Financial Sector (Collection of Data) (reporting standard) determination No. 35 of 2013 - GRS 116.0_G - Insurance Concentration Risk Charge (Level 2 Insurance Group)

Administered by Department of the Treasury

Legislation au F2013L00358 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. 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);
  5. 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)
  6. 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);
  7. 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);
  8. 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);
  9. 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
  10. 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 parent entity of a Level 2 insurance group 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.

On 20 December 2012, APRA made the following determinations that were then varied and re-signed on 12 February 2013 (the instruments):

  1. 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);
  2. 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);
  3. Financial Sector (Collection of Data) (reporting standard) determination No. 35 of 2013, which makes Reporting Standard GRS 116.0_G Insurance Concentration Risk Charge;
  4. Financial Sector (Collection of Data) (reporting standard) determination No. 37 of 2013, which makes Reporting Standard GRS 118.0_G Operational Risk Charge; and
  5. 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).

The instruments commence on 12 February 2013. The instruments are being registered after this date; however the requirements apply to reporting periods ending no earlier than 28 February 2013. No parent entity of a Level 2 insurance group will be impacted by the retrospective re-signing and 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 were enacted to implement the recommendations of the Life and General Insurance Capital (LAGIC) Review, which aimed to improve the risk sensitivity and appropriateness of capital standards in general and life insurance, and to enhance the alignment of capital standards across industries under the supervision of the Australian Prudential Regulation Authority (APRA). These legislative instruments were introduced to address the need for updated and comprehensive reporting standards for Level 2 insurance groups in response to the changes in the regulatory capital framework. Enacted by APRA, the policy objective of these determinations is to ensure that financial sector entities comply with the new reporting requirements that reflect the revised prudential framework, thereby facilitating better oversight and management of risks within the insurance industry. The new standards are designed to enhance the reporting of financial and accounting data, ensuring that entities can effectively demonstrate compliance with the updated capital requirements. APRA undertook extensive consultation with the industry between May 2010 and October 2012, releasing multiple discussion papers, draft reporting forms, and quantitative impact studies to gather feedback and refine the proposed changes. The feedback received was generally supportive, with significant issues being incorporated into the final framework. These legislative instruments are compatible with human rights, as confirmed by the Statement of Compatibility prepared in accordance with the Human Rights (Parliamentary Scrutiny) Act 2011. The new reporting standards and associated forms came into effect on various dates starting from 1 January 2013, ensuring that the revised prudential reporting requirements for Level 2 insurance groups were implemented in a timely and effective manner.

Scope and Application

The Financial Sector (Collection of Data) (reporting standard) determination Nos. 27 to 41 of 2013 apply to financial sector entities within Australia, specifically targeting Level 2 insurance groups. These instruments were made under the authority of the Financial Sector (Collection of Data) Act 2001, which empowers the Australian Prudential Regulation Authority (APRA) to establish reporting standards for financial sector entities. The determinations pertain to the collection of financial and accounting data, along with other business and activity-related information, from these entities. The instruments encompass the introduction of new reporting standards, the amendment of existing ones, and the revocation of certain previous standards to align with the revised regulatory capital framework for general insurers and life companies. These changes were implemented as part of the Life and General Insurance Capital (LAGIC) review by APRA, aiming to enhance the risk sensitivity and alignment of capital standards across the industries it supervises. The reporting standards became effective from 1 January 2013 for some instruments and 12 February 2013 for others, although their registration occurred after these dates. The new standards apply to reporting periods ending no earlier than 28 February 2013, ensuring that no parent entity of a Level 2 insurance group is impacted by the retrospective application of these changes. The instruments do not specify any exclusions or exemptions, but they do allow for the possibility of revocation or variation of the standards, as provided for in the Acts Interpretation Act 1901.

Key Provisions

The Financial Sector (Collection of Data) (reporting standard) determinations Nos. 27 to 41 of 2013 (the instruments) introduced new and amended reporting standards for Level 2 insurance groups to reflect the findings of the Life and General Insurance Capital (LAGIC) review. These instruments, made under the Financial Sector (Collection of Data) Act 2001 (FSCODA), require financial sector entities, specifically Level 2 insurance groups, to comply with the new reporting standards (section 13(1)(a) of FSCODA). The instruments revoke existing reporting standards and introduce new ones to align with the revised capital framework, ensuring that entities provide financial and accounting data in a manner that reflects the updated regulatory requirements. These instruments impose specific obligations on Level 2 insurance groups to submit accurate and timely financial data to the Australian Prudential Regulation Authority (APRA). Entities must ensure that their reporting complies with the new standards, which include detailed specifications on the types of data to be reported, the format, and the frequency of submission. For instance, they must report on their prescribed capital amount, capital base, and various risk charges such as operational risk, asset risk, insurance concentration risk, and asset concentration risk. Furthermore, the reporting standards detail the categories of capital to be included in the capital base and the methodology for calculating the prescribed capital amount. Failure to comply with the new reporting standards may result in civil and criminal consequences. Under section 13(2) of FSCODA, non-compliance with a reporting standard is an offence. The penalties for breaching these standards can be severe, including fines up to $522,200 for individuals and $2,611,000 for bodies corporate, as stipulated in section 13(4) of FSCODA. These penalties reflect the seriousness of non-compliance and the importance of accurate and timely financial reporting in maintaining the stability and integrity of the financial sector. The instruments ensure that the financial sector entities are held accountable for adhering to the prescribed reporting standards, thereby supporting APRA's regulatory oversight functions.

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