Financial Sector (Collection of Data) (reporting standard) determination No. 9 of 2010 GRS 301.0 (2010) Reinsurance Assets and Risk Charge (Cth)
Financial Sector (Collection of Data) (reporting standard) determination No. 9 of 2010
Reporting Standard GRS 301.0 (2010) Reinsurance Assets and Risk Charge
Financial Sector (Collection of Data) Act 2001
I, Ian Laughlin, 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 301.0 (2008) Reinsurance Assets and Risk Charge which is in force as at the date of this determination (the old standard); and
DETERMINE Reporting Standard GRS 301.0 (2010) Reinsurance Assets and Risk Charge in the form set out in the Schedule (the new standard), which applies to the financial sector entities referred to in paragraph 2 of the new standard.
Under section 15 of the Act, I DECLARE that the new standard shall begin to apply, and the old standard shall cease to apply, on the date of registration of this instrument on the Federal Register of Legislative Instruments.
Dated 30 July 2010
[Signed]
Ian Laughlin
Member
Interpretation
In this Determination
APRA means the Australian Prudential Regulation Authority.
Federal Register of Legislative Instruments means the register established under section 20 of the Legislative Instruments Act 2003.
Schedule
Reporting Standard GRS 301.0 (2010) Reinsurance Assets and Risk Charge comprises the 27 pages commencing on the next page.
Reporting Standard GRS 301.0 (2010)
Reinsurance Assets and Risk Charge
Objective of this reporting standard
This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001 (the Collection of Data Act). It requires general insurers (insurers), including foreign general insurers operating in Australia through branch operations (foreign insurers), 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:
Form GRF 301.0 Reinsurance Assets and Risk Charge (Form GRF 301.0) and the instructions to that form (which are attached and form part of this reporting standard); and
any prudential standards referenced in the attached instructions. .
Purpose
Data collected in Form GRF 301.0 is used by APRA for the purpose of prudential supervision including assessing an insurer’s compliance with the capital standards.[1]
[1] Reference to capital standards has the same meaning as in Prudential Standards GPS 001 Definitions, where the capital standards refer collectively to prudential standards relating to capital adequacy.
Application and commencement
This reporting standard applies to all insurers for reporting periods ending on or after the date of registration on the Federal Register of Legislative Instruments.
Information required
An insurer must provide APRA with the information required by the Form GRF 301.0 for each reporting period.
Forms and method of submission
The information required by this reporting standard must be given to APRA either:
(a)in electronic form using the ‘Direct to APRA’ application, applying one of the electronic submission mechanisms under that application; or
(b)by manually completing Form GRF 301.0 on paper and mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales.
Where the information is submitted by means of an agent to whom the insurer has outsourced the function of providing the information on the insurer’s behalf, the agent may only provide the information in accordance with subparagraph 4(b) if the agent has contacted APRA and advised that the agent cannot submit the information in electronic form under subparagraph 4(a).
Note: the Direct to APRA application software and paper forms may be obtained from APRA.
Reporting periods and due dates
Subject to paragraph 6, an insurer must provide the information required by this reporting standard:
(a)in respect of each quarter based on the financial year (within the meaning of the Corporations Act 2001) of the insurer; and
(b)in respect of each financial year (within the meaning of the Corporations Act 2001) of the insurer.
Note: The annual information required by paragraphs 3 and 4 read with subparagraph 6(b), together with certain annual information required by other reporting standards, will form part of the insurer’s yearly statutory accounts within the meaning of section 3 of the Insurance Act 1973 (the Insurance Act). This means that the information must be audited in accordance with paragraph 49J(1)(a) of the Insurance Act. Under subsection 49J(3), the auditor must give the insurer a certificate relating to the yearly statutory accounts, and that certificate must contain statements of the auditor’s opinions on the matters required by the prudential standards to be dealt with in the certificate.
APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular insurer to require it to provide the information:
(a)more frequently (if, having regard to the particular circumstances of the insurer, APRA considers it necessary or desirable to obtain information more frequently for the purposes of the prudential supervision of the insurer); or
(b)less frequently (if, having regard to the particular circumstances of the insurer and the extent to which it requires prudential supervision, APRA considers it unnecessary to require the insurer to provide the information as frequently as provided by subparagraph 6(a) or (b)).
The information required by paragraph 3 of this reporting standard from an insurer must be provided to APRA by the following times:
(a)in the case of the quarterly information required by subparagraph 5(a) – 20 business days after the end of the reporting period to which the information relates; and
(b)in the case of the annual information required by subparagraph 5(b) – 4 months after the end of the reporting period to which the information relates.
Note: Paragraph 49L(1)(a) of the Insurance Act provides that the auditor’s certificate required under subsection 49J(3) of that Act must be lodged with APRA in accordance with the prudential standards. The prudential standards provide that the certificate must be submitted to APRA together with the yearly statutory accounts. Accordingly, the auditor’s certificate (relating to the information required by paragraphs 3 read with subparagraph 5(b)) must be provided to APRA by the time specified in subparagraph 7(b) of this reporting standard (unless an extension is granted under paragraph 8).
APRA may grant an insurer an extension of a due date in writing, in which case the new due date for the provision of the information will be the date specified in the notice of extension.
Quality control
The information provided by an insurer under this reporting standard must be the product of processes and controls that have been reviewed and tested by the appointed auditor of the insurer. This will require the auditor to review and test the systems, processes and controls supporting the reporting of the information to ensure that they produce accurate data and are otherwise reliable. This review and testing must be done on an annual basis or more frequently if necessary to enable the appointed auditor to form an opinion on the accuracy and reliability of the data.
The information provided by an insurer under this reporting standard must be subject to processes and controls developed by the insurer for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the insurer to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.
Authorisation
If the officer of an insurer provides the information required by this reporting standard:
(a)under subparagraph 4(a), the officer must digitally sign, authorise and encrypt the information (for which purpose APRA’s certificate authority will issue digital certificates, for use with the ‘Direct to APRA’ application, to officers of the insurer who have authority from the insurer to transmit data to APRA); or
(b)under subparagraph 4(b), the completed form must be signed in accordance with paragraph 13.
If an insurer provides the information required by this reporting standard through an agent under either subparagraphs 4(a) or (b), the agent will not be required to sign or authorise the information. However, the insurer must:
(a)obtain from the agent a paper copy of the completed form as provided to APRA (under either subparagraph 4(a) or (b)); and
(b)cause the paper copy to be signed in accordance with paragraph 13; and
(c)lodge the signed paper copy with APRA by mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales, by the relevant due date (unless APRA, in writing, waives the requirement in relation to the insurer to lodge the signed paper copy with APRA).
Note: APRA may, for example, decide to waive the requirement under subparagraph 12(c) where an insurer has undertaken to retain the signed copy of the completed form for an agreed period of time.
If information under this reporting standard is provided in paper form, it must be signed on the front page of the relevant completed form by either:
(a)the Principal Executive Officer of the insurer; or
(b)the Chief Financial Officer of the insurer (whatever his or her official title may be).
Minor alterations to forms and instructions
APRA may make minor variations to the instructions to a form, to clarify their application to the form provided it does not involve changing any substantive requirement in the form or instructions.
If APRA makes such a variation it must notify insurers of this in writing.
Transition
An insurer must report in relation to a reporting period ending prior to 1 July 2010 in accordance with the reporting standard that this reporting standard replaced.
Interpretation
In this reporting standard:
appointed auditor means an auditor appointed under paragraph 39(1)(a) of the Insurance Act t;
business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays;
capital standards means the prudential standards which relate to capital adequacy as defined in Prudential Standard GPS 001 Definitions;
foreign insurer means a foreign general insurer within the meaning of the Insurance Act;
Note: A reference to a ‘branch’ or ‘branch operation’ is a reference to the Australian operations of a foreign insurer.
Insurance Act means the Insurance Act 1973;
insurer means a general insurer within the meaning of the Insurance Act;
Note: In the forms and instructions, a reference to an ‘authorised insurer’, ‘authorised insurance entity’ or ‘licensed insurer’ is a reference to an insurer, and a reference to an ‘authorised reinsurance entity’ is a reference to an insurer whose business consists only of undertaking liability by way of reinsurance.
Principal Executive Officer means the principal executive officer of the insurer for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the insurer;
reporting period means a period mentioned in subparagraph 5(a) or (b) or, if applicable, paragraph 6.
A reference to a prudential standard means the prudential standard, made under section 32 of the Insurance Act, mentioned in the reference, as amended from time to time. If the prudential standard has been revoked and replaced, the reference shall be taken to be to the prudential standard that has replaced it.
Reporting Form GRF 301.0
Reinsurance Assets and Risk Charge
General Overview
Introduction
GRF 301.0 Reinsurance Assets and Risk Charge provides APRA with the necessary information on reinsurance assets[2] and calculates the applicable risk charges on such assets.
Risk Charge
The calculation of the applicable risk charges on an insurer’s (and reinsurer’s) on-balance sheet exposures to reinsurance assets are based on the prescribed method outlined in Prudential Standard GPS 114 Capital Adequacy: Investment Risk Capital Charge (GPS 114). The aggregate of the risk charges calculated in this form is included in the calculation of the insurer’s Minimum Capital Requirement (MCR).
For Category C insurers[3], the risk charge will be applied to reinsurance assets that are deemed inside Australia under section 116A of the Insurance Act 1973 (the Act). For all other insurers, the risk charge will be calculated based on their total reinsurance assets whether they are deemed inside Australia or outside Australia.
[2] Reinsurance Assets has the same meaning as in Prudential Standards GPS 001 Definitions (GPS 001).
[3] Category C insurer has the same meaning as in Prudential Standards GPS 001 Definitions.
Audit requirements
The form relating to authorised insurance entities and reinsurance entities is required to be subject to audit review and testing.
The scope and nature of audit testing required is outlined in the applicable Auditing and Assurance Standards Board Guidance Statement issued by the Auditing and Assurance Standards Board.
Information provided in the form in respect of a financial year of an insurer forms part of the insurer’s ‘yearly statutory accounts’ within the meaning of section 3 of the Act. This means that:
the completed form for the financial year must be audited by the Appointed Auditor of the insurer (see paragraph 49J(1)(a) of the Act);
the insurer must make such arrangements as to enable the auditor to do this (subsection 49J(2));
the auditor must give the insurer a certificate relating to the completed form (and other completed forms that are part of the insurer’s yearly statutory accounts), which must contain statements of the auditor’s opinion on the matters required by the prudential standards to be dealt with in the certificate (subsection 49J(3));
the certificate must be lodged with APRA as provided for in the prudential standards (paragraph 49L(1)(a)), namely by the due date for lodging the form in respect of the financial year for the insurer.
Reporting entities
This form is to be completed by:
Category C insurer - branch insurers (or reinsurers) of a foreign parent insurer (or reinsurer) (a reference to licensed insurer in the form means total operations of the branch, excluding the parent operations);
Authorised insurance entities, including mutual entities (reference to licensed insurer in the form means total operations of the licensed entity); and
Authorised reinsurance entities (reference to licensed insurer in the form means total operations of the licensed entity).
Instruction Guide
Introduction
This Instruction Guide is designed to assist in the completion of GRF 301.0 Reinsurance Assets and Risk Charge. The instruction guide provides:
General directions and notes for preparation and lodgement; and
Explanatory notes for specific items.
Definitions
Definitions for data reporting items required by this form have been provided where possible in the instructions under the section headed ‘Specific Instructions’.
Unit of Measurement
GRF 301.0 Reinsurance Assets and Risk Charge is to be prepared in thousands of Australian dollars (AUD). Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ (AASB 121).
The general requirements of AASB 121 for translation are:
Foreign currency monetary items[4] outstanding at the reporting date must be translated at the spot rate[5] at the reporting date.
[4] 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.
[5] Spot rate means the exchange rate for immediate delivery.
Foreign currency non-monetary items[6] that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction.
[6] Examples of non-monetary items include amounts prepaid for goods and services (e.g. prepaid rent); goodwill; intangible assets; physical assets; and provisions that are to be settled by the delivery of a non-monetary asset.
Foreign currency non-monetary items that are measured at fair value will be translated at the exchange rate at the date when fair value was determined.
Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with AASB 139 ‘Financial Instruments: Recognition and Measurement’ (AASB 139). 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.
For APRA purposes, equity items must be translated using the foreign currency exchange rate at the date of investment or acquisition. Post acquisition changes in equity are required to be translated on the date of the movement.
As foreign currency derivatives are measured at fair value, the currency derivative contracts are translated at the spot rate at the reporting date.
Exchange differences should be recognised in profit and loss in the period which they arise. For foreign currency derivatives, the exchange differences would be recognised immediately in profit and loss if the hedging instrument is a fair value hedge. For derivatives used in a cash flow hedge, the exchange differences should be recognised directly in equity.
The ineffective portion of the exchange differences in all hedges would be recognised in profit and loss.
Translation of financial reports of foreign operations.
A foreign operation is defined in AASB 121 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.
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 GRS 301.0 Reinsurance Assets and Risk Charge.
Basis of preparation
Unless specified otherwise, general insurers are requested to follow the Australian accounting standards regarding the definition, recognition and measurement of assets, notably AASB 1023 ‘General Insurance Contracts’ (AASB 1023).
Definition of insurance business
Insurers are to follow the definition of insurance business provided in section 3 of the Act.
Inside Australia
Section 28 of the Act requires all general insurers to maintain assets in Australia (excluding goodwill and other amounts excluded by Prudential Standard 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 Act, which provides that in the winding up of a general insurer, the assets in Australia shall not be applied in the discharge of its liabilities other than its liabilities in Australia unless all the Australian liabilities have first been discharged.
Reinsurance
The Act permits certain reinsurance assets to be regarded as assets in Australia. For the purposes of the Act, an amount is taken to be an asset in Australia of a general insurer if:
(a)the insurer expects to recover the amount under a contract of reinsurance entered into with a person outside Australia; and
(b)the amount relates to claims in respect of liabilities in Australia of the insurer, whether or not the claims have been paid by the insurer; and
(c)under the terms of the contract, payments by way of reinsurance are to be made in Australia.
Reinsurance Assets due from non-APRA-authorised reinsurers
Different treatment is accorded to certain reinsurance assets[7] due from a ‘non-APRA-authorised reinsurer’[8] as specified in GPS 114.
[7] Subject to transition rules relating to such reinsurance recoverables.
[8] Non-APRA-authorised reinsurers have the same meaning as in GPS 001.
The applicable investment risk charge is calculated in accordance with GPS 114 based on whether the amount is recoverable from ‘APRA-authorised reinsurers’[9] or ‘non-APRA-authorised reinsurers’. Different investment risk charges apply for reinsurance recoverables due from ‘non-APRA-authorised reinsurers’ on and from the second balance date after the end of the financial year in which the event giving rise to the recoverables occurred. These risk charges apply only to the extent that the reinsurance recoverables are not supported by collateral, guarantee or a letter of credit. This treatment applies to reinsurance recoverables from non-APRA authorised reinsurers under reinsurance contracts incepting on or after 31 December 2008.
[9] APRA-authorised reinsurers have the same meaning as in GPS 001.
Where reinsurance recoverables are supported by collateral, guarantee or a letter of credit, only the risk charges applying to the counterparty providing the support will be applied as calculated in GRF 130.3 Off Balance Sheet Business – Credit Support Received.
For the purposes of determining the amount of reinsurance recoverable, if there is an offsetting arrangement between the insurer and the reinsurer that results in premium being withheld by the insurer in lieu of claim payments, the withholding of that premium is taken to be payment. However, if there is a requirement for offsets to be approved by the reinsurer the date of the offset request is taken to be the date of the request for payment.
Limited Risk Transfer Arrangements
An insurer must submit to APRA details of all proposed limited risk transfer arrangements[10] for approval prior to entering into such arrangements. APRA may approve a limited risk transfer arrangement as either a reinsurance arrangement or a financing arrangement.
[10]Limited Risk Transfer Arrangements are defined in GPS 230 Reinsurance Management.
APRA will generally consider a limited risk transfer arrangement to be a reinsurance arrangement where the purpose and effect of the arrangement is to genuinely transfer significant insurance risk from the insurer to another re(insurer).
A limited risk transfer arrangement that is approved by APRA as a reinsurance arrangement must be treated accordingly by the insurer for prudential purposes.
A limited risk transfer arrangement that is approved by APRA as a financing arrangement must be accounted for by the insurer so that:
(a)the arrangement has a legitimate purpose and effect; and
(b)the arrangement will not misrepresent, or is not designed to disguise, a material risk to the insurer’s current or continuing profitability, solvency or capital adequacy from any party.
The terms and conditions of the financing arrangement will determine the appropriate accounting treatment for prudential purposes.
Where APRA determines that a limited risk transfer arrangement is to be treated as a financing arrangement, the insurer must not treat the arrangement as reinsurance for the purpose of determining the MCR under the Capital Standards[11] or as reinsurance for any other purpose.
Deferred reinsurance expense
Insurers should capitalise the cost of reinsurance at inception as deferred reinsurance expense (DRE), and expense that capitalised amount over the life of the reinsurance coverage. The establishment of the DRE will be associated with the establishment of a liability to pay a reinsurance premium; the liability will be reduced as payments are made. The payment of the premium occurs according to the reinsurance contract, and the expensing of the DRE occurs in accordance with the expected pattern of the incidence of risk.
[11] “Capital Standards” refers collectively to the prudential standards relating to capital adequacy as defined under Prudential Standard GPS 001.
Related party disclosure
For the purposes of this form, related bodies corporate are to be interpreted consistently with the meaning as in AASB 124 ‘Related Party Disclosures’ (AASB 124).
In accordance with AASB 124, related party means a party that directly or indirectly through one or more intermediaries:
(a)controls, is controlled by or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);
(b)has significant influence over the entity or has joint control over the entity; or
(c)is an associate (as defined in AASB 128 ‘Investments in Associates’) of the entity; or
(d)is a joint venture in which the entity is a venturer (see AASB 131 ‘Interests in Joint Ventures’); or
(e)is a member of the key management personnel of the entity or its parent; or
(f)is a close member of the family of any individual referred to in (a), (b) or (e); or
(g)is an entity that its controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (e) or in (f); or
(h)is a post-employment benefit plan for the benefit of the employees of the entity, or of any entity that is a related party of the entity.
Instructions for specific items
Insurers are to indicate ‘Yes’ or ‘No’ in GRF 301.0 Reinsurance Assets and Risk Charge on whether the reporting entity is a branch insurer. A branch insurer is a Category C insurer as defined in Prudential Standard GPS 001 Definitions (GPS 001).
Amount – Deemed inside Australia and Total Amount.
Both columns of data on the form must be completed by all insurers. Where all business is inside Australia, use the same figures for both columns.
The amounts reported under the ‘Amount – Deemed Inside Australia’ column must be only those amounts deemed inside Australia under section 116A of the Act.
Investment Capital Factor %
This column for each form discloses the appropriate investment capital factor for the asset type in accordance with GPS 114.
Investment Risk Charge
This column for each form will calculate the appropriate investment risk charge in accordance with GPS 114.
Amounts recoverable from reinsurance contracts on both outstanding claims and paid claims
Reinsurance recoverable has the same meaning as in Prudential Standard GPS 001 Definition, where any amounts due to an insurer from a reinsurer that arises from the recognition of outstanding claims provisions referred to in the capital standards[12], GPS 310 and AASB 1023.
[12] Capital standards has the same meaning as in GPS 001.
Report assets which derive from reinsurance activities, other than unpaid premiums subject to the specific comments where a legal right of set-off exists.
Include the amount due from reinsurers or retrocessionaires. Reinsurance recoverables on outstanding claims is the reinsured portion of the outstanding claims liability to be recovered from reinsurers on settling the outstanding claims liability. Measurement of the outstanding claims is to be in accordance with the requirements of AASB 1023. Accordingly estimation of reinsurance recoveries relating to the outstanding claims provision is to be estimated on a basis similar with the measurement of the claims liabilities to which it relates.
Reinsurance Documentation Test
The amounts reported under items 1.4 to 1.7 and 1.9 should only include the amounts due from reinsurers under reinsurance contracts that meet the reinsurance documentation test[13], specified in GPS 112 Capital Adequacy: Measurement of Capital (GPS 112).
[13]Subject to transition rules relating to this deduction.
Report the net amount due from reinsurers under reinsurance contracts that do not meet the reinsurance documentation test in item 1.8 ‘Net amount related to reinsurance contracts that do not meet the reinsurance documentation test’. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Governing Law Requirements
The amounts reported under items 1.4 to 1.7 should only include the amounts due from reinsurers under reinsurance contracts entered into by the insurer incepting on or after 31 December 2008 that meet the ‘governing law requirements’, as specified within paragraph 31 of Prudential Standard GPS 230 Reinsurance Management (GPS 230). GPS 230 specifies that (except for Category E insurers[14]):
[14] Category E insurer has the same meaning as in GPS 001.
The governing law of the reinsurance contract is Australian law; and
Any disputes that fall to be determined by a court are to be heard in an Australian court.
Report the net amount due from reinsurers under reinsurance contracts that do not meet the governing law requirements in item 1.9 ‘Net amount recoverable under reinsurance contracts that do not meet governing law requirements’. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Reinsurance recoverables from non-APRA-authorised reinsurers overdue for more than six months
The amounts reported under items 1.4 to 1.6 should not include the amounts that are receivable from non-APRA-authorised reinsurers and that have been overdue for more than six months. GPS 114 specifies that with effect from 1 January 2009, applicable a risk charge of 100% applies to a reinsurance recoverable due from non-APRA-authorised reinsurers if:
The recoverable has become a receivable (i.e. it is due and payable); and
The receivable is overdue for more than six months since a request for payment has been made to the reinsurer; and
There is no formal dispute between the insurer and reinsurer in relation to that receivable. Where any dispute between the insurer and reinsurer in relation to a receivable arising from a reinsurance recoverable would have been taken into account in the valuation processes provided for under GPS 310.
Report the amount of the recoverable that is overdue for more than six months in item 1.7 ‘Net amount recoverable from non-APRA-authorised reinsurers which are overdue for more than 6 months’.
Reinsurance Assets from non-APRA-authorised reinsurers
As mentioned above, different investment risk charges are applicable to certain reinsurance recoverables[15] due from non-APRA-authorised reinsurers calculated in accordance with GPS 114.
[15] Subject to transition rules relating to such reinsurance recoverables.
GPS 114 also applies different risk charges to reinsurance assets due from non-APRA-authorised reinsurers on and from the second balance date after the end of the financial year in which the event giving rise to each recoverable occurred.
Disclosure is required as follows:
1.1 Amounts recoverable from reinsurance contracts on both outstanding claims and paid claims
Report the amount due from reinsurers on reinsurance contracts related to outstanding claims and paid claims, including amounts recoverable from non-APRA-authorised reinsurers.
1.2 Provision for doubtful debts
Include the value of any recoveries related to outstanding claims and paid claims where it is determined that collection is considered doubtful (full or partial).
1.3 Net amount recoverable
This is automatically calculated by the form and represents the value of the reinsurance recoveries due from reinsurers on reinsurance contracts related to outstanding claims and paid claims after deducting any associated provision for doubtful debts disclosed.
Disclose the net amount recoverable on reinsurance contracts on outstanding claims and paid claims as follows:
1.3.1 Total net reinsurance recoverables from related parties
Include the amount of reinsurance recoverables related to outstanding claims and paid claims that are recoverable from entities deemed to be related parties of the insurer. For the purposes of this form, related party has the meaning as set out earlier in this instruction guide.
1.3.2 Total net reinsurance recoverable reported in item 1.3, that relates to claims recognised in the calculation of the Outstanding Claims Liability (i.e. other than reinsurance recoveries relating to claims that have been paid).
Of the total value reported in item 1.3 ‘Net amount recoverable’, report the value of reinsurance recoveries that relates to claims that are recognised in the value reported for the outstanding claims liabilities in item 16 ‘Outstanding claims liability’ of GRF 300 Statement of Financial Position. Exclude reinsurance recoveries that relate to claims that have been paid.
1.4 Net amount recoverable on reinsurance contracts from both outstanding claims and paid claims from APRA-authorised reinsurers
Record the net amount recoverable on reinsurance contracts from APRA-authorised reinsurers according to their counterparty rating as follows.
1.4.1 Grade 1 or 2
1.4.2 Grade 3
1.4.3 Grade 4 or unrated
1.4.4 Grade 5
1.5 Net amount recoverable on reinsurance contracts from both outstanding claims and paid claims from non-APRA-authorised reinsurers except for amounts outstanding on and from second annual balance date after the event giving rise to the reinsurance recoverables
Record the net amount recoverable on reinsurance contracts relating to outstanding claims and paid claims from non-APRA-authorised reinsurers except for amounts outstanding on and from the second balance date after the financial year in which the event occurred.
From 1 January 2009, include the net amounts recoverable from non-APRA-authorised reinsurers due on all reinsurance contracts.
Disclose the amounts according to the reinsurer’s counterparty rating:
1.5.1Grade 1 or 2
1.5.2Grade 3
1.5.3Grade 4 or unrated
1.5.4Grade 5
1.6 Net amount recoverable from reinsurance contracts on outstanding claims and paid claims from non-APRA-authorised reinsurers that are amounts outstanding on and from second annual balance date after the event giving rise to the reinsurance recoverables
From 1 January 2009, record the net amount recoverable on reinsurance contracts incepting on or after 31 December 2008 from non-APRA-authorised reinsurers that are amounts outstanding on and from the second balance date after the end of the financial year in which the event giving rise to the recoverables occurred regardless of whether the reinsurance recoverables are supported by collateral, guarantee or a letter of credit.
Where there is collateral, guarantee or a letter of credit supporting the reinsurance recoverable, the adjustment to the risk charge will be reflected in GRF 130.3 Off Balance Sheet Business – Credit Support Received.
Note: The disclosure relating to amounts which are supported by security arrangements in Australia requests disclosure of the net amounts to the extent that the reinsurance recoverables are supported by collateral, guarantee or a letter of credit.
Disclose the amounts according to the reinsurer’s counterparty rating:
1.6.1Grade 1
1.6.1.1of which supported by security arrangements in Australia
1.6.2Grade 2
1.6.2.1 of which supported by security arrangements in Australia
1.6.3Grade 3
1.6.3.1of which supported by security arrangements in Australia
1.6.4Grade 4 or unrated
1.6.4.1of which supported by security arrangements in Australia
1.6.5Grade 5
1.6.5.1of which supported by security arrangements in Australia
1.7 Net amount recoverable from non-APRA-authorised reinsurers which are overdue for more than 6 months
From 1 January 2009, record the net amount recoverable on reinsurance contracts due from non-APRA-authorised reinsurers, if:
(a)the recoverable has become a receivable (i.e. it is due and payable); and
(b)the receivable is overdue for more than six months since a request for payment has been made to the reinsurer; and
(c)there is no formal dispute between the insurer and reinsurer in relation to that receivable.[16]
[16] Any dispute between the insurer and reinsurer in relation to a receivable arising from a reinsurance recoverable would have been taken into account in the valuation processes provided for under GPS 310.
1.8 Net amount related to reinsurance contracts that do not meet the reinsurance documentation test
If the insurer has not complied with the threshold levels of reinsurance documentation set out in GPS 112, then all reinsurance recoveries receivable will be deducted from the Tier 1 capital of an insurer.
Compliance with the thresholds is assessed by calculating the percentage of reinsurance recoveries that are derived from reinsurance arrangements meeting the reinsurance documentation test compared with total reinsurance recoveries.
A reinsurance arrangement meets the reinsurance documentation test if the arrangement:
(a)complies with the two month rule and six month rule under GPS 230;
(b)fails to comply with the those rules as at the date of the relevant deadline but:
(i)subsequent to the deadline specified under the two month rule, the reinsurance arrangement is documented in accordance with the other requirements of the two month rule (in which case the reinsurance arrangement is treated as meeting the reinsurance documentation test until the reinsurance arrangements fail the six month rule); or
(ii)subsequent to the deadline specified under the six month rule, the reinsurance arrangement is documented in accordance with the other requirements of the six month rule; or
(c)is otherwise treated by APRA under GPS 230 as complying with the two month rule and six month rule.
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.
Report the net amount related to reinsurance contracts that do not meet the reinsurance documentation test. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
1.9 Net amount recoverable under reinsurance contracts that do not meet governing law requirements
Report the net amounts due from reinsurers under reinsurance contracts entered into by the insurer incepting on or after 31 December 2008 that do not meet the ‘governing law requirements’[17], specified in GPS 230. GPS 230 specifies that (except for Category E insurers[18]):
[17]Governing law requirements are specified within paragraph 31 of Prudential Standard GPS 230 Reinsurance Management.
[18] Category E insurer has the same meaning as in GPS 001.
The governing law of the reinsurance contract is Australian law; and
Any disputes that fall to be determined by a court are to be heard in an Australian court.
As this amount is deducted from capital it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Deferred reinsurance expense
Deferred reinsurance expense is to be allocated according to the counterparty grades set out below and in the form, which are detailed in GPS 114. The investment risk charge will be calculated based on the capital factor applicable to the rating grades.
Note: The amounts recorded in item 2.2 ‘Amount of deferred reinsurance expense relating to APRA-authorised reinsurers’ and item 2.3 ‘Amount of deferred reinsurance expense relating to non-APRA-authorised reinsurers’ should not include deferred reinsurance expense from reinsurance contracts that do not fully meet the reinsurance documentation test in GPS 112. Instead this should be reported under item 2.4 ‘Deferred reinsurance expense under reinsurance contracts that do not meet the reinsurance documentation test’. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Also do not include deferred reinsurance expense from reinsurance contracts that do not meet the governing law requirements in item 2.2 to 2.3. Instead report the amount under item 2.5 ‘Deferred reinsurance expense under reinsurance contracts that do not meet governing law requirements’. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Reinsurance Assets from non-APRA-authorised reinsurer
As mentioned above, a different investment risk charge is applicable to certain reinsurance assets[19] due from non-APRA-authorised reinsurers. The applicable investment risk charge is calculated in accordance with GPS 114 based on whether the amount is recoverable from APRA-authorised reinsurers or non-APRA-authorised reinsurers.
[19] Subject to transition rules relating to such reinsurance assets.
Reinsurance assets due from non-APRA-authorised reinsurers arising from reinsurance contracts incepting on dates up to and including to 31 December 2008 are treated as if they were reinsurance assets from APRA-authorised reinsurers for the purposes of calculating the investment risk capital charges until 1 January 2009.
2.1Deferred reinsurance expense
Report total deferred reinsurance expense as per GRF 300.0 Statement of Financial Position.
2.2Amount of deferred reinsurance expense relating to APRA-authorised reinsurers
Report the amount of deferred reinsurance expense relating to APRA-authorised reinsurers according to their counterparty ratings as follows:
2.2.1Grade 1 or 2
2.2.2Grade 3
2.2.3Grade 4 or unrated
2.2.4Grade 5
2.3Amount of deferred reinsurance expense relating to non-APRA-authorised reinsurers
Report the amount of deferred reinsurance expense relating to non-APRA-authorised reinsurers according to their counterparty ratings as follows:
2.3.1Grade 1 or 2
2.3.2Grade 3
2.3.3Grade 4 or unrated
2.3.4Grade 5
2.4Deferred reinsurance expense under reinsurance contracts that do not meet the reinsurance documentation test
The treatment of deferred reinsurance expense under reinsurance contracts that do not meet the reinsurance documentation will be similar to the treatment in item 1.8 ‘Net amount related to reinsurance contracts that do not meet the reinsurance documentation test’.
Report the net amounts related to reinsurance contracts that do not meet the reinsurance documentation test. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
2.5Deferred reinsurance expense under reinsurance contracts that do not meet governing law requirements
The treatment of deferred reinsurance expense under reinsurance contracts that do not meet the governing law requirements under GPS 230 will be similar to the treatment of item 1.9 ‘Net amount recoverable under reinsurance contracts that do not meet governing law requirements’.
Report the net amounts of deferred reinsurance expense under reinsurance contracts that do not meet the governing law requirements. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Other reinsurance assets
As mentioned above, a different investment risk charge is applicable to certain reinsurance assets[20] due from non-APRA-authorised reinsurers. The applicable investment risk charge is calculated in accordance with GPS 114 based on whether the amount is recoverable from APRA-authorised reinsurers or non-APRA-authorised reinsurers.
[20] Subject to transition rules relating to such reinsurance assets.
3.1.Amount of other reinsurance assets
Report any other asset, which relates to reinsurance, including deposits retained by reinsurers. This should include amounts that do not meet the reinsurance documentation test and amounts that do not meet the governing law requirements.
3.2.Provision for doubtful debts
Include the value of any reinsurance assets where it is determined that collection is considered doubtful (full or partial).
3.3.Net amounts of other reinsurance assets
This is automatically calculated by the form and represents the value of the other reinsurance assets after deducting any associated provision for doubtful debts disclosed. The net balance is used in the calculation of the applicable investment risk charge.
3.4.Net amount of other reinsurance assets receivable from APRA-authorised reinsurers
Report the net amount of other reinsurance assets receivable from APRA-authorised reinsurers according to their counterparty ratings as follows:
3.4.1.Grade 1 or 2
3.4.2.Grade 3
3.4.3.Grade 4 or unrated
3.4.4.Grade 5
3.5.Net amount of other reinsurance assets receivable from non-APRA-authorised reinsurers
Report the net amount of other reinsurance assets receivable from non-APRA-authorised reinsurers according to their counterparty ratings as follows:
3.5.1.Grade 1 or 2
3.5.2.Grade 3
3.5.3.Grade 4 or unrated
3.5.4.Grade 5
3.6.Net amounts related to reinsurance contracts that do not meet the reinsurance documentation test
The treatment of other reinsurance assets which relate to reinsurance contracts that do not meet the reinsurance documentation will be similar to the treatment in item 1.8 ‘Net amount related to reinsurance contracts that do not meet the reinsurance documentation test’.
Report the net amounts related to reinsurance contracts that do not meet the reinsurance documentation test. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
3.7.Net amounts of other reinsurance assets under reinsurance contracts that do not meet governing law requirements
The treatment of other reinsurance assets which relate to reinsurance contracts that do not meet the governing law requirements under GPS 230 will be similar to the treatment in item 1.9 ‘Net amount recoverable under reinsurance contracts that do not meet governing law requirements’.
Report the net amounts of recoveries under reinsurance contracts that do not meet governing law requirements. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Net reinsurance assets
This is automatically calculated by the form and represents the sum of the reinsurance assets net of associated provision for doubtful debts reported in item 1.3 ‘Net amount recoverable’, item 2.1 ‘Deferred reinsurance expense’ and item 3.3 ‘Net amounts of other reinsurance assets'.
The total risk charge for the form is automatically calculated by the form and represents the sum of all investment risk charges in the form.
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