Financial Sector (Collection of Data) (reporting standard) determination No. 29 of 2013 - GRS 112.3_G - Related Party Exposures (Level 2 Insurance Group)

Administered by Department of the Treasury

Legislation au F2013L00094 Not in force Legislative Instrument

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Financial Sector (Collection of Data) (reporting standard) determination Nos. 27 to 41 of 2013

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority (APRA)

Financial Sector (Collection of Data) Act 2001, subsections 13(1) and 15(1)
Acts Interpretation Act 1901, subsection 33(3)

Under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (FSCODA), APRA has the power to determine reporting standards, in writing, with which financial sector entities must comply. Such standards relate to reporting financial or accounting data and other information regarding the business or activities of the entities.  Subsection 15(1) of FSCODA provides that APRA may declare a date on and after which reporting standards are to apply.

Subsection 33(3) of the Acts Interpretation Act 1901 provides that where an Act confers a power to issue an instrument the power shall, unless the contrary intention appears, be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to revoke and vary any such instrument.

 On 20 December 2012, APRA made the following determinations (the instruments):

  1. Financial Sector (Collection of Data) (reporting standard) determination No. 27 of 2013, which revokes Reporting Standard GRS 110.0_G (2011) Minimum Capital Requirement (Level 2 Insurance Group) made on 23 September 2011 and makes a new Reporting Standard GRS 110.1_G Prescribed Capital Amount (Level 2 Insurance Group);
  2. Financial Sector (Collection of Data) (reporting standard) determination No. 28 of 2013, which revokes Reporting Standard GRS 120.0_G (2011) Determination of Capital Base (Level 2 Insurance Group) made on 23 September 2011 and makes a new Reporting Standard GRS 112.0_G Determination of Capital Base (Level 2 Insurance Group);
  3. Financial Sector (Collection of Data) (reporting standard) determination No. 29 of 2013, which revokes Reporting Standard GRS 450.0_G (2009) Interest in Controlled Entities, Associates and Joint Ventures made on 21 August 2009 and makes a new Reporting Standard GRS 112.3_G Related Party Exposures (Level 2 Insurance Group);
  4. Financial Sector (Collection of Data) (reporting standard) determination No. 30 of 2013, which makes Reporting Standard GRS 114.0_G Asset Risk Charge (Level 2 Insurance Group);
  5. Financial Sector (Collection of Data) (reporting standard) determination No. 31 of 2013, which makes Reporting Standard GRS 114.1_G Assets by Counterparty Grade (Level 2 Insurance Group);
  6. Financial Sector (Collection of Data) (reporting standard) determination No. 32 of 2013, which revokes Reporting Standard GRS 131.0_G (2009) Off Balance Sheet Exposure Risk Charge made on 21 August 2009 and makes a new Reporting Standard GRS 114.3_G Off-balance Sheet Business (Level 2 Insurance Group);
  7. Financial Sector (Collection of Data) (reporting standard) determination No. 33 of 2013, which revokes Reporting Standard GRS 210.0_G (2011) Outstanding Claims Liability – Insurance Risk Charge (Level 2 Insurance Group) made on 23 September 2011 and makes a new Reporting Standard GRS 115.0_G Outstanding Claims Liabilities – Insurance Risk Charge (Level 2 Insurance Group)
  8. Financial Sector (Collection of Data) (reporting standard) determination No. 34 of 2013, which revokes Reporting Standard GRS 210.1_G (2011) Premiums Liabilities – Insurance Risk Charge (Level 2 Insurance Group) made on 23 September 2011 and makes a new Reporting Standard GRS 115.1_G Premiums Liabilities – Insurance Risk Charge (Level 2 Insurance Group);
  9. Financial Sector (Collection of Data) (reporting standard) determination No. 35 of 2013, which makes Reporting Standard GRS 116.0_G Insurance Concentration Risk Charge;
  10. Financial Sector (Collection of Data) (reporting standard) determination No. 36 of 2013, which revokes Reporting Standard GRS 150.0_G (2009) Asset Exposure Concentrations and Risk Charge made on 21 August 2009 and makes a new Reporting Standard GRS 117.0_G Asset Concentration Risk Charge (Level 2 Insurance Group);
  11. Financial Sector (Collection of Data) (reporting standard) determination No. 37 of 2013, which makes Reporting Standard GRS 118.0_G Operational Risk Charge;
  12. Financial Sector (Collection of Data) (reporting standard) determination No. 38 of 2013, which revokes Reporting Standard GRS 300.0_G (2011) Statement of Financial Position (Level 2 Insurance Group) made on 23 September 2011 and makes a new Reporting Standard GRS 300.0_G Statement of Financial Position (Level 2 Insurance Group);
  13. Financial Sector (Collection of Data) (reporting standard) determination No. 39 of 2013, which revokes Reporting Standard GRS 302.0_G (2011) Statement of Financial Position by Region (Level 2 Insurance Group) made on 23 September 2011 and makes a new Reporting Standard GRS 302.0_G Statement of Financial Position by Region (Level 2 Insurance Group);
  14. Financial Sector (Collection of Data) (reporting standard) determination No. 40 of 2013, which revokes Reporting Standard GRS 310.0_G (2011) Income Statement (Level 2 Insurance Group) made on 23 September 2011 and makes a new Reporting Standard GRS 310.0_G Income Statement (Level 2 Insurance Group); and
  15. Financial Sector (Collection of Data) (reporting standard) determination No. 41 of 2013, which revokes:
    1. Reporting Standard GRS 141.0_G (2009) Listed Equity Holdings and Risk Charge made on 21 August 2009; and
    2. Reporting Standard GRS 301.0_G (2011) Reinsurance Assets and Risk Charge (Level 2 Insurance Group) made on 23 September 2011.

The instruments commence on 1 January 2013. The instruments are being registered after this date; however the requirements apply to reporting periods ending no earlier than 28 February 2013. No insurer will be impacted by the retrospective registration as the time for lodging forms with APRA will arise no earlier than three months after 28 February 2013.

  1.    Background

APRA commenced a review of the regulatory capital framework for general insurers (including Level 2 insurance groups) and life companies (LAGIC review) in 2010. The broad aims of the review were to:

  • improve the risk sensitivity and appropriateness of the capital standards in general insurance and life insurance (including friendly societies); and
  • where appropriate, improve the alignment of the capital standards across the industries that APRA supervises.

APRA has made a range of amendments to its prudential framework to give effect to the findings of the review.  As a result of the changes, there is a common capital framework for required capital and eligible capital across general insurers and life companies. The minimum capital requirement is known as the Prudential Capital Requirement (PCR). This comprises a prescribed capital amount plus any supervisory adjustment determined by APRA. General insurers and Level 2 insurance groups must at all times satisfy minimum requirements for the composition of their capital bases and ensure that the capital base exceeds the PCR.

2.      Purpose and operation of the instruments

The purpose of making the instruments is to introduce new and amended reporting standards and revoke existing reporting standards in relation to Level 2 insurance groups in order to implement the changes under the LAGIC review.

The implementation of the revised capital framework under LAGIC requires substantive changes to the reporting requirements for both general insurers and life companies. For general insurers and Level 2 insurance groups, amendments to the methodology for calculating the prescribed capital amount are made. This includes the introduction of an explicit operational risk charge, revisions to the calculation of the asset risk charge, insurance concentration risk charge and asset concentration risk charge. The definitions of capital base and the categories of capital included in the capital base are also revised.

APRA has also taken the opportunity to make improvements to the reporting requirements of general insurers, by implementing a number of changes to enhance the general insurance publications. The timing of submission of annual returns and a small number of technical changes to data submission were also made.

For Level 2 insurance groups, the changes to reporting requirements arising from the LAGIC review are effected through the instruments.

The new reporting standards and associated reporting forms are issued under FSCODA. These reporting standards enable the reporting requirements of the revised prudential framework in relation to Level 2 insurance groups to take effect. 

The collection of quarterly and annual data under the new general insurance prudential reporting requirements will commence for the first reporting period ending on or after 1 January 2013.

3.      Consultation

APRA undertook consultation on the LAGIC review between May 2010 and October 2012, including four rounds of industry consultation, three technical papers and two quantitative impact studies.

In addition to extensive consultation in relation to the prudential requirements, APRA released the following consultation materials in relation to the reporting requirements:

  • June 2012 – Discussion paper ‘Review of capital standards for general insurers and life insurers – proposed revisions to reporting requirements’[1], draft versions of reporting forms and instructions, reporting standards and capital adequacy calculation workbooks and instructions;
  • August 2012 – Letter to insurers ‘Additional proposed changes to the reporting standards’[2]; and
  • October 2012 – Response paper ‘Review of capital standards for general insurers and life insurers – reporting requirements’[3], final versions of all forms and instructions and reporting standards.

APRA has considered both formal and informal feedback from industry throughout the above multi-year process. Submissions received by APRA were broadly supportive of the changes. Issues considered to be significant or to have merit were incorporated into the revised capital framework.

4.      Regulation Impact Statement

A Regulation Impact Statement has been prepared and has been lodged as supporting material.

5.      Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

The legislative instruments the subject of this explanatory statement do not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Accordingly, in APRA’s assessment, these legislative instruments are compatible with human rights.

 

 

[1]  http://www.apra.gov.au/CrossIndustry/Consultations/Pages/LAGIC-Reporting-Requirements-June-2012.aspx

[2]  http://www.apra.gov.au/CrossIndustry/Consultations/Documents/120806-letter-to-industry-LAGIC-proposed-changes-to-reporting-standards.pdf

[3]  http://www.apra.gov.au/lifs/ReportingFramework/Pages/LAGIC-final-reporting-requirements-LI-October-2012.aspx

Overview

The Financial Sector (Collection of Data) (reporting standard) determination Nos. 27 to 41 of 2013, enacted under the Financial Sector (Collection of Data) Act 2001, aim to address the need for updated and more precise reporting standards within the financial sector, particularly for Level 2 insurance groups. These determinations were made by the Australian Prudential Regulation Authority (APRA) to implement the outcomes of the Life and General Insurance Capital (LAGIC) review. The review, which commenced in 2010, sought to improve the risk sensitivity and appropriateness of capital standards for general insurers and life companies, as well as to align capital standards across industries under APRA's supervision. The policy objective of these determinations is to introduce new reporting standards and revoke existing ones to reflect the changes in the prudential framework resulting from the LAGIC review. This includes changes to the methodology for calculating the prescribed capital amount, revisions to risk charge calculations, and adjustments to the definitions and categories of capital. The determinations are designed to ensure that the reporting requirements for Level 2 insurance groups are consistent with the updated capital framework, facilitating more accurate and comprehensive data collection and reporting.

Scope and Application

The Financial Sector (Collection of Data) (reporting standard) determination Nos. 27 to 41 of 2013, issued by the Australian Prudential Regulation Authority (APRA) under the Financial Sector (Collection of Data) Act 2001 (FSCODA), apply to financial sector entities, specifically Level 2 insurance groups within the Australian jurisdiction. These instruments focus on setting new reporting standards for these entities, which are required to report financial and accounting data in compliance with the specified standards. The standards relate to various aspects of the business and activities of the entities, including capital requirements, capital base determination, related party exposures, asset risk charge, off-balance sheet business, outstanding claims liabilities, premiums liabilities, insurance concentration risk, asset concentration risk, operational risk charge, and statements of financial position and income. These determinations revoke and replace existing reporting standards, introducing new standards that align with the findings of the Life and General Insurance Capital (LAGIC) review. The instruments came into effect on 1 January 2013, with reporting requirements for the new standards applying to periods ending no earlier than 28 February 2013. APRA has the power to revoke and vary these instruments, and their application extends to the collection of quarterly and annual data under the new general insurance prudential reporting requirements.

Key Provisions

The Financial Sector (Collection of Data) (reporting standard) determination Nos. 27 to 41 of 2013 (the instruments) are made under the Financial Sector (Collection of Data) Act 2001 (FSCODA), subsections 13(1) and 15(1), and the Acts Interpretation Act 1901, subsection 33(3). These determinations introduce new and amended reporting standards for Level 2 insurance groups and revoke existing reporting standards, thereby implementing the changes resulting from the Life and General Insurance Capital (LAGIC) review conducted by the Australian Prudential Regulation Authority (APRA). The instruments are designed to align reporting requirements with the revised prudential framework, which includes changes to the calculation of the prescribed capital amount, the introduction of an explicit operational risk charge, and revisions to the asset risk charge, insurance concentration risk charge, and asset concentration risk charge. These instruments impose specific obligations on financial sector entities, particularly Level 2 insurance groups, to comply with the newly established reporting standards. Entities must ensure that they adhere to the revised reporting requirements, including the submission of quarterly and annual data as per the new general insurance prudential reporting framework. This involves accurately calculating and reporting the prescribed capital amount, the operational risk charge, and other relevant charges and exposures, as outlined in the new standards. Entities must also ensure that their capital bases meet the minimum requirements and exceed the Prudential Capital Requirement (PCR) as defined in the revised prudential framework. Failure to comply with the requirements set out in these determinations can result in various civil and criminal consequences. While the specific penalties are not detailed in the explanatory statement, breaches of reporting standards under FSCODA can generally lead to enforcement actions by APRA. These actions may include administrative penalties, directions to rectify the breach, and in severe cases, legal proceedings. The penalties for non-compliance can be substantial, reflecting the importance of accurate and timely data collection and reporting for the stability and oversight of the financial sector. Entities found to be in breach of these reporting standards may also face reputational damage, which could affect their market standing and relationships with stakeholders.

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