 business days after the end of the reporting period to which the information relates; and

(b)in the case of the annual information required by subparagraph 6(b) – 4 months after the end of the reporting period to which the information relates.

Note: Paragraph 49L(1)(a) of the Insurance Act provides that the auditor’s certificate required under subsection 49J(3) of that Act must be lodged with APRA in accordance with the prudential standards. The prudential standards provide that the certificate must be submitted to APRA together with the yearly statutory accounts. Accordingly, the auditor’s certificate (relating to the information required by paragraphs 3 and 4 read with subparagraph 6(b)) must be provided to APRA by the time specified in subparagraph 8(b) of this reporting standard (unless an extension is granted under paragraph 9).

1. 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

1. 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. 

1. 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

1. If the officer of an insurer provides the information required by this reporting standard:

(a)under subparagraph 5(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 5(b), the completed form must be signed in accordance with paragraph 14.

1. If an insurer provides the information required by this reporting standard through an agent under either subparagraph 5(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 5(a) or (b)); and

(b)cause the paper copy to be signed in accordance with paragraph 14; 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 13(c) where an insurer has undertaken to retain the signed copy of the completed form for an agreed period of time.

1. 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

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 insurers in writing.

Transition

1. 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

1. 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 6(a) or (b) or, if applicable, paragraph 7.

1. 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 300.0

Statement of Financial Position

General Overview

Introduction

GRF 300.0 Statement of Financial Position provides APRA with the necessary information on assets, liabilities and capital to undertake an assessment of an insurer’s financial position and performance.

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 entities

A Statement of Financial Position is required for two reporting units (i.e. Inside Australia & Licensed Entity), for each licensed insurance entity (direct insurer or reinsurer as applicable). The instruction guide for GRF 300.0 Statement of Financial Position is to be used to complete the form where appropriate for each of the reporting units.

The scope of reporting is outlined below:

1. Statement of Financial Position - Inside Australia

This has the following scope:

• An unconsolidated report of the Australian licensed insurer’s/reinsurer’s operations that are booked “Inside Australia”. Do not consolidate Australian and offshore controlled entities (i.e. subsidiaries) for the purposes of completing the “Inside Australia” section of the form.; and

• If all the business of the insurer is inside Australia i.e. the insurer has no assets, liabilities or equity items outside of Australia, then the insurer does not need to complete GRF 300.0 Statement of Financial Position – Inside Australia, but must complete the GRF 300.0 Statement of Financial Position – Licensed 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 GPS 120 Assets in Australia) 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.    

Assets not included as Assets in Australia

The Act sets out a number of assets and liabilities, which are to be treated as assets or liabilities in Australia.[1] However, the Act does not provide an exhaustive definition. The primary purpose of GPS 120 Assets in Australia is to specify certain assets that will not be counted as “assets in Australia” for the purposes of section 28 of the Insurance Act 1973.

[1]           Refer section 116A of the Act

GPS 120 Assets in Australia excludes certain assets which would otherwise fall within the definition of “assets in Australia” under section 28 of the Insurance Act 1973 but which APRA considers to have doubtful value in the event of an insurer becoming insolvent.

Insurers are required to adhere to the following requirements for completing the asset sections (i.e. current asset and non current asset sections) of GRF 300.0 Statement of Financial Position – Inside Australia.

Locally-incorporated insurers

Intangibles and certain other assets

Amounts representing assets that must be deducted from capital under GPS 110 Capital Adequacy are excluded from being assets in Australia.

Chattels and real property

An amount representing a chattel or real property is excluded from being an asset in Australia if it is located outside Australia.

Loans and amounts due (including debentures)

An amount representing an asset is excluded from being an asset in Australia if:

Debt assets, not being debt assets held through a Depository

(a)the asset is a debt owed by another person (including, but not limited to, a debenture or a bond), not being an asset that is held through a Depository, and:

(i)      the debt is payable outside Australia;

(ii)      the debt is not recoverable in an Australian court;

(iii) the debtor is a body corporate and does not have a registered office in Australia within the meaning of the Corporations Act;

(iv)      the debtor is a foreign government or foreign government authority;  

(v)     the debtor is a natural person who resides outside Australia; or

(vi)     the debt is not readily transferable in Australia; or

Interests held on Australian Depositories

(b)the asset is an interest held on an Australian Depository, being an interest that derives from, or relates to, an underlying asset that is in the nature of a debt owed by another person, and:

(i)      the underlying asset would be excluded from being an asset in Australia under subparagraph (a) if held directly by the locally-incorporated insurer (rather than through a depository); and

(ii)      APRA has not determined in writing to waive the exclusion of the asset or a class of assets of which the asset is a member; or

Interests held on Foreign Depositories

(c)the asset is an interest  held on a Foreign Depository, being an interest that derives from or relates to an asset in the nature of a debt owed by another person.

Shares - General

An amount representing an asset is excluded from being an asset in Australia if:

Shares, not being shares held through a Depository

(a)the asset is a share, not being a share that is held through a Depository, and:

(i)      the share is not readily transferable[2] in Australia; or

[2]          “Readily transferable” does not imply that there must be a liquid market for the share.  Rather, without limiting the meaning of the phrase at law, it refers to the ability to transfer the share upon sale of the share.

(ii) the share is not recorded on a register of members kept in Australia under section 169 of the Corporations Act; or

Interests held on Australian Depositories

(b)the asset is an interest held on an Australian Depository, being an interest that derives from, or relates to, a share (underlying share), and:

(i)      the underlying share would be excluded from being an asset in Australia under subparagraph (a) if held directly by the locally-incorporated insurer (rather than through a Depository); and

(ii)      APRA has not determined in writing to waive the exclusion of the asset or an asset of that kind; or

Shares held on Foreign Depositories

(c)the asset is an interest held on a Foreign Depository, being an interest that derives from or relates to a share.

Interests in Special Purpose Vehicles (SPVs)[3]

[3]          Note that this paragraph may apply in relation to a Special Purpose Vehicle (SPV) if the SPV is a trust.

If:

(a)a locally-incorporated insurer holds an interest in an SPV;  and

(b)the SPV holds (whether directly or indirectly) one or more investments, at   least one of which would be excluded from being an asset in Australia if held directly by the insurer (either because of GPS 120 Assets in Australia or because it would not otherwise be an asset in Australia within the meaning of paragraph 28(a) of the Act)

then an amount A is excluded from being an asset in Australia, where A is calculated as follows:

A = B/C x D

where:

B means the fair value of the investment held by the SPV that would not be an asset in Australia if held directly by the insurer;

C means the fair value of all the interests in the SPV; and

D means the fair value of the interests in the SPV held by the insurer.

For the purposes of the above paragraph, APRA may determine in writing that B has a specified value where APRA is satisfied that application of the formula would not fairly represent the underlying value to the insurer of the investment held by the SPV[4].

[4]          An interest in an SPV that is a subsidiary of a general insurer may also be excluded from being an asset in Australia because of the application of GPS 120 Assets in Australia (irrespective of whether the subsidiary is part of the insurer’s Extended Licensed Entity (ELE) or holds foreign assets).  Refer Prudential Standard GPS 110  Capital Adequacy for definition of and requirements relating to ELEs,  Further, an interest in an SPV that is a trust may be excluded from being an asset in Australia because of the application of GPS 120 Assets in Australia (irrespective of whether the trust is part of the insurer’s ELE or holds foreign assets). 

Assets held by Custodians

Where a Custodian holds:

(a)the legal title to an asset or assets on bare trust; or

(b)an asset or assets under an agreement of a kind specified in writing by APRA for the purposes of GPS 120 Assets in Australia.

An amount representing an interest in, or in relation to, an asset held by a Custodian is excluded from being an asset in Australia if:

(a)the Custodian does not have a registered office (within the meaning of the Corporations Act) in Australia;

(b)the insurer cannot enforce its rights against the Custodian in an Australian court;

(c)the assets of the insurer are not kept distinct and separate from the Custodian’s own assets;

(d)the External Custody Agreement entered into between the insurer and the Custodian is not subject to the laws of a state or territory of Australia;

(e)the External Custody Agreement does not provide for liability on the part of the Custodian arising from the acts or omissions on the part of the Custodian, its agents or Sub-custodians;

(f)the External Custody Agreement does not describe the process by which the insurer provides authorised instructions to the Custodian;

(g)the External Custody Agreement does not describe the process by which the Custodian provides periodic reports to the insurer;

(h)the External Custody Agreement does not provide for flexibility as to the rights and obligations of the parties to enable them to ensure compliance in the event of any changes to APRA’s prudential requirements[5] and/ or other relevant legislation;

[5]           Prudential requirements include all requirements under the Act, Insurance Regulations 2002, prudential standards, the Financial Sector (Collection of Data) Act 2001 and reporting standards made under the Act, conditions on a general insurance authority and any other requirements imposed by APRA in writing.

1. the asset held by the Custodian would be excluded from being an asset in Australia if it were held directly by the insurer (either because of GPS 120 Assets in Australia or because it would not otherwise be an asset in Australia within the meaning of paragraph 28(a) of the Act);

(j)the asset held by the Custodian is an interest in, or in relation to, an asset held by a Sub-custodian, and the asset held by the Sub-custodian would be excluded from being an asset in Australia if it were held directly by the insurer (either because of GPS 120 Assets in Australia or because it would not otherwise be an asset in Australia within the meaning of paragraph 28(a) of the Act); or

(k)the Custodian has the right to suspend or delay the transfer or realisation of the asset held by the Custodian pending sale of any asset outside Australia.

Interests in Managed Investment Schemes

An amount representing an interest in a Managed Investment Scheme is excluded from being an asset in Australia if:

(a)the Responsible Entity of the Managed Investment Scheme is incorporated outside Australia; or

(b)a trustee or Custodian holds the assets of the Managed Investment Scheme (scheme assets) and that person is not a body corporate that is incorporated in Australia; or

(c)under the scheme, the trustee or Responsible Entity has the right to suspend or delay the redemption of the unit or trust property pending sale of any scheme assets outside Australia; or

(d)the insurer cannot enforce its rights in relation to the scheme in an Australian court.

Certain interests in trusts

An amount representing an equitable or a beneficial interest of a locally-incorporated insurer in a trust (not being an interest arising where legal title is held by a Custodian or an interest in a Managed Investment Scheme) is excluded from being an asset in Australia if:

(a)the trustee is a body corporate and is incorporated outside Australia; or

(b)the trustee is a natural person who resides outside Australia; or

(c)under the trust deed, the trustee has the right to suspend or delay the redemption of a unit or trust property pending sale of any of the trust’s assets outside Australia; or

(d)the insurer cannot enforce its rights against the trustee in an Australian court.[6]

[6]           This paragraph may apply in relation to a SPV if the SPV is a trust (as well as applying to certain other kinds of trusts).

An amount representing an interest of a locally-incorporated insurer in a trust (not being an interest arising where legal title is held by a Custodian) is also excluded from being an asset in Australia where:

(a)the interest is a proprietary interest in a particular asset or particular assets (rather than merely an interest in the due administration of the trust); and

(b)the asset or each asset would not be an asset in Australia if it were held directly by the insurer (either because of GPS 120 Assets in Australia or because it would not otherwise be an asset in Australia within the meaning of paragraph 28(a) of the Act).[7]

[7]           This paragraph will apply where, in a practical sense, the insurer might be said to ‘own’ the trust property; e.g. where the insurer can request that the trustee transfer the full legal and beneficial interest in the property to the insurer.  This paragraph will not apply where, for example, the insurer’s rights are merely to receive investment returns, or to request the redemption of units in the trust for cash.  This paragraph generally will not apply to an SPV that is a unit trust.

Other equitable interests

An amount representing an equitable interest in an asset (not being an equitable interest in property held under a Managed Investment Scheme, or property held by a Custodian, or property otherwise held on trust) is excluded from being an asset in Australia if:

(a)the legal owner of the asset (the legal owner) is a body corporate and is incorporated outside Australia;

(b)the legal owner of the asset is a natural person who resides outside Australia;

(c)the asset would be excluded  from being an asset in Australia if it were held directly by the insurer (either because of GPS 120 Assets in Australia or because it would not otherwise be an asset in Australia within the meaning of paragraph 28(a) of the Act); or

(d)the insurer cannot enforce its rights in relation to the asset in an Australian court.

Foreign insurers

Assets must be held by foreign insurer’s Custodian or Agent in Australia

An amount representing an asset of a foreign insurer is excluded from being an asset in Australia unless it is held for the foreign insurer by either:

(a)a Custodian (in a way set out in subparagraph 13(a) or (b) of GPS 120 Assets in Australia), being a Custodian that:

(i)has a registered office (within the meaning of the Corporations Act) in Australia and against whom the insurer can enforce its rights in Australia; and

(ii)has been appointed under a contract under which only the Agent in Australia of the foreign insurer may give directions[8] (either directly or via a delegated authority to another person) to the Custodian with regard to the disposal of assets; or

[8] The requirement that only the agent in Australia may give directions will be met where the contract requires that a co-signatory must also sign the directions to be effective. The co-signatory must be a natural person resident in Australia, must be appointed by the foreign insurer and cannot be a disqualified person as defined in section 25 of the Act. Where the contract provides for a co-signatory, the foreign insurer must ensure that there is a co-signatory present in Australia at all times.

(b)the foreign insurer’s Agent in Australia (on trust for the foreign insurer).

Assets must be of a kind that would not be excluded if held by a locally-incorporated insurer

An amount representing an asset held for a foreign insurer is excluded from being an asset in Australia if the amount representing the asset would be excluded from being an asset in Australia if it were held directly by a locally-incorporated insurer (either because of GPS 120 Assets in Australia or because it would not otherwise be an asset in Australia within the meaning of paragraph 28(a) of the Act).[9]

[9]          This means that essentially foreign insurers are in the same position as locally-incorporated insurers except they must also ensure that their assets are held by a Custodian or Agent in Australia.

APRA may, where appropriate, exercise any power in the provisions of GPS 120 Assets in Australia relating to locally-incorporated insurers, as if an asset or assets held by a Custodian or agent in Australia for a foreign insurer were instead held by or for a locally-incorporated insurer.

An amount representing any expected repatriations of net assets in Australia by a foreign insurer out of the current year profits of its branch in Australia is excluded from being an asset in Australia

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.

Exemptions

Authorised insurers (licensed entities), which do not have any overseas branches or do not have any material dealings/balances “outside of Australia”, are not required to complete the forms for the ‘Inside Australia’ reporting unit.

(Note: for the Inside Australia reporting unit, the Net Assets does not necessarily have to balance with the total for Shareholders Equity. This situation may arise where not all assets, liabilities and reserves are Inside Australia).

1. Statement of Financial Position - Licensed Insurer

This form relates to assets, liabilities and equity items of the Australian licensed insurance entity, and has the following scope:

• Includes transactions of the authorised Australian insurance entity regardless of the residency status of the customer or the asset or liability;

• Includes any offshore operations or business of the authorised insurance entity (e.g. branches but not controlled entities), and will reflect investments in associated entities and joint ventures; and

• Does not include controlled entities of the Australian authorised insurance entity, unless prior approval is obtained from APRA.

Instruction Guide

Introduction

This Instruction Guide is designed to assist in the completion of GRF 300.0 Statement of Financial Position, for the two reporting entities (i.e. Inside Australia & Licensed Entity) where appropriate. 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 300.0 Statement of Financial Position 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:

1. Foreign currency monetary items[10] outstanding at the reporting date must be translated at the spot rate[11] at the reporting date.

   [10]          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.

   [11]          Spot rate means the exchange rate for immediate delivery.

1. Foreign currency non-monetary items[12] that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction.

   [12]          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.

1. 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.

1. 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 300.0 Statement of Financial Position.

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, liabilities and equity items in completing this form, 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 Premium Liabilities).

For regulatory reporting this is disclosed in the statement of financial performance and is measured on a prospective basis similar to Premium 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

GPS 310 Audit and Actuarial Reporting and Valuation 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 Audit and Actuarial Reporting and Valuation 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).

Premium Revenue and Unearned Premium Provision

• AASB 1023 requirements

Under AASB 1023 premium written is recognised as premium revenue on an earned/unearned basis. That component that is unearned is recognised as a liability – “Unearned Premium Provision”.

• APRA requirements

The earned/unearned basis for recognition of premium revenue prescribed by AASB 1023 is not appropriate for the APRA prudential forms as it is not consistent with the APRA framework for measuring insurance liabilities under GPS 310 Audit and Actuarial Reporting and Valuation. The objective of the measurement of Premium Liabilities is to recognise potential future claim liabilities arising out of insurance business written (on a prospective basis). Accordingly to be consistent, it is more appropriate to recognise premiums written up front as premium revenue.

Deferred Acquisition Costs (DAC) and Acquisition Costs

• AASB 1023 requirements

DAC is recognised as an asset under AASB 1023 and is amortised in accordance with the expected pattern of the incidence of risk under the related general insurance contracts.

• APRA requirements

DAC is not permitted to be recognised as an asset under the APRA prudential capital framework. From a prudential accounting perspective it is more appropriate to require DAC to be fully written off as an acquisition cost in the GRF 310.0 Statement of Financial Performance. This treatment of DAC is consistent with the proposed treatment for the recognition of premium revenue.

The guidance note to GPS 310 Audit and Actuarial Reporting and Valuation provides that an insurer may use its unearned premium provision (UPP) less its DAC as an approximate method for determining the central estimate of its total Premiums Liabilities after adjusting for the profit margin in the UPP. This is allowed where this is a reasonable approximation of its Premiums Liabilities and does not, in itself, replace the role of the approved actuary to value Premium Liabilities.

Reinsurance Expense and Deferred Reinsurance Expense

• AASB 1023 requirements

Under AASB 1023, expenses/premiums paid for reinsurance cover are required to be recognised as an expense on a basis that is consistent with the pattern of reinsurance. As a result under AASB 1023 this gives rise to the recognition of an asset – “Deferred Reinsurance Expense”, which is amortised (over a specified term/basis) to the Statement of Financial Performance as a reinsurance expense. Under AASB 1023 reinsurance expense is disclosed as an offset from premium revenue in the Statement of Financial Performance.

• APRA requirements

Due to the change in the recognition of premium income for prudential reporting purposes (refer above), it is appropriate to recognise reinsurance expense on a consistent basis i.e. recognised fully upfront in the Statement of Financial Performance. As a result, for APRA prudential reporting (and Investment risk charge calculation), there will be no asset titled “Deferred Reinsurance Expense”. 

Tax Effect Accounting/Adjustments

It is likely that the recognition of the Premium Liabilities and Outstanding Claims Provisions in accordance with GPS 310 Audit and Actuarial Reporting and Valuation will give rise to tax effect accounting considerations. The measurement and recognition in the GRF 300.0 Statement of Financial Position of tax effect accounting items (e.g. deferred tax assets) is to be determined in accordance with the requirements of AASB 112 ‘Income Taxes’.

If the technical insurance provisions reported in the GRF 300.0 Statement of Financial Position are determined to representing timing differences between the recognition as an expense for accounting purposes and as a deductible expense for taxation purposes, then the associated measurement and recognition of taxation expense and deferred tax assets and liabilities is to be determined in accordance with AASB 112 ‘Income Taxes’.

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;

1. 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; or

(k)business as a registered health benefits organization, a registered medical benefits organization or a registered hospital benefits organization carried on by an organization that is a registered organization within the meaning of Part VI of the National Health Act 1953.

Reinsurance

An insurer must submit to APRA details of all proposed Limited Risk Transfer Arrangements[13] 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. 

[13]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 GPS 110 Capital Adequacy or as reinsurance for any other purpose.

Fair value measurement of assets

APRA applies the notion of activities integral to insurance operations for its regulatory reporting.[14] APRA does not follow the classification basis in AASB 1023 ‘General Insurance Contracts’. Therefore, the value of these investments reported in this form may or may not equate to the value of investments deemed to be assets backing insurance liabilities. For APRA regulatory reporting purposes, investments integral to the entity's general insurance activities means[15] investments that are controlled by the entity in the conduct of its general insurance activities.

[14]          This notion existed in previous AASB 1023 ‘Financial Reporting of General Insurance Activities’ but has been removed in AASB 1023 ‘General Insurance Contracts’.

[15]Extracted from ICAA Members' Handbook June 2001 issue, AASB 1023 ‘General Insurance Contracts’.

Investments reported in this form that are integral to the entity's general insurance activities must be measured at fair value. The investments must not be valued at cost. Fair value has the same meaning as defined in the AASB 132 ‘Financial Instruments: Presentation’, that is, the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's-length transaction, and is determined as follows:

1. The quoted market price (i.e. bid or ask price) in an active and liquid market; or

1. When there is infrequent activity in a market, and the market is not well established, small volumes are traded relative to the asset or liability to be valued, or a quoted market price is not available – a realistic estimate of fair value on the basis of the results of a valuation technique that makes maximum use of market inputs, and relies as little as possible on entity-specific inputs[16].

   [16]          See AASB 139 ‘Financial Instruments: Recognition and Measurement’.

Fair value of charged/encumbered assets

If an asset is in any way subject to a charge, covenant, encumbrance, option to purchase or any other arrangement by way of agreement or statute, that restricts the fair value of the asset, the value attached to the asset needs to reflect the existence of these arrangements. For example, if the insurer has agreed to deliver an asset to a purchaser at a price below the arms length value, the value attached to the asset cannot exceed the agreed price.

Netting

Unless otherwise specifically stated, institutions are allowed to take advantage of netting agreements in relation to disclosure of data items in this form. Institutions are to comply with the prerequisite for netting outlined in Australian accounting standards AASB 7 ‘Financial Instruments: Disclosures’, AASB 139 ‘Financial Instruments: Recognition and Measurement’ and AASB 132 ‘Financial Instruments: Presentation’.

Term to maturity

Reference to term to maturity refers to residual term to maturity not original term to maturity.

Related party disclosure

Amounts due from, loans to, debentures of, shares in, or units in a trust or body corporate that is related to the insurer are to be disclosed for items of assets and liabilities where indicated in the form. 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

Assets

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. Cash and Liquid Assets

This reporting item should be brought to account at the face value or the gross value of the outstanding balance where appropriate. Interest is taken to GRF 310.0 Statement of Financial Performance when earned.

1.1.   Notes and coins

Include Australian and foreign currency notes and coins of the reporting entity. Notes and coins in transit between any branches or offices of the reporting entity should be reported.  

1.2.   Money at short call

Include deposits available on demand (11am accounts, money market or 24-hour money), that are used by the Insurer for daily liquidity/operations. 

Do not include any deposits at call that are held as part of the Insurer’s investments. These are to be disclosed as Investments in GRF 140.0 Investments – Direct Interest Rate Holdings and Risk Charge.

Do not include bank overdraft balances.

1.3.   Securities purchased under agreements to resell

Treatment is to be consistent with AASB 139 ‘Financial Instruments: Recognition and Measurement’.

Where the transferee of the securities effectively receives a lenders rate of return (i.e. the underlying risks and rewards of ownership of the underlying securities is not effectively transferred), these transactions are to be accounted for as collateralised borrowing activities (treating securities borrowing as on balance sheet exposures).

Under this method of accounting, the following treatment is to be applied:

• The asset account termed “Securities purchased under agreements to resell”, represents the receivable due from counterparties from whom the securities have been borrowed and with whom cash has been lodged; and

• The Insurers physical security holdings/portfolio recorded on the balance sheet are not affected (i.e. increased or decreased by the securities subject to this agreement).

1.4.   Total cash and liquid assets

This is automatically calculated by the form and represents the sum of all cash and liquid assets reporting items above (Notes and coins, Deposits at call and Securities purchased under agreements to resell).

Total cash and liquid assets, which represent:

1.4.1.Notes and coins

Of the total cash and liquid assets, disclose the aggregate balance that represents notes and coins only.  Refer to item 1.1 above for detail on notes and coins.

1.4.2.Debt obligation with a counterparty rating Grade of 1 or 2

Of the total cash and liquid assets, disclose the aggregate balance, which represents funds invested with a counterparty that has a rating grade of 1 or 2. Refer to GPS 110 Capital Adequacy for detail on rating grades.

1.4.3.Debt obligation with a counterparty rating Grade of 3

Of the total cash and liquid assets, disclose the aggregate balance, which represents funds invested with a counterparty that has a rating grade of 3. Refer to GPS 110 Capital Adequacy for detail on rating grades.

1.4.4.Debt obligation with a counterparty rating Grade of 4 or unrated

Of the total cash and liquid assets, disclose the aggregate balance, which represents funds invested with a counterparty that has a rating grade of 4 or are unrated. Refer to GPS 110 Capital Adequacy for detail on rating grades.

1.4.5.Debt obligation with a counterparty rating Grade of 5

Of the total cash and liquid assets, disclose the aggregate balance, which represents funds invested with a counterparty that has a rating grade of 5. Refer to GPS 110 Capital Adequacy for detail on rating grades.

1.4.6.Investments with related entities of the reporting insurer

Of the total cash and liquid assets, disclose the aggregate balance that is held with entities related to the reporting insurer. Related entity has the meaning as set out earlier in the instruction guide.

1. Receivables

2.1.   Total Investment Income Receivable

Report the total of investment income that is receivable. Investment income receivable will include items such as interest, dividends, rental income, trusts distributions accrued but not yet received.

Investment income receivable from counterparties/assets with rating of:

Total Investment income receivable reported above is to be allocated according to the counterparty/asset rating grades set out below and on the form, which are detailed in GPS 110 Capital Adequacy. The investment risk charge will be calculated according to the applicable rating grade.

2.1.1.Grade 1 or 2

2.1.2.Grade 3

2.1.3.Grade 4 or unrated

2.1.4.Grade 5

2.1.5.Other

2.2.   Recoveries other than reinsurance

Claims recoveries may also consist of subrogation, salvage or other recoveries. Where such other recoveries are expected to be made they are to be valued in accordance with GPS 310 Audit and Actuarial Reporting and Valuation and disclosed here.

2.2.1.Provision for doubtful debts

Where applicable, disclose the value of “recoveries other than reinsurance” receivable, where collection/receipt is assessed as doubtful.

2.2.2.Total net recoveries other than reinsurance receivable

This is automatically calculated by the form and represents the value of “Recoveries other than reinsurance” receivable, net of any associated provision for doubtful debts.

Total net amounts recoverable (other than reinsurance recoveries receivable) that are reported in item 2.2.2 and that do relate to claims recognised in the calculation of insurance liabilities that have not been paid

2.2.2.1.    Outstanding Claims Provision (OCP)

Of the total value reported in item 2.2.2 for recoveries other than reinsurance, report the value that relates to claims that are recognised in the value reported for the Outstanding Claims Provision reported as a current liability in item 18 of this form. Exclude recoveries that relate to claims that have been paid.

2.2.2.1.1.Input tax credits on OCP included in item 2.2.2.1

Of the amount reported in item 2.2.2.1 for recoveries other than reinsurance recognised in the calculation of the Outstanding Claims Provision, report the gross value of Input Tax Credits (ITCs) receivable from the Australian Taxation Office.

2.2.2.2.    Premium Liabilities

Of the total value reported in item 2.2.2 for recoveries other than reinsurance, report the value that relates to claims that are recognised in the value reported for Premium liabilities reported as a current liability in item 19 of this form.

2.2.2.2.1.Input tax credits on Premium Liabilities included in item 2.2.2.9

Of the amount reported in item 2.2.2.9 for recoveries other than reinsurance recognised in the calculation of premium liabilities, report the gross value of Input Tax Credits (ITCs) receivable from the Australian Taxation Office.

Net recoveries receivable from counterparties with rating of:

The net value of recoveries receivable is to be allocated according to the counterparty/asset rating grades of the counterparty from which the recoveries are receivable. The grades are set out below and on the form, which are detailed in GPS 110 Capital Adequacy.  The investment risk charge will be calculated according to the applicable rating grade.

2.2.2.3.    Commonwealth, State and Territory governments

2.2.2.4.    Grade 1 or 2

2.2.2.5.    Grade 3

2.2.2.6.    Grade 4 or unrated

2.2.2.7.    Grade 5

2.2.2.8.    Other

2.3.   Premium receivables

Include all premiums that are due to be received within less than 12 months from the reporting date. Include unpaid premiums available for collection and premiums not yet available for collection. Unpaid reinsurance premiums are also disclosed here. 

If the unpaid premium is from a reinsurance contract where a legal right of set-off exists, the amount may be included as an amount recoverable under a reinsurance contract, but only if the amount is the balance after set-off against other amounts owing under that contract.  Where no legal right of set-off exists, the unpaid premium from the reinsurance contract is to be shown as an unpaid premium.

All unpaid premiums on such policies are to be disclosed here according to the length of time the premium has been due and the party from whom it was due.  The due date is the date of inception or, for instalment premiums the date from when the instalment is owed.

Unpaid instalment premiums are to be reported as unpaid premiums and are to include all unpaid instalments. If any instalment is due for more than 6 months all the unpaid instalments are to be regarded as over 6 months.

For premium aging purposes, inward reinsurance premiums may be aged from the statement (bordereaux) date.

Disclosure of unpaid premiums due for a period of less than 12 months, is required as follows:

2.3.1.Due in 6 months or less:

Report the premiums which are receivable (eg from insurance brokers or other intermediaries) as at the reporting date in less than 6 months .

2.3.2.Provision for doubtful debts

Include the value of premiums receivable where collection is considered doubtful (full or partial).

2.3.3.Net amount receivable

This is automatically calculated by the form and represents the value of the premium receivable in 6 months or less after deducting any associated provision for doubtful debts disclosed.  The net balance is used in the calculation of the applicable investment risk charge.

2.3.4.Due in more than 6 months - less than or equal to 12 months:

Report the premiums which are receivable (e.g. from insurance brokers or other intermediaries) as at the reporting date in more than 6 months but less than 12 months.

2.3.5.Provision for doubtful debts

Include the value of premiums receivable where collection is considered doubtful (full or partial).

2.3.6.Net amount receivable

This is automatically calculated by the form and represents the amount of the premium receivable in more than 6 months but less than 12 months after deducting any associated provision for doubtful debts disclosed.  The net balance is used in the calculation of the applicable investment risk charge.

2.3.7.On unclosed business

Include business written close to balance date where acceptance of risk is prior to balance date but there is insufficient information to accurately identify the business.

2.3.8.Provision for doubtful debts

Include the value of premiums receivable where collection is considered doubtful (full or partial).

2.3.9.Net amount receivable

This is automatically calculated by the form and represents the value of the premium receivable associated with unclosed business after deducting any associated provision for doubtful debts disclosed.  The net balance is used in the calculation of the applicable investment risk charge.

2.3.10.Related to proportional reinsurance treaties for which the underlying risks have not been accepted by the direct insurer and the treaties are subject to the premium receivable deduction

Report the premium receivables (receivable in 12 months or less) relating to the relevant fraction[17] of a proportional reinsurance treaty for which the underlying risks have not yet been accepted by the relevant direct insurer up to the limit of the premium receivable deduction in this item. 

[17]Refer GPS 110 Capital Adequacy for the definition.

Premium receivable relating to this deduction, reported as current and non-current asset, will not attract an investment risk capital charge up to the amount of the premium receivable deduction reported in item 1.4.9 of GRF 120 Determination of Capital Base.

2.3.11.Provision for doubtful debts

Include the value of premiums receivable where collection is considered doubtful (full or partial).

2.3.12.Net amount receivable

This is automatically calculated by the form and represents the amount of premium receivable associated with the proportional reinsurance business, which is not subject to an investment risk charge, after deducting any associated provision for doubtful debts disclosed. 

2.3.13.Total net premium receivables

This is automatically calculated by the form and is the total of net premium receivables reported in items 2.3.3, 2.3.6, 2.3.9 and 2.3.12.

2.3.14.Total net premiums that are receivable from related parties

Disclose the aggregate value of “Total net premiums receivable” that are due from entities related to the reporting insurer. Related entity has the meaning as set out earlier in the instruction guide.

2.4.Amounts recoverable on reinsurance contracts and outstanding claims:

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 Audit and Actuarial Reporting and Valuation (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. 

Report the amount due from reinsurers under reinsurance contracts that meet the reinsurance documentation test[18], specified in GPS 110 Capital Adequacy, according to the counterparty rating of the reinsurers, in items 2.4.1 to 2.4.12.

[18]Subject to transition rules relating to this deduction.

Report the amount due from reinsurers under reinsurance contracts that do not meet the reinsurance documentation test in items 2.4.13 to 2.4.15.  As this amount is deducted from capital, it has a 0% risk charge in GRF 300 Statement of Financial Position.

Disclosure is required as follows:

2.4.1.From reinsurers with a counterparty rating of Grade 1 or 2.

Report the amount due from reinsurers with a counterparty rating of Grade 1 or 2.

2.4.2.Provision for doubtful debts

Include the value of any recoveries where it is determined that collection is considered doubtful (full or partial).

2.4.3.Net amount receivable

This is automatically calculated by the form and represents the value of the reinsurance recoveries due from reinsurers with a counterparty rating of Grade 1 or 2 after deducting any associated provision for doubtful debts disclosed.  The net balance is used in the calculation of the applicable investment risk charge.

2.4.4.From reinsurers with a counterparty rating of Grade 3

Report the amount due from reinsurers with a counterparty rating of Grade 3.

2.4.5.Provision for doubtful debts

Include the value of any recoveries where it is determined that collection is considered doubtful (full or partial).

2.4.6.Net amount receivable

This is automatically calculated by the form and represents the value of the reinsurance recoveries due from reinsurers with a counterparty rating of grade 3 after deducting any associated provision for doubtful debts disclosed.  The net balance is used in the calculation of the applicable investment risk charge.

2.4.7.From reinsurers with a counterparty rating of Grade 4 or unrated

Report the amount due from reinsurers which are unrated or have a counterparty rating of Grade 4.

2.4.8.Provision for doubtful debts

Include the value of any recoveries where it is determined that collection is considered doubtful (full or partial).

2.4.9.Net amount receivable

This is automatically calculated by the form and represents the value of the reinsurance recoveries due from unrated reinsurers or reinsurers with a counterparty rating grade of 4 after deducting any associated provision for doubtful debts disclosed.  The net balance is used in the calculation of the applicable investment risk charge.

2.4.10.From reinsurers with a counterparty rating of Grade 5

Report the amount due from reinsurers with a counterparty rating of Grade 5.

2.4.11.Provision for doubtful debts

Include the value of any recoveries where it is determined that collection is considered doubtful (full or partial).

2.4.12.Net amount receivable

This is automatically calculated by the form and represents the value of the reinsurance recoveries due from reinsurers with a counterparty rating of grade 5 after deducting any associated provision for doubtful debts disclosed.  The net balance is used in the calculation of the applicable investment risk charge.

2.4.13.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 Table 2 as specified in GPS 110 Capital Adequacy Attachment H, 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 Reinsurance Management;

(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 Reinsurance Management 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

As this amount is being deducted from capital, a zero percent investment risk capital factor is being applied.

2.4.14.Provision for doubtful debts

Include the value of any recoveries where it is determined that collection is considered doubtful (full or partial).

2.4.15.Net amount receivable

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 which in this case is zero.

2.4.16.Total net amount recoverable on reinsurance contracts

This is automatically calculated by the form and represents the sum of reinsurance recoveries on reinsurance contracts and outstanding claims net of associated provision for doubtful debts reported in items 2.4.3; 2.4.6; 2.4.9; 2.4.12 and 2.4.15.

2.4.17.Total net reinsurance recoveries receivable from related parties

Include the amount of reinsurance recoveries on reinsurance contracts and outstanding claims that are receivable 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.

2.4.18.Amounts recoverable on reinsurance contracts that are Outside Australia Assets, but are included as being Inside Australia.

Report the amount of such items in this field.

2.4.19.Total net amounts recoverable on reinsurance contracts reported in item 2.4.16, 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 2.4.16 for, report the value of reinsurance recoveries that relates to claims that are recognised in the value reported for the Outstanding Claims Provision reported as a current liability in item 18 of this form. Exclude reinsurance recoveries that relate to claims that have been paid.

2.5    Expected reinsurance recoveries on ‘Premium Liabilities’ from reinsurers with a counterparty rating of:

Report the total of Expected Reinsurance recoveries on Premium Liabilities that constitute current assets.

“Expected reinsurance recoveries” is a term used to describe the expected value of reinsurance recoveries in respect of premiums liabilities.  Expected reinsurance recoveries are to be calculated in accordance with GPS 310 Audit and Actuarial Reporting and Valuation. 

Where advice of an Approved Actuary is required in regard to the valuation of the premium liabilities, the Approved 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 Audit and Actuarial Reporting and Valuation 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, subrogation and sharing agreements.

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. 

Take into account expected recoveries from reinsurance contracts that do not fully meet the reinsurance documentation tests in GPS 110 Capital Adequacy.

“Expected reinsurance recoveries” is to be allocated according to the counterparty grades set out below and in the form, which are detailed in GPS 110 Capital Adequacy. The investment risk charge will be calculated based on the capital factor applicable to the rating grades.

Report the amount due from reinsurers under reinsurance contracts that meet the reinsurance documentation test[19], specified in GPS 110 Capital Adequacy, according to the counterparty rating of the reinsurers, in items 2.5.1 to 2.5.4.

13.2.  Surplus in defined benefit superannuation plan

Disclose the value of any surplus in any insurer employer-sponsored defined benefit superannuation fund, consistent with the classification and measurement basis used in AASB 119 ‘Employee Benefits’.

13.3.  Other

Report the value of any other asset that has not been disclosed above.

13.4.  Total other assets

This is automatically calculated by the form and represents the sum of all the items reported under “Other assets”.

Total other assets excluding derivative financial instruments, and surpluses in defined benefit superannuation plans, with a counterparty/asset rating of:

Note: The calculation of the appropriate prudential standard investment risk charge for Derivative exposures is calculated in the form headed “Derivatives Activity and Risk Charge”. Accordingly it is necessary to exclude derivative financial instruments from this table otherwise it will be subject to an additional investment risk charge.  The surplus in defined benefit superannuation plan is deducted from Tier 1 capital and is therefore excluded from the calculation of the investment risk charge.

Allocate the value of “Other Assets excluding derivative financial instruments and surpluses in defined benefit superannuation plans” amongst the appropriate rating grade associated with counterparty/asset:

13.4.1.Grade 1 or 2

13.4.2.Grade 3

13.4.3.Grade 4 or unrated

13.4.4.Grade 5

13.4.5.Other

The investment risk charge will be calculated based on the capital factor applicable to the rating grades.

1. Total non-current assets

The total of Total Receivables, Investments (related to GRF 140 series of forms), Total Other investments, Plant & equipment, Intangibles assets, and Other assets is automatically calculated by the form.

1. Total Assets

Sum of total current assets and total non-current assets is automatically calculated by the form.

Liabilities

Current Liabilities

Current liabilities 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 liability is a liability that is expected to be paid, settled or extinguished within a period of 12 months from the reporting date.

1. Creditors and accruals

16.1.  GST Payable

Report the value of GST that is payable by the reporting insurer.

16.2.  Creditors and accruals

Include the total of creditors and accruals, including account payables. Do not include overdrafts here, these should be disclosed as Borrowings.

16.3.  Total creditors and accruals

The total of items 16.1 and 16.2 is automatically calculated by the form.

16.3.1.Total creditors and accruals payable to related entities.

Include the total of creditors and accruals that are payable to related entities on the Insurer. Related entity has the meaning as set out earlier in the instruction guide.

1. Amounts due on reinsurance contracts

Include the net amount payable by the insurer to reinsurers or retrocessionaires where a legal right of set-off exists.  This reflects the current working balance due for settlement. Include premiums payable but not yet due for payment under the terms of the reinsurance contracts and deposits withheld from reinsurers. Include items such as the reinsurer’s portion of recoveries and salvage and commissions due to reinsurers.

17.1.Amounts due on reinsurance contracts which are payable to related entities

Include the total of amounts due on reinsurance contracts that are payable to related entities on the insurer. Related entity has the meaning as set out earlier in the instruction guide.

1. Outstanding Claims Provision

Outstanding claims liabilities relate to all claims incurred prior to the valuation date, whether or not they have been reported to the insurer.  The value of the outstanding claims liabilities must include an amount in respect of the expenses that the insurer expects to incur in settling these claims.

.The amount reported is to be that amount provided by the insurer (e.g. this can be the amount provided in accordance with AASB 1023 or GPS 310 Audit and Actuarial Reporting and Valuation), however the amount can not be less than the amount as required by GPS 310 Audit and Actuarial Reporting and Valuation.

Note:

The amount of total outstanding claims provision provided in GRF 300.0 Statement of Financial Position (total of current and non-current OCP liabilities) can be greater than or equal to the amount of outstanding claims liabilities (i.e. OCP) reported in GRF 210.0 Outstanding Claims Provision - Insurance Risk Charge, however it must not be less than this amount.

Any excess of net OCP provided for in the Statement of Financial Position above that amount required by GPS 310 Audit and Actuarial Reporting and Valuation is able to be added back to Tier 1 capital in GRF 120.0 Determination of Capital Base for the purposes of calculating the capital adequacy/solvency.

The outstanding claims provision must be stated without deducting reinsurance and other recoveries (these are disclosed as an asset as reinsurance receivables).

The liability is in respect of both direct business and inward reinsurance business and must take into account unpaid claims, unreported claims, adjustments for claims development and claims incurred but not enough reported and the direct and indirect claims settlement costs that the insurer expects to incur in settling its outstanding claims.

18.1.Total Outstanding Claims Provision which is associated with claims/settlements in a currency other than the Australian currency.

Report the amount of claims that have been recognised in the outstanding claims provision, that are ultimately going to be settled or paid in a currency other than the Australian currency.

1. Premium Liabilities

Premiums liabilities relate to all future claim payments arising from future events post the valuation date that will be insured under the insurer’s existing policies that have not yet expired.  The value of premiums liabilities must include an amount in respect of the expenses that the insurer expects to incur in administering and settling the relevant claims and allow for expected premium refunds.

The Premiums Liabilities are to be determined on a fully prospective basis and can be at an amount provided by the insurer, which can be greater than but not less than the amount required by GPS 310 Audit and Actuarial Reporting and Valuation.

Note:

The amount of total premium liabilities provided in the GRF 300.0 Statement of Financial Position (total of current and non-current premium liabilities) can be greater than or equal to the amount of premium liabilities reported in GRF 210.1 Premium Liabilities – Insurance Risk Charge, however it must not be less.

Any excess of net premium liabilities provided for in GRF 300.0 Statement of Financial Position above that amount required by GPS 310 Audit and Actuarial Reporting and Valuation is able to be added back to Tier 1 capital in GRF 120.0 Determination of Capital Base for the purposes of calculating the capital adequacy/solvency.

1. Borrowings

Include

• Securities sold under agreements to repurchase;

• Subordinated loans with a residual maturity of less than 12 months;

• Short-term intragroup loans;

• Treasury related short-term borrowings from banks;

• Promissory notes with a residual maturity of less than 12 months; and

• Commercial paper with a residual maturity of less than 12 months.

Exclude

• Subordinated loans, promissory notes, commercial paper with a residual maturity greater than 12 months.

20.1.Securities sold under agreements to repurchase

Treatment is to be consistent with AASB 139 ‘Financial Instruments: Recognition and Measurement’.

Where the transferee of the securities effectively receives a lenders rate of return (i.e. the underlying risks and rewards of ownership of the underlying securities is not effectively transferred), these transactions are to be accounted for as collateralised borrowing activities (treating securities borrowing as on balance sheet exposures).

Under this method of accounting, the following treatment is to be applied:

• The liability account termed “Securities sold under agreements to repurchase”, represents the payable due to counterparties with whom the securities have been transferred (lent) and from whom cash has been lodged.

• The insurer’s physical security holdings/portfolio recorded on the balance sheet are not affected (i.e. decreased by the securities subject to this agreement).

Disclosure of “Securities sold under agreements to repurchase” into related parties, includes entities such as the parent entity, other entities within the same economic group, controlled entities of the reporting Licensed insurer and of the Licensed insurer’s parent entity, associated entities, joint ventures.

20.2.Finance Lease Liability

Report the value of finance lease liability to be payable less than 12 months.

20.3.Overdraft

Any bank overdraft taken out by the insurer is to be disclosed along with any bank trading account credit balances.

20.4.Securities Issued (e.g. Promissory notes/commercial paper)

Report all borrowings by the reporting entity in the form of commercial paper, promissory notes and other forms of securities issued by the insurer. Commercial paper or promissory notes are short-term debt securities usually issued with an original term to maturity of less than 180 days.

Include all notes/securities issued with a residual term to maturity of 12 months or less. Commercial paper or promissory notes with a residual maturity greater than 12 months should be reported as “non-current liability - borrowings”.

20.5.Term loans:

20.5.1.Term loans with variable interest rate

Report all borrowings by the reporting entity in the form of variable interest rate short-term loans.  A loan is considered to be short-term if its residual term to maturity is 12 months or less.

20.5.2.Term loans with fixed interest rate

Report all borrowings by the reporting entity in the form of fixed interest rate short-term loans.  A loan is considered to be short-term if its residual term to maturity is of 12 months or less.

20.6.  Total borrowings

This is automatically calculated by the form and represents the sum of all items listed under “Borrowings”.

Total borrowings which are:

20.6.1.Payable to the Parent Entity

Of the total amount reported for Borrowings identify the component that is payable or due to the Parent Entity of the insurer.

20.6.1.1.    Total borrowings payable to controlled entities on the parent entity

Of the total amount reported for Borrowings identify the component that is payable to controlled entities of the parent insurer.

20.6.2.Payable to other related entities

Of the total amount reported for Borrowings identify the component that is payable to other related entities of the Insurer not separately disclosed above. Related entity has the meaning as set out earlier in the instruction guide.

20.6.3.Secured against assets of the insurer

Of the total amount reported for Borrowings identify the component that is secured against assets of the insurer.

20.6.4.Denominated in a currency other than Australian currency

Of the total amount reported for Borrowings identify the component that is denominated in a currency other than the Australian currency.

1. Income Tax Liability

21.1.Current tax liability

This is defined, measured and recognised in accordance with AASB 112 ‘Income Taxes’.

21.2.Deferred tax liability

This is defined, measured and recognised in accordance with AASB 112 ‘Income Taxes’.

21.3.Total Income Tax Liability

Sum of the current and deferred income tax liability items is automatically calculated by the form.

1. Provisions

22.1.Dividends

A provision for dividends is the allowance that the reporting entity has made in terms of the obligation for declared dividends.

22.2.Employee entitlements

This includes provisions for long service leave, annual leave, staff housing loan benefits, health fund subsidy and other employee entitlements. The value of employee entitlements should be measured and recognised in accordance with the requirements of AASB 119 ‘Employee Benefits’.

22.3.Restructuring costs

Report all provisions raised for the restructuring of an organisation, including:

• Severance, termination and redundancy payments; and

• Integration costs.

22.4.Other

Report all other provisions not identified above.

22.5.Total Provisions

This is automatically calculated by the form and represents the sum of all the “provisions” reported by the insurer.

1. Other Liabilities

23.1.  Derivative financial instruments

Include all derivatives consistent with the classification and measurement basis used for derivatives by institutions in accordance with AASB 7, AASB 132 and AASB 139.

23.1.1.     Derivatives at fair value

Derivative financial instruments should be reported at their net fair value in “Other Liabilities” when unfavourable to the reporting entity.

Fair values are obtained from quoted market prices, discount cash flow models and options pricing models.

23.1.2.     Derivatives at cost

In exceptional circumstances where fair value cannot be reliably determined then derivative financial instruments should be reported at cost.

23.1.3.     Derivatives at fair value

This is automatically calculated by the form and represents the sum of derivatives reported at cost and at fair value.

23.2.  Deficit in defined benefit superannuation plan

Disclose the value of any deficit in any insurer employer-sponsored defined benefit superannuation fund, consistent with the classification and measurement basis used in AASB 119 ‘Employee Benefits’.

23.3.  Liabilities included in disposal groups classified as held for sale

Include liabilities included in disposal groups classified as held for sale consistent with the classification and measurement used in AASB 5 ‘Non-current Assts Held for Sale and Discontinued Operations’.

23.4.  Other liabilities

Record other current liabilities that are not able to be classified into the specific categories listed on the form.

23.5.  Total Other Liabilities

This is automatically calculated by the form and represents the total of ‘Derivative financial instruments’, ‘Deficit in defined benefit superannuation plans’, ‘Liabilities included in disposal groups classified as held for sale’ and ‘Other liabilities’.

1. Total Current Liabilities

This is automatically calculated by the form and represents the total of Creditors & accruals, Outstanding Claims Provision, Premium Liabilities, Borrowings, Income Tax liability, Provisions and Other Liabilities.

Non-Current Liabilities

Non current liabilities 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 liability is a liability that is expected to be paid, settled or extinguished within a period exceeding 12 months from the reporting date.

1. Creditors

25.1.  Total creditors and accruals

Include the total of creditors and accruals, including account payables. 

25.1.1.Total creditors and accruals which are payable to related entities.

Include the total of creditors and accruals that are payable to related entities on the insurer. Related entity has the meaning as set out earlier in the instruction guide.

1. Amounts due on reinsurance contracts

Include the net amount payable by the insurer to reinsurers or retrocessionaires where a legal right of set-off exists.  This reflects the current working balance due for settlement. Include premiums payable but not yet due for payment under the terms of the reinsurance contracts and deposits withheld from reinsurers. Include items such as the reinsurer’s portion of recoveries and salvage and commissions due to reinsurers.

26.1.Amounts due on reinsurance contracts which are payable to related entities

Include the total of amounts due on reinsurance contracts that are payable to related entities on the insurer. Related entity has the meaning as set out earlier in the instruction guide.

1. Outstanding Claims Provision

Outstanding claims liabilities relate to all claims incurred prior to the valuation date, whether or not they have been reported to the insurer.  The value of the outstanding claims liabilities must include an amount in respect of the expenses that the insurer expects to incur in settling these claims.

The amount reported is to be that amount provided by the insurer (e.g. this can be the amount provided in accordance with AASB 1023 or GPS 310 Audit and Actuarial Reporting and Valuation), however the amount can not be less than the amount as required by GPS 310 Audit and Actuarial Reporting and Valuation.

Note:

The amount of total outstanding claims provision provided in GRF 300.0 Statement of Financial Position (total of current and non-current OCP liabilities) can be greater than or equal to the amount of claims liabilities (i.e. OCP) reported in GRF 210.0 Outstanding Claims Provision - Insurance Risk Charge, however it must not be less than this amount.

Any excess of net OCP provided for in GRF 300.0 Statement of Financial Position above that amount required by GPS 310 Audit and Actuarial Reporting and Valuation (and the form Outstanding Claims Provision and Insurance Risk Charge”) is able to be added back to Tier 1 capital in GRF 120.0 Determination of Capital Base for the purposes of calculating the capital adequacy/solvency.

27.1.  Total Outstanding Claims Provision which is associated with claims/settlements other than the Australian currency.

Report the amount of claims that have been recognised in the outstanding claims provision, that are ultimately going to be settled or paid in a currency other than the Australian currency.

1. Premium Liabilities

Premiums liabilities relate to all future claim payments arising from future events post the valuation date that will be insured under the insurer’s existing policies that have not yet expired.  The value of premiums liabilities must include an amount in respect of the expenses that the insurer expects to incur in administering and settling the relevant claims and allow for expected premium refunds.

The Premiums Liabilities are to be determined on a fully prospective basis and can be at an amount provided by the insurer, which can be greater than but not less than the amount required by GPS 310 Audit and Actuarial Reporting and Valuation.

Note:

The amount of total premium liabilities provided in the Statement of Financial Position (total of current and non-current premium liabilities) can be greater than or equal to the amount of premium liabilities reported in GRF 210.1 Premium Liabilities – Insurance Risk Charge, however it must not be less.

Any excess of net premium liabilities provided for in GRF 300.0 Statement of Financial Position above that amount required by GPS 310 Audit and Actuarial Reporting and Valuation (and GRF 210.1 Premium Liabilities – Insurance Risk Charge) is able to be added back to Tier 1 capital in GRF 120.0 Determination of Capital Base for the purposes of calculating the capital adequacy/solvency.

1. Borrowings

Includes borrowings with a residual term to maturity of more than one year. This includes loans and debt securities.

29.1.Finance lease liability

Report the value of finance lease liability that is payable greater than 12 months from balance date.

29.2.Securities Issued

Report all borrowings by the reporting entity in the form of securities issued by the insurer, with a residual term to maturity greater than 12 months. Classification is to be consistent with Australian accounting standards.

As a guide include:

• Bonds;

• Debentures;

• unsecured notes;

• fixed-interest securities;

• medium-term notes (MTNs);

• inflation-indexed bonds;

• floating-rate notes (FRNs);

• other floating-rate debt securities;

• asset-backed bonds; and

• subordinated bonds and notes.

As a guide exclude:

• hybrid securities;

• negotiable and transferable certificates of deposit; and

• Securities that have been disclosed as current Borrowings (i.e. residual maturity of less than 12 months).

29.3.Term Loans

Include:

• secured and unsecured borrowings;

• term loans;

• mortgages;

• equity participation in leveraged leases; and

• loans to controlled entities and associates.

Exclude:

• loan capital (e.g. subordinated loans); and

• short-term loans reported as current Borrowings.

29.3.1.Term loans at variable interest rates

Report all borrowings by the reporting entity in the form of variable interest rate long-term loans. 

29.3.2.Term loans at fixed interest rates

Report all borrowings by the reporting entity in the form of fixed interest rate long-term loans. 

29.4.  Total borrowings

This is automatically calculated by the form and represents the sum of all items listed under “Borrowings”.

Total borrowings which are:

29.4.1.Payable to the Parent Entity

Of the total amount reported for Borrowings identify the component that is payable or due to the Parent Entity of the insurer.

29.4.1.1.    Total borrowings payable to controlled entities of the parent entity

Of the total amount reported for Borrowings identify the component that is payable to controlled entities of the parent insurer.

29.4.2.Payable to other related entities

Of the total amount reported for Borrowings identify the component that is payable to other related entities of the insurer not separately disclosed above. Related entity has the meaning as set out earlier in the instruction guide.

29.4.3.Secured against assets of the insurer

Of the total amount reported for Borrowings identify the component that is secured against assets of the insurer.

29.4.4.Denominated in a currency other than Australian currency

Of the total amount reported for Borrowings identify the component that is denominated in a currency other than the Australian currency.

1. Income Tax Liability

30.1.Deferred tax liability

This is defined, measured and recognised in accordance with AASB 112 ‘Income Taxes’.

30.2.Total Income Tax Liability

This is automatically calculated by the form.

1. Provisions

31.1.Dividends

A provision for dividends is the allowance that the reporting entity has made in terms of the obligation for declared dividends.

31.2.Employee entitlements

This includes provisions for long service leave, annual leave, staff housing loan benefits, health fund subsidy and other employee entitlements. The value of employee entitlements is to be reported in accordance with the requirements of AASB 119 ‘Employee Benefits’.

31.3.Restructuring costs

Report all provisions raised for the restructuring of an organisation, including:

• Severance, termination and redundancy payments; and

• Integration costs.

31.4.Other

Report all other provisions not identified above.

31.5.  Total Provisions

This is automatically calculated by the form and represents the sum of all provisions reported above.

1. Loan capital and hybrid securities

Report the value of all loan capital and hybrid securities that have been issued by the Insurer and have a residual term to maturity of more than one year. Classification is to be consistent with AASB 7 ‘Financial Instruments: Disclosures’ and AASB 132 ‘Financial Instruments: Presentation’.

32.1.Loan capital

As a guide may include:

• subordinated loans of a residual maturity of more than one year

32.2.Hybrid securities

As a guide may include:

• converting preference shares; and

• convertible notes.

32.3.Total Loan capital and hybrid securities

This is automatically calculated by the form and represents the total of all loan capital and hybrid securities items listed above.

Total Loan capital and hybrid securities which are:

32.3.1.Payable to the Parent Entity

Of the total amount reported for Loan capital and hybrid securities identify the component that is payable or due to the Parent Entity(s) of the insurer.

32.3.1.1.    Payable to controlled entities of the Parent Entity

Of the total amount reported for Loan capital and hybrid securities identify the component that is payable to controlled entities of the Parent Entity.

32.3.2.Payable to other related entities

Of the total amount reported for Loan capital and hybrid securities identify the component that is payable to other related entities of the Insurer not separately disclosed above. Related entity has the meaning as set out earlier in this instruction guide.

32.3.3.Secured against assets of the insurer

Of the total amount reported for Loan capital and hybrid securities identify the component that is secured against assets of the insurer.

32.3.4.Denominated in a currency other than Australian currency

Of the total amount reported for Loan capital and hybrid securities identify the component that is denominated in a currency other than the Australian currency.

1. Other liabilities

33.1.Derivative financial instruments

Include all derivatives consistent with the classification and measurement basis used for derivatives by institutions in accordance with AASB 7, AASB 132 and AASB 139.

33.1.1.Derivatives at fair value

Derivative financial instruments should be reported at their net fair value in “Other Liabilities” when unfavourable to the reporting entity.

Fair values are obtained from quoted market prices, discount cash flow models and options pricing models.

33.1.2.Derivatives at cost

In exceptional circumstances where fair value cannot be reliably determined then derivative financial instruments should be reported at cost.

33.1.3.Total derivative financial instruments

This is automatically calculated by the form and represents the sum of derivatives reported at cost and at fair value.

33.2.Deficit in defined benefit superannuation plan

Disclose the value of any deficit in any insurer employer-sponsored defined benefit superannuation fund, consistent with the classification and measurement basis used in AASB 119 ‘Employee Benefits’.

33.3.Other liabilities

Record other non-current liabilities that are not able to be classified into the specific categories listed on the form.

33.4.Total Other Liabilities

This is automatically calculated by the form and represents the total of ‘Derivative financial instruments’, ‘Deficit in defined benefit superannuation plans’ and ‘Other liabilities’.

1. Total Non-Current Liabilities

This is automatically calculated by the form and represents the sum of all non-current liability items.

1. Total liabilities

The total of current and non-current liabilities is automatically calculated by the form.

1. Net assets

This is automatically calculated by the form and represents total assts less total liabilities.

(Note: for the Inside Australia reporting unit, the Net Assets does not necessarily have to balance with the total for “Net assets represented by”. This situation may arise where not all assets, liabilities and reserves are not inside Australia).

Net assets represented by:

1. Reserves

37.1.  General reserves

This is derived from revenue profits and is mostly available for dividend payment.

37.2.  Capital profits reserves      

A Capital Profits Reserve represents the realised value of revaluations associated with an asset or class of assets that have been disposed of. These assets have been subject to the fair value basis of measurement and revaluations accounted for in accordance with Australian accounting standards. Due to the disposal of these assets, the balance of the Asset Revaluation Reserve associated with these assets has been transferred to a capital profits reserve.

37.3.  Asset Revaluation Reserve

Note: if the insurer does not use the cost method to value asset that are not deemed to constitute investments integral to general insurance activities, then these items are not applicable to the insurer. Only complete these if the insurer uses these accounts for its financial reporting.

Report the asset revaluation reserve related to

37.3.1.Property

37.3.2.Plant and equipment

37.3.3.Intangibles revaluation surplus

37.3.4.Investments in associates/Share of associates ARR

37.3.5.Relating to non-current assets or disposal groups held for sale

37.3.6.Other

37.3.7.Total Asset Revaluation Reserve

This is automatically calculated by the form and represents the sum of all items of Asset Revaluation Reserve.

37.4.Foreign Currency Translation Reserve

Include the exchange rate differences arising on translation of assets and liabilities in accordance with AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.

37.5.Cash flow hedge reserve

Include here the effective portion of the gain or loss on the cash flow hedging instrument as required by AASB 139 ‘Financial Instruments: Recognition and Measurement’, AASB 132 ‘Financial Instruments: Presentation’ and AASB 7 ‘Financial Instruments: Disclosures’.

37.6.Share-based payments reserve

Include here the equity settled share-based payments reserve amounts as required by AASB 2 ‘Share-based Payment’.

37.7.  Other Reserves

Include all reserves not separately identified above. Report dividend reinvestment plan reserve in this reporting item.

37.8. Total Reserves

This is automatically calculated by the form and represents the sum of all items listed under “Reserves”.

1. Retained profits

38.1.  Retained profits or accumulated losses at the end of the period

Represents the sum of opening balance of retained profits or accumulated losses at the beginning of the period plus current profit or loss after tax and extraordinary items for the reporting period and after any transfers to or from reserves.

1. Total

This is automatically calculated by the form and represents the sum of “Total reserves” and “Retained profits”.

1. Additional Disclosure required for Minimum Capital Requirement calculation:

40.1.Technical insurance liability provisions in excess of liability valuation

Include in this item the value of technical insurance provisions (Premium Liabilities and Outstanding Claims Liabilities) that are recognised in GRF 300.0 Statement of Financial Position, that are in excess of the technical provisions required by GPS 310 Audit and Actuarial Reporting and Valuation (i.e. the aggregate values reported in GRF 210.0 Outstanding Claims Provision – Insurance Risk Charge and GRF 210.1 Premium Liabilities – Insurance Risk Charge).

This must be calculated on a net basis as per the following:

The following calculates the total Outstanding Claims Provision and Premium Liabilities net of Reinsurance Recoveries as reported in GRF 300.0 Statement of Financial Position:

Sum of the insurance liabilities:

• Item 18. OCP – Current Liabilities; plus

• Item 27. OCP – Non-current Liabilities; plus

• Item 19. Premium Liabilities – Current Liabilities; plus

• Item 28. Premium Liabilities – Non-current Liabilities;

Less sum of reinsurance and non reinsurance recoveries:

• Item 2.4.19  Total net amounts recoverable on reinsurance contracts reported in item 2.4.16, 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) – Current Assets; plus

• Item 7.3.19  Total net amounts recoverable on reinsurance contracts reported in item 7.3.16, 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) – Non-current Assets; plus

• Item 2.5.  Expected reinsurance recoveries on 'Premium Liabilities – Current Assets; plus

• Item 7.4. Expected reinsurance recoveries on 'Premium Liabilities – Non-current Assets; plus

• Item 2.2.2.1  Total net amounts recoverable (other than reinsurance recoveries receivable) that are reported in item 2.2.2 and that do relate to claims recognised in the calculation of the insurance liabilities that have not been paid - relating to Outstanding Claims Provision (OCP) - Current Assets; plus

• Item 7.1.2.1  Total net amounts recoverable (other than reinsurance recoveries receivable) that are reported in item 7.1.2 and that do relate to claims recognised in the calculation of the insurance liabilities that have not been paid - relating to Outstanding Claims Provision (OCP) - Non-current Assets; plus

• Item 2.2.2.2. Total net amounts recoverable (other than reinsurance recoveries receivable) that are reported in item 2.2.2 and that do relate to claims recognised in the calculation of insurance liabilities that have not been paid – relating to  Premium Liabilities (PL) – Current Assets; plus

• Item 7.1.2.2. Total net amounts recoverable (other than reinsurance recoveries receivable) that are reported in item 7.1.2 and that  do relate to claims recognised in the calculation of insurance liabilities that have not been paid – relating to Premium Liabilities (PL) – Non-current Assets

Less the sum of the insurance liabilities net of reinsurance and non reinsurance recoveries as reported in GRF 210.0 and 210.1 per the following:

·        GRF 210.0 Outstanding Claims Provision and Risk Charge – ‘Total "Net" OCP’ (OCP Net of Reinsurance and Non Reinsurance Recoveries) for all classes of business; plus

·        GRF 210.1 Premium Liabilities and Risk Charge - ‘Total "Net" Premium Liabilities’ (Premium Liabilities Net of Expected Reinsurance and Non Reinsurance Recoveries) for all classes of business.

Where the excess is positive, this is reported in Item 40.1. Technical provisions in excess of liability valuation.

Essentially the total of net OCP and net Premium Liabilities recognised in GRF 300.0 Statement of Financial Position – Licensed Insurer cannot be less than the total of net OCP and net Premium Liabilities per GRF 210.0 Outstanding Claims Provision - Insurance Risk Charge and GRF 210.1 Premium Liabilities - Insurance Risk Charge.

Note: If the technical insurance provisions recognised by the insurer in GRF 300.0 Statement of Financial Position are less than the value required by GPS 310 Audit and Actuarial Reporting and Valuation (as reported in GRF 210.0 Outstanding Claims Provision - Insurance Risk Charge and GRF 210.1 Premium Liabilities – Insurance Risk Charge), the amount of the deficiency must be recognised in GRF 310.0 Statement of Financial Performance as a claims expense (either relating to Premium Liabilities or Outstanding Claims Provision). The reduction in current year profit from GRF 310.0 Statement of Financial Performance is then included in Tier 1 capital in this form. 

40.2.Tax effect of technical insurance liability provisions in excess of the liability valuation

Report the tax effect of the excess technical insurance provisions (as provided in this form over the level required by GPS 310 Audit and Actuarial Reporting and Valuation). The excess in technical provisions may be included as Tier 1 capital.

Note: this requirement is not mandating the recognition of a deferred tax asset in GRF 300.0 Statement of Financial Position. This adjustment is required purely for prudential capital purposes to derive the accounting after tax cost to capital of creating the excess insurance provision.

The recording of the tax effect is not required where the excess technical insurance provision has been included in the recognition of a deferred tax asset associated with the recognition of Premium Liabilities and Outstanding Claims Liabilities in GRF 300.0 Statement of Financial Position. Deducting the tax effect in this case would constitute double counting, as deferred tax assets are deducted from Net Assets inside Australia.