Financial Sector (Collection of Data) (reporting standard) determinations
Nos. 60 to 88 of 2008
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Financial Sector (Collection of Data) Act 2001, paragraph 13(1)(a) and section 15
Acts Interpretation Act 1901, subsection 33(3)
Under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (the Act), APRA may, by writing, determine reporting standards 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. Section 15 of the Act gives APRA power to make a formal declaration of the date when reporting standards begin 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 any such instrument..
Financial Sector (Collection of Data) (reporting standard) determinations Nos. 60 to 88 of 2008 revoke all existing reporting standards applying to general insurers regulated by APRA and replace them with new reporting standards which are similarly titled, save for the year reference. For example, Financial Sector (Collection of Data) (reporting standard) determination No. 60 revokes Reporting Standard GRS 110.0 (2007) Minimum Capital Requirement and replaces it with Reporting Standard GRS 110.0 (2008) Minimum Capital Requirement. The revoked reporting standards were determined on 15 December 2006 to have effect from 1 January 2007.
Under subsection 15(1) of the Act, APRA has determined that Financial Sector (Collection of Data) (reporting standard) determinations Nos. 60 to 88 of 2008 be effective from the date of registration on the Federal Register of Legislative Instruments.
- Background
This Explanatory Statement explains the changes being made by APRA to the reporting framework for general insurers in response to refinements to the general insurance prudential framework made in June 2008 as detailed below.
On 24 September 2007 the Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act 2007 (DMF & DOFI Act) was given Royal Assent. With the passing of this Act, from 1 July 2008 all insurers seeking to carry on general insurance business in Australia, whether directly or through the actions of an intermediary (e.g. an agent or a broker), are required to become authorised under the Insurance Act 1973[1]. On 23 June 2008, APRA modified and clarified its prudential framework to give effect to the Government announcement in relation to the regulation of Direct Offshore Foreign Insurers (DOFIs), and more generally, to recognise different categories of insurer based on risk profiles. At the same time as making the modifications and clarifications to the prudential framework to give effect to this legislative change, APRA has taken the opportunity to make other changes to the prudential framework. Key changes made to the prudential framework that affect the reporting framework are:
- from 1 July 2008, APRA made changes to the definition of the capital base for general insurers to maintain the harmonisation of those requirements with those applying to authorised deposit-taking institutions (ADIs);
- from 1 July 2008 in calculating the prescribed MCR of an insurer, APRA doubled the capital factor for investments in listed equities, unlisted equities and direct property. For listed equities however, the risk reduction relating to hedging is to be recognised in the calculation of the capital charge on the equity portfolio of an insurer. At the same time unit trusts are allowed to be treated on a ‘look through’ basis where it is administratively practical to do so; and
- from 1 January 2009, APRA will require insurers to recognise the greater risk arising from reinsurance from non-APRA-authorised reinsurers through three changes to the prudential standards all affecting either the MCR or the capital base of an insurer.
2. Purpose of the instrument
The purpose of each instrument is to revoke the existing reporting standards applying to general insurers and replace them with corresponding standards which incorporate appropriate adjustments. APRA considered that it would be clearer and more effective to consolidate the necessary changes within new standards. For that reason, APRA decided to revoke and replace affected reporting standards rather than to amend them.
3. Operation of the instruments
Financial Sector (Collection of Data) (reporting standard) determinations Nos. 60 to 88 of 2008 revoke all existing general insurance reporting standards and determine new standards.
Each new reporting standard comprises:
- the body of the reporting standard itself (which includes details about when returns under the standards must be lodged with APRA);
- one or more reporting forms which must be completed by general insurers covered by the reporting standard; and
- a set of detailed technical instructions regarding completion of the form.
As the prudential standards have been modified in relation to categories of insurer and certain requirements relating to capital, APRA’s general insurance reporting framework needs to be amended to align with the prudential requirements. If this alignment did not occur, insurers would not be able to report compliance with the revised prudential standards and APRA would not have data appropriate to assessment of compliance with those standards.
Prior to the Financial Sector (Collection of Data) (reporting standard) determinations Nos. 60 to 88 of 2008, there were 23 distinct reporting forms which made up the APRA quarterly return for locally incorporated insurers and 22 distinct reporting forms which made up the APRA quarterly return for branch insurers. Insurers do not, however, complete all of these forms. For example the form capturing data on derivatives is only completed by insurers that use derivatives.
The APRA annual return consists of the same forms as the quarterly return as well as an additional seven forms.
The number of reporting forms will not change as result these determinations. There is one additional reporting form but one other reporting form has been removed. This is essentially the result of a restructuring of existing data and does not significantly alter the amount of data to be captured. However, there is some additional data required in order to calculate the MCR as detailed in the background section above.
Each of the new reporting standards operate in relation to reporting periods commencing on or after 1 July 2008. Returns in relation to the first such period are not required to be lodged until 26 November 2008.
4. Consultation
Public consultation occurred between 9 July 2008 and 25 July 2008.
5. Regulation Impact Statement
A regulation impact statement was not prepared in relation to these determinations as they are considered to be of a minor or machinery nature.
[1] This general position is subject to limited exemptions that are set out in the Insurance Regulations 2002.