Financial Sector (Collection of Data) (reporting standard) determination No. 67 of 2008 - GRS 140.1 (2008) - Investments - Direct Equity Holdings and Risk charge

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Financial Sector (Collection of Data) (reporting standard) determination No. 67 of 2008
Reporting Standard GRS 140.1 (2008) Investments – Direct Equity Holdings and Risk Charge 
Financial Sector (Collection of Data) Act 2001
 
I, Charles Watts Littrell, 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 140.1 (2007) Investments – Direct Equity Holdings and Risk Charge which is in force as at the date of this determination (the old standard); and
 
·        DETERMINE Reporting Standard GRS 140.1 (2008) Investments – Direct Equity Holdings 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 16 October 2008
 
[Signed]
 
 
Charles Littrell
Executive General Manager
Policy, Research and Statistics
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 140.1 (2008) Investments – Direct Equity Holdings and Risk Charge comprises the 32 pages commencing on the next page.
 
 
 
 
 
 
 

 
Reporting Standard GRS 140.1 (2008)
 
Investments – Direct Equity Holdings 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 (foreign insurers) operating in Australia through branch operations, to report to APRA, generally on a quarterly and annual basis, the composition of their investments.
This reporting standard outlines the overall requirements for the provision of this information to APRA.  It should be read in conjunction with:
·               Form GRF 140.1 Investments – Direct Equity Holdings and Risk Charge (Form GRF 140.1) 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
1.             Data collected in Form GRF 140.1 is used by APRA for the purpose of prudential supervision including assessing an insurer’s compliance with the capital standards.
Application and commencement
2.             This reporting standard applies to all insurers for reporting periods commencing on or after 1 July 2008. 
Information required
3.             An insurer must provide APRA with the information required by Form GRF 140.1 for each reporting period.
Forms and method of submission
4.             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 140.1 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
5.             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 paragraph 3 read with subparagraph 5(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. 
6.             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 5(a) or (b)).
7.             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 in relation to the annual information required by paragraph 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).
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 on the notice of extension.
Quality control
9.             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. 
10.         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
11.         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.
12.         If an insurer provides the information required by this reporting standard through an agent under either subparagraph 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 (whether it was provided under 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 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 12(c) where an insurer has undertaken to retain the signed copy of the completed form for an agreed period of time.
13.         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
14.         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.
15.         If APRA makes such a variation it must notify insurers in writing.
Transition
16.         An insurer must report in relation to a reporting period ending prior to 1 July 2008 in accordance with the reporting standard that this reporting standard replaced.
Interpretation
17.         In this reporting standard:
appointed auditor means an auditor appointed under paragraph 39(1)(a) of the Insurance Act;
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 6(a) or (b) or, if applicable, paragraph 7.
18.         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 140.1
Investments – Direct Equity Holdings and Risk Charge
Instruction Guide
Introduction
This instruction guide is designed to assist in the completion of GRF 140.1 Investments – Direct Equity Holdings and Risk Charge.
Information on this form will be used by APRA to obtain an investment profile of the reporting insurer and to calculate in part the prudential Investment Risk Capital Charge. Specific information in these forms will also be used by the Australian Bureau of Statistics (ABS) for statistical purposes.
For the purposes of completing the respective investment forms, only include investments that are included in the aggregate balance disclosed for the asset item titled “Investments (related to GRF 140 series of forms)” designated as a current and non-current asset on GRF 300.0 Statement of Financial Position. Do not include in these investment forms asset items reported in any of the other asset categories in GRF 300.0 Statement of Financial Position (e.g. “Other investments”).  Otherwise the asset items will be subject to two investment risk charges, one in GRF 300.0 Statement of Financial Position and another in the respective investment forms.
Investment Risk Charge
The Investment Risk Charge applicable for an insurer’s (and reinsurer’s) on-balance sheet Investment/Asset exposures is calculated in accordance with GPS 114 Capital Adequacy: Investment Risk Capital Charge (GPS 114). The form categorises assets into investment capital factor groupings to calculate the applicable investment risk capital charge for each asset category. The aggregate Investment risk charge calculated is included in the calculation of the insurer’s minimum capital requirement.
The fair value of each applicable asset/asset category is required to be disclosed into the appropriate cell for each column titled “fair value”.
The Investment Risk Charge is calculated based on the fair value of assets disclosed.
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 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 entity
This form is to be completed by:
1.             Branch insurers of a foreign parent insurer (reference to licensed insurer in the form means total operations of the branch, excluding the parent operations);
2.             Authorised insurance entities, including mutual entities (reference to licensed insurer in the form means total operations of the licensed entity); and
3.             Authorised reinsurance entities (reference to licensed insurer in the form means total operations of the licensed entity).
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 140.1 Investments – Direct Equity Holdings 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’.
The general requirements of AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ for translation are:
1.             Foreign currency monetary items[1] outstanding at the reporting date must be translated at the spot rate[2] at the reporting date.
2.             Foreign currency non-monetary items[3] that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction.
3.             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 recognised in profit and loss.
4.             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 140.1 Investments – Direct Equity Holdings and Risk Charge.
Basis of preparation
In completing this form unless otherwise specifically stated below, it is recommended that general insurers follow the Australian accounting standards where possible, regarding the interpretation, recognition and measurement of investments notably AASB 1023 ‘General Insurance Contracts’.
The aggregate value of investments disclosed in the forms listed below must agree to the total of amounts reported as both current and non-current assets in items 3 and 8 of GRF 300.0 Statement of Financial Position.
·               GRF 140.0 Investments – Direct Interest Rate Holdings and Risk Charge
·               GRF 140.1 Investments – Direct Equity Holdings and Risk Charge
·               GRF 140.2 Investments – Direct Property Holdings and Risk Charge
·               GRF 140.3 Investments – Loans and Advances and Risk Charge
·               GRF 140.4 Investments – Indirectly Held by the Insurer and Risk Charge
APRA applies the notion of activities integral to insurance operations for its regulatory reporting.[4] APRA does not follow the classification basis in AASB 1023 ‘General Insurance Contracts’. Therefore, the value of these investments reported in this form (and all the above forms) 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[5] investments that are controlled by the entity in the conduct of its general insurance activities.
Investments reported in this form (and other forms listed above) that are integral to the entity's general insurance activities must be measured at fair value. These 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
2.             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 inputs6.
Derivative instruments that are used to hedge investments (other than for listed equity investments) that are included in the above forms are not to be reported in these forms, they are to be reported in GRF 160.0 Derivatives Activity and Risk Charge.
Derivatives are generally defined as those instruments or contracts, where the value is based on other products, either financial or real, and/or on prices associated with financial products.
Derivative contracts involve:
·               Future delivery, receipt or exchange of financial items such as cash or another derivative instrument, or
·               Future exchange of real assets for financial items where the contract may be tradeable and has a market value.
The contracts can either be binding on both parties (e.g. as with a currency swap) or subject to the exercise by one party of a right contained in the contract (as with options).
Where the insurer holds derivatives over listed equities, the investment risk capital charge applicable to all holdings of listed equities under paragraph 10 of GPS 114 is replaced with the equity market risk component. The equity market risk component is equal to 16 per cent of the absolute value of the net exposure to listed equities and derivatives over listed equities (where the derivatives exposure for options is calculated on a delta-weighted basis).
The equity basis risk component applies only to derivatives over listed equities for which the notional equity position is negative and will be a specified percentage of the absolute value of the notional equity position. The percentage is the lesser of eight per cent and 16 x (100 per cent – overlap percentage). The overlap percentage measures the effectiveness of the hedge between the derivative and the physical portfolio it is being used to hedge and is equal to the sum of the lesser of A and B for each stock in that portfolio where:
(a)   A is the stock’s proportionate weight in that portfolio; and
(b)   B is the stock’s proportionate weight in the index on which the derivative is based.
A derivative that is not being used to hedge a portfolio will have a basis risk percentage of eight per cent. A portfolio may consist of one or more stocks.
The equity market risk component and the equity basis risk components are to be calculated under GRF 140.1 Investments – Direct Equity Holdings and Risk Charge, regardless of whether they are held directly or indirectly (where the insurer has elected to apply the look-through basis for indirectly held listed equities). The counterparty risk component relating to derivatives are required to be calculated using GRF 160.0 Derivative Activity and Risk Charges.
For investments reported in this form, changes in the values at which such investments are measured must be recognised as revenues (or losses) in GRF 310.0 Statement of Financial Performance and GRF 310.3 Investment and Operating Income and Expense in the reporting period in which the changes occur.
Accounting Standard AASB 116 ‘Property, Plant and Equipment’ does not apply to such investments.
 Holding of Units in Unit Trusts
Where the insurer’s investments are represented by holdings of units in unlisted or listed managed investment vehicles/entities, the following reporting is required:
·               Units are to be reported in GRF 140.4 Investments – Indirectly Held by the Insurer and Risk Charge. This form requires amongst other things, disclosure of the value of the unit holding according to the nature of the underlying market exposure (i.e. interest rate related, equity related, property related). If the units are held in a diversified or balanced trust, the investment holding is to be disclosure in accordance with the funds advised asset allocation. 
·               Holding must be disclosed as unlisted or listed units.
Exception
If the units are held in a related/controlled entity of the insurer (i.e. a dedicated investment management entity for the Insurer), the Insurer may apply to APRA to have such entities approved as part of its Extended Licensed Entity (ELE). This is set out in GPS 114. Once approved by APRA this will allow the insurer to look through the legal structures involved and to consolidate the balance sheet of the related entity with its own for the purposes of determining the Investment Risk Capital Charge. If the insurer has an approved ELE, the underlying individual securities/investments supporting the units held by the licensed insurer are to be disclosed in the investment returns.
Look-through Basis
For assets of an insurer or its ELE held under a trust (other than a cash management trust), the insurer may apply the Investment Capital Factors applicable to the underlying assets (including derivatives) of the trust, if the insurer has information on the underlying assets. 
Where the insurer has elected to apply the look-through basis to calculate the investment capital factors and the underlying assets of the trust includes listed equities; then the investment capital factors associated with the insurer’s share of the listed equities are to be calculated in GRF 140.1 Investments – Direct Equity Holdings and Risk Charge. 
APRA may require an insurer to apply different Investment Capital Factors to different components of a hybrid instrument (with both equity and debt features such as embedded derivatives).
Securities Purchased (Sold) under agreements to resell (repurchase) and stock lending/borrowing
Treatment is to be consistent with AASB 139 ‘Financial Instruments: Recognition and Measurement’
Where the transferee of the security effectively receives a lender’s rate of return, or a return that does not correlate with ownership of the securities (i.e. the risks and rewards of ownership of the underlying securities is not effectively transferred), these transactions are to be accounted for as collateralised borrowing or lending activities.
Under this method of accounting for transactions that satisfy the above, do not adjust (i.e. increase or decrease) the physical Investment security holdings/portfolios (interest rate and equity investments) for the securities that are subject to these agreements. For the required prudential treatment for securities meeting the above conditions, refer to treatment as noted in the instructions for GRF 300.0 Statement of Financial Position.
Securities Transacted not Settled (i.e. trade date accounting)
For the purpose of the APRA forms, include market related securities that are recorded on a trade date basis and transacted in accordance with accepted financial market settlements periods. Such securities are to be included in the respective investments forms. These do not constitute forward asset purchases for the purposes of GRF 130.0 Off Balance Sheet Business – Credit Substitutes Provided and Risk Charge.
Securities Listed on a Recognised Exchange
It will generally be appropriate to treat an exchange organisation as ‘recognised’ where it meets the following criteria:
·          it is subject to authorisation, licensing or other means of recognition by a government or other competent authority;
·          it has rules, issued or approved, by the government or other competent authority defining the conditions:
§         for the operation of the exchange;
§         for access to the exchange; and
§         that must be satisfied by a contract before it can be dealt on the exchange;
·          it has a clearing mechanism that provides for contracts dealt through the exchange;
·          it functions regularly;
·          the exchange has a prudent and frequent margining system where relevant;
·          the exchange requirements settlement on a particular day as applicable;
·          members of the exchange are themselves subject to supervision by the exchange or a competent authority; and
·          the operations of the exchange in turn are supervised by government or other competent authority. 
Related parties
Where this term is used or referenced in these forms, Related Parties is to be interpreted consistently with its definition and meaning as contained 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.
 
Fair Value
Investments reported in this form that are integral to the entity's general insurance activities must be measured at fair value.
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.
 
Specific instructions
The following provides guidelines to facilitate in the specific disclosure of equity related investments held by the insurer.
Note:
·               Specific disclosure of equity security holdings classified in points 1 and 2 of this form are required by the ABS.
·               Units in listed or unlisted trusts (e.g. property trusts):  For the purposes of calculating the appropriate investment risk charge, units in listed and unlisted trusts are to be included in GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge.
1.             Australian Listed Equity – Direct Holdings
The information required to be reported under this section is different to the information required to be disclosed for item 4 of this form. This section is mainly collected for the purposes of Australian Bureau of Statistics (ABS) and as such the definitions of listed equities are slightly different for ABS purposes.
For ABS purposes, listed equities includes only those equities listed on the Australian Stock Exchange (ASX) and excludes certain stocks including equity investments in non-Australian resident companies listed on the ASX.
The information required under item 4 is for the purposes of calculating the investment risk charge on equity investments and as such the guidance on what is considered to be listed equities for the purposes of the prudential standards is outlined under item 4 of this form.
Report all equity securities listed on the Australian Stock Exchange at fair value. This section relates only to equity securities that are listed on the Australian stock exchange. Do not include in this section equity securities that are owned by the insurer and listed on recognised stock exchanges in other countries outside of Australia.
Include:
·               Preference shares;
·               Securities (stock) lent or sold under repurchase agreements; and
·               Equity securities that are listed on the Australian stock exchange.
Exclude:
·               Rights, options and warrants, include these as Financial Derivatives on GRF 160.0 Derivative Activity and Risk Charge;
·               Equity in non-Australian resident companies listed on the ASX. Report these assets as unlisted equity;
·               Securities borrowed or purchased under resale agreements; and
·               Equity securities that are listed on recognised stock exchanges in other countries outside of Australia.
1.1        Banks and ADIs
Banks refers to Authorised Deposit Taking Institutions (ADIs), in relation to which an authority under subsection 9(3) is in force and which holds a consent under section 66 of the Banking Act 1959 (Banking Act) to use the word bank.
Include:
·               Development banks;
·               Foreign banks licensed to operate in Australia under the Banking Act 1959.
Exclude:
·               Merchant banks (record as Other).
ADIs refer to corporations, which have an authority under subsection 9(3) in force, but which do not hold a consent under section 66 under the Banking Act to use the word bank. These include Building Societies and Credit unions. 
Exclude:
Holding of securities issued by Finance Corporations, these are included under Registered Financial Corporations.
1.2        General insurance corporations
Includes corporations that provide general insurance (e.g. fire, accident, employer liability, public liability, household, marine).
1.3        Private trading corporations
Private trading corporations are those owned by the private sector.
Include:
·               All Australian resident private corporate trading enterprises, and non-profit institutions; and
·               Intra group financiers and retailers registered under the Financial Sector (Collection of Data) Act 2001 and parent companies with significant holdings of shares in private trading companies.
Exclude:
·               Non-resident enterprises.
1.4        Commonwealth government corporations
Trading enterprises owned by the Commonwealth are those businesses, which are owned and controlled by the Australian Commonwealth Government.
Include:
All resident trading enterprises owned 50% or more by the Commonwealth Government or controlled by the Commonwealth Government through legislation, decree or regulation.
1.5        Registered Financial Corporations
Registered Financial Corporations refers to corporations registered under the Financial Sector (Collection of Data) Act 2001 that are classified as Categories D or Other.  A list of corporations registered under the Financial Sector (Collection of Data) Act 2001 and their classification are available on the APRA website.
Include:
·               Money market corporations (D); and
·               Other (formerly categories E, F and G)
Exclude:
·               Intra group financiers and retailers registered under the Financial Sector (Collection of Data) Act 2001.
·               Cash management trusts (Note: but for the purposes of applying the required investment capital charge, cash management trusts are to be reported  in GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge).
1.6        Other
Report equity securities that are not specifically included in the categories listed above.
2.             Other Equity – Direct Holdings
The information required to be reported under this section is different to the information required to be disclosed for item 5 of this form. This section is mainly collected for the purposes of Australian Bureau of Statistics (ABS) and as such the definitions of listed and unlisted equities are slightly different for ABS purposes.
For ABS purposes, listed equities includes only those equities listed on the Australian Stock Exchange (ASX) and excludes certain stocks including equity investments in non-Australian resident companies listed on the ASX.
The information required under item 5 is for the purposes of calculating the investment risk charge on equity investments and as such the guidance on what is considered to be listed equities for the purposes of the prudential standards is outlined under item 5 of this form.
Report equity securities at fair value.
Include:
·               Unlisted preference shares;
·               Equity in unlisted Australian resident companies;
·               Listed equity securities in non-Australian resident companies listed on the ASX;
·               Equity in unlisted non-Australian resident companies;
·               Equity securities of non-Australian resident companies listed on overseas stock exchanges; and
·               Securities lent or sold under repurchase agreements.
Exclude:
·               Rights, options and warrants, include these in GRF 160.0 Derivatives Activity and Risk Charge.
·               Securities borrowed or purchased under resale agreements.
·               Units in unlisted unit trusts. Report in GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge.
2.1        Banks and ADIs
Banks refers to ADIs, in relation to which an authority under subsection 9(3) is in force and which holds a consent under section 66 of the Banking Act to use the word bank.
Include:
·               Development banks; and
·               Foreign banks licensed to operate in Australia under the Banking Act.
Exclude:
·               Merchant banks (record as Other).
ADIs refer to corporations, which have an authority under subsection 9(3) in force, but which do not hold a consent under section 66 under the Banking Act to use the word bank. These include Building Societies and Credit unions. 
Exclude:
Holding of securities issued by Finance Corporations, these are included under Registered Financial Corporations.
2.2        General insurance corporations
Includes corporations that provide general insurance (e.g. fire, accident, employer liability, public liability, household, marine).
2.3        Private trading corporations
Private trading corporations are those owned by the private sector.
Include:
·               All Australian resident private corporate trading enterprises, and non-profit institutions; and
·               Intra group financiers and retailers registered under the Financial Sector (Collection of Data) Act 2001 and parent companies with significant holdings of shares in private trading companies.
Exclude:
·               Non-resident enterprises
2.4        Commonwealth government corporations
Trading enterprises owned by the Commonwealth are those businesses, which are owned and controlled by the Australian Commonwealth Government.
Include:
All resident trading enterprises owned 50% or more by the Commonwealth Government or controlled by the Commonwealth Government through legislation, decree or regulation.
2.5        Registered Financial Corporations
Registered Financial Corporations refers to corporations registered under the Financial Sector (Collection of Data) Act 2001 that are classified as Categories D or Other.  A list of corporations registered under the Financial Sector (Collection of Data) Act 2001 and their classification are available on the APRA Internet.
Include:
·               Money market corporations (D); and
·               Other (formerly categories E, F and G).
Exclude:
·               Intra group financiers and retailers registered under the Financial Sector (Collection of Data) Act 2001.
·               Cash management trusts (Note: for the purposes of applying the required investment capital charge, cash management trusts are to be reported in GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge).
2.6        Other
Report equity securities that are not specifically included in the categories listed above.
The following disclosures are required to be able to calculate the appropriate investment risk charge for the purposes of calculating the minimum capital requirement.
Total equity securities
This is automatically calculated by the form and represents the sum of fair value of all equity investments of the insurer.
3.             Subordinated Debt – Direct Holdings
Subordinated debt has the same meaning as in GPS 114. Subordinated debt is any debt instrument issued by a company (whether Australian or foreign) that constitutes debt subordination within the meaning of subsection 563C(2) of the Corporations Act but with the references in the subsection to “Company” to be read as including foreign corporations. This definition does not apply to debt instruments issued by an SPV set up for the purpose of securitising an asset or a pool of assets. Any debt instruments issued by such an SPV are to be treated as ordinary debt instruments with the Investment Risk Capital Charge applied according to the issue-specific counterparty rating.  
For the purposes of calculating the investment risk charge, under GPS 114 subordinated debt instruments are treated differently to other equities instruments.  Report the fair value of subordinated debt securities that are held directly by the insurer in this section. Where subordinated debt instruments are indirectly held these are to be reported in GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge.
3.1        Listed Subordinated debt
Report the amount of subordinated debt listed on a recognised exchange.
3.2        Unlisted subordinated debt 
Report the amount of unlisted subordinated debt, including any amounts of subordinated debt not listed on a recognised exchange.
4.             Total Listed Equities– Direct Holdings
The information required to be reported under item 1 of this form is different to the information required to be disclosed under this section. Item 1 is mainly collected for the purposes of Australian Bureau of Statistics (ABS) and as such the definitions of listed and unlisted equities are slightly different for ABS purposes.
For ABS purposes, listed equities includes only those equities listed on the Australian Stock Exchange (ASX) and excludes certain stocks including equity investments in non-Australian resident companies listed on the ASX.
The information required under this section is for the purposes of calculating the investment risk charge on equity investments and as such the guidance on what is considered to be listed equities for the purposes of the prudential standards is outlined below.
Report the fair value of equity securities that is listed on a recognised exchange and held directly by the insurer. 
Listed equities include:
·               Preference shares;
·               Securities (stock) lent or sold under repurchase agreements.
Exclude:
·               Rights, options and warrants over listed equities include these as Financial Derivatives on GRF 160.0 Derivative Activity and Risk Charge but taken into account in calculating the derivative position.
·               Securities borrowed or purchased under resale agreements.
·               Subordinated Debt instruments. Such instruments are to be reported under item 3 in this form.  
·               Units in listed unit trusts. Where the insurer has elected not to apply the look-through basis for the unit trust then report the amount in GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge. However, where the insurer elects to apply the look-through basis for the unit trust, then the amount is to be reported in item 4.1 of this form.
Note: in this section do not include units in listed or unlisted trusts (e.g. property trusts) as the investment capital charge calculated here is for equity investment securities only. For the purposes of determining the appropriate investment capital charge, units in trusts are to be included in GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge.
4.1        Total listed equities – Indirectly Held – ‘Look-through’ basis
Report the amount of listed equities that are indirectly held through a listed trust (e.g. listed property trust) and where the insurer has elected to apply the ‘look-through’ basis. This amount should correspond with item 7.8 of GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge.
4.2        Derivative Position
Insurers are required to calculate the derivative position over listed equities outside the reporting forms and enter the total exposure to listed equities via derivatives at this item. A short position is to be recorded as a positive amount and a long position as a negative amount.  The calculation of the derivative position is required to be submitted to APRA as supplementary information for each reporting period in a format developed by the insurer.
4.3        Absolute Value of the Net Exposures to Listed Equities (Equity Market Risk Component)
Where an insurer holds derivatives over listed equities, the Investment Risk Capital charge applicable to all holdings of listed equities under paragraph 10 of GPS 114 is to be replaced with the equity market risk component. The equity market risk component is equal to 16 per cent of the absolute value of the net exposure to listed equities and derivatives over listed equities (where the derivative exposure for options is calculated on a delta-weighted basis).
The form will automatically calculate the absolute value of the net exposures to listed equities (Sum of (Item 4 + Item 4.1) less Item 4.2).
4.4        Absolute Value of Notional Equity Position of Derivatives (Basis Risk Component)
The equity basis risk component applies only to derivatives over listed equities for which there is a notional equity position is negative, and will be specified percentage of the absolute value of the notional equity position. The percentage is the lesser of eight per cent and 16 x (100 per cent - overlap percentage).  The overlap percentage measures the effectiveness of the hedge between the derivative and the physical portfolio it is being used to hedge and is equal to the sum of the lesser of A and B for each stock in that portfolio where:
·          A is the stock’s proportionate weight in the portfolio; and
·          B is the stock’s proportionate weight in the index on which the derivative is based.
A derivative that is not being used to hedge a portfolio will have a basis risk percentage of eight per cent. A portfolio may consist of one or more stocks.
Record the amount of absolute value of the notional equity position of derivatives and the applicable investment risk capital charge (basis risk component).
Insurers are required to calculate the absolute value of the notional equity position and the applicable investment risk capital factor (i.e. specified percentage) outside the reporting forms. The calculations are required to be submitted to APRA as supplementary information for each reporting period in a format developed by the insurer.
5.             Total unlisted equities – Direct Holdings
Report the amount of equity securities at fair value that are not listed on a recognised exchange.
Include:
·               Equity in unlisted companies, domestic and overseas; and
·               Securities (stock) lent or sold under repurchase agreements, where the transaction does not effectively result in the transfer of the rights of ownership of the securities.
Exclude:
·               Options and warrants, include these as Financial Derivatives on GRF 160.0 Derivatives Activity and Risk Charge;
·               Securities borrowed or purchased under resale agreements, where the transaction does not effectively result in the transfer of the rights of ownership of the securities; and
·               Subordinated Debt instruments. Such instruments are to be reported under item 3 in this form.  
·               Do not include unlisted units in investment vehicles such as property trusts. Include these in GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge.
5.1        of which: represents the value of goodwill (and other intangible assets) in relation to the acquisition of controlled entities (i.e. current value less value of identifiable net tangible assets)
Goodwill and any other intangible assets are to be recognised as specified in paragraph 25 of GPS 112.
Goodwill will be deducted from Total Tier 1 capital in the line items provided on GRF 120.0 Determination of Capital Base for licensed insurers or on GRF 300.0 Statement of Financial Position for branch insurers.
Note: in this section do not include units in listed or unlisted trusts (e.g. property trusts) as the investment capital charge calculated here is for equity investment securities only. For the purposes of determining the appropriate investment capital charge, cash management trusts are to be included in GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge.
However for information purposes (i.e. not for the purposes of calculating the investment capital charge) please include listed property trusts in the equity sector analysis requested in section 8 of this form.
Total equity securities – Direct Holdings
This is automatically calculated by the form and represents the sum of fair value of all equity investments held directly by the insurer. This will be the sum of item 4 and item 5.
6.             Total direct equity investments which represent:
6.1        Current Assets
Disclose that component of the total direct equity investments of the general insurer that are classified as current assets for Australian financial reporting purposes. Disclosure of investments in the Statement of Financial Position into current assets is to be disclosed/reported in accordance with AASB 101 ‘Presentation of Financial Statements’.
6.2        Non-Current Assets
Disclose that component of the total direct equity investments of the general insurer that are classified as non-current assets for Australian financial reporting purposes. Disclosure of investments in the Statement of Financial Position into non-current assets is to be reported in accordance with AASB 101 ‘Presentation of Financial Statements’.
The total of items 5.1 and 5.2 must equal ‘Total equity securities’ reported above.
6.3        Policyholders Funds
Policyholders funds is also referred to as ‘technical reserves/funds’. Use of the term does not imply ownership of these funds by policyholders, like under life insurance. The term is used particularly in establishing the investment management mandates to reflect the different cashflow/risk and return requirements from that of shareholders funds. Disclose the aggregate balance of direct interest rate investments that are designated by the Insurer as representing policyholders funds (where this is done by the insurer).
6.4        Shareholders Funds
Where the insurer has established the investment management mandates along these terms to reflect the different cashflow/risk and return requirements of shareholders funds from policyholders funds/technical reserves, disclose the aggregate balance of direct interest rate investments designated as representing shareholders funds (where this is done by the insurer).
7.             Total Direct Equity Investments which are:
7.1        Denominated in a currency other than the Australian currency
Disclose the aggregate balance of equity investments that are denominated in a currency other than the Australian currency.
7.2        Investments / holdings in:
7.2.1     Own equity instruments
Of the total direct equity investment portfolio of the Insurer that is reported as required by this form, disclose holdings of equity securities issued by the licensed insurer that are held by the licensed insurer.
7.2.2     Parent entity
Of the total direct equity investment portfolio of the insurer that is reported as required by this form, disclose equity securities that are issued by the parent entity of the licensed insurer.
7.2.2.1     Controlled entities/Controlled entities of the parent entity 
For branches, the line item “Controlled entities/Controlled entities of the parent entity” is to be interpreted as amounts in relation to “Controlled entities of the parent entity”, and for licensed insurance entities amounts are in relation to “Controlled entities” of the reporting insurer.
Of the total direct equity investment portfolio of the insurer that is reported as required by this form, disclose any equity securities that are issued by controlled entities of the licensed reporting insurer.
7.2.3     Associates/Joint Ventures
Of the total direct equity investment portfolio of the insurer that is reported as required by this form, disclose any equity securities that are issued by Associates or Joint Ventures of the licensed insurer. Associates and Joint Ventures are defined in accordance with AASB 131 ‘Interests in Joint Ventures’ and AASB 128 ‘Investments in Associates’.
7.2.4     Other related parties
Of the total direct equity investment portfolio of the insurer that is reported as required by this form, disclose any equity securities that are issued by any other related entity of the licensed Insurer that is not specifically identified above. Refer to the definition of related parties above.
8.             Licensed Insurer - Total direct equity investments which represent exposure to the following sectors
Note: this section is not applicable to branch operations.
List the direct equity exposure into the 11 global sector indices listed on the form. The indices are listed below with a short description of the types of industries contained in each index. The Global Industry Classification Standard (GICS) has been introduced by Standard & Poor’s and Morgan Stanley Capital International, with the objective of facilitating a uniform classification of companies around the world according to the type of business operations performed. The table on the following pages sets out the mapping of the ASX industry sectors to the Global Industry Classification Standard sectors.
A brief list of businesses included in each GICS sector is as under:
8.1        Energy
Energy equipment and services; oil & gas.
8.2        Materials
Chemicals; construction materials; containers & packaging; metals & mining; paper & forest products.
8.3        Industrials
Aerospace & defence; building products; construction & engineering; electrical equipment; industrial conglomerates; machinery; trading companies & distributors; commercial services & supplies; transportation.
8.4        Consumer Discretionary
Automobiles & components; consumer durables & apparel; hotels; restaurants & leisure; media; retailing.
8.5        Consumer Staples
Food & drug retailing; food beverage & tobacco; household & personal products.
8.6        Health Care
Health care equipment & services; pharmaceuticals & biotechnology.
8.7        Financials Excluding Property Trusts
Financials include - Banks; diversified financials; insurance; real estate.
8.8        Information Technology
Software & services; technology hardware & equipment.
8.9        Telecommunication Services
Diversified telecommunication services; wireless telecommunication services.
8.10    Utilities
Electric utilities; gas utilities; multi-utilities; water utilities.
8.11    Property Trusts
Investments in real estate via a trust structure.
9.             Total Investment Risk Charge
The total investment risk charge for direct equity holdings is calculated automatically.
Mapping of ASX Industry Sectors To The Global Industry Classification Standard Sectors
 
Global Industry Classification Standard Sectors

ASX Industry Sectors
Energy
Materials
Industrials
Consumer Discretionary
Consumer
Staples
Health Care
Property Trusts
Financials Excluding Property Trusts

Inform.
Techn’gy
Telecomm-unication Services
Utilities
 

Gold
 
100%
 
 
 
 
 
 
 
 
 

Other Metals
 
100%
 
 
 
 
 
 
 
 
 

Diversified Resources
1%
99%
 
 
 
 
 
 
 
 
 

Energy
99%
1%
 
 
 
 
 
 
 
 
 

Infrastructure & Utilities
11%
 
37%
 
 
 
 
2%
 
 
50%

Developers & Contractors
 
 
15%
 
 
 
 
85%
 
 
 

Building Materials
 
100%
 
 
 
 
 
 
 
 
 

Alcohol & Tobacco
 
 
 
 
100%
 
 
 
 
 
 

Food and Household
 
 
 
 
100%
 
 
 
 
 
 

Chemicals
 
100%
 
 
 
 
 
 
 
 
 

Engineering
 
 
100%
 
 
 
 
 
 
 
 

Paper & Packaging
 
100%
 
 
 
 
 
 
 
 
 

Retail
 
 
 
12%
79%
 
 
 
 
 
 

Transport
 
 
100%
 
 
 
 
 
 
 
 

Media
 
 
 
 
100%
 
 
 
 
 
 

Banks
 
 
 
 
 
 
 
100%
 
 
 

Insurance
 
 
 
 
 
 
 
100%
 
 
 

Telecommunications
 
 
 
 
 
 
 
 
1%
99%
 

Investment & Financial Services
 
2%
38%
 
 
 
 
60%
 
 
 

Property
 
 
 
 
 
 
100%
 
 
 
 

Health & Biotechnology
 
 
 
 
 
100%
 
 
 
 
 

Miscellaneous Industrials
 
5%
47%
3%
 
 
 
 
45%
 
 

Diversified Industrials
 
6%
78%
4%
12%
 
 
 
 
 
 

Tourism
 
 
 
100%
 
 
 
 
 
 
 

 

[1]           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.
[2]           Spot rate means the exchange rate for immediate delivery.
[3]           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.
[4]           This notion existed in previous AASB 1023 ‘Financial Reporting of General Insurance Activities’ but has been removed in AASB 1023 ‘General Insurance Contracts’.
[5]           Extracted from ICAA Members' Handbook June 2001 issue, AASB 1023 ‘General Insurance Contracts’.
6           See AASB 139 ‘Financial Instruments: Recognition and Measurement’.

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