Financial Sector (Collection of Data) (reporting standard) determination No. 85 of 2008
Reporting Standard GRS 410.0 (2008) Movement in Outstanding Claims Provision.
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 410.0 (2007) Movement in Outstanding Claims Provision which is in force as at the date of this determination (the old standard); and
· DETERMINE Reporting Standard GRS 410.0 (2008) Movement in Outstanding Claims Provision 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 29 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 GRS 410.0 (2008) Movement in Outstanding Claims Provision comprises the 15 pages commencing on the next page.
Reporting Standard GRS 410.0 (2008)
Movement in Outstanding Claims Provision
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 an annual basis, movement in the provision for claims liabilities.
This reporting standard outlines the overall requirements for the provision of this information to APRA. It should be read in conjunction with Form GRF 410.0 Movement in Outstanding Claims Provision (Form GRF 410.0) and the instructions to that form (which are attached and form part of this reporting standard).
Purpose
1. Data collected in Form GRF 410.0 is used by APRA for the purpose of prudential supervision of insurers.
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 410.0 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 410.0 on paper and mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales.
Where the information is submitted by means of an agent to whom the insurer has outsourced the function of providing the information on the insurer’s behalf, the agent may only provide the information in accordance with subparagraph 4(b) if the agent has contacted APRA and advised that the agent cannot submit the information in electronic form under subparagraph 4(a).
Note: the Direct to APRA application software and paper forms may be obtained from APRA.
Reporting periods and due dates
5. Subject to paragraph 6, an insurer must provide the information required by this reporting standard in respect of each financial year (within the meaning of the Corporations Act 2001) of the insurer.
Note: APRA proposes to determine exemptions, under section 7 of the Insurance Act 1973 (Insurance Act), from the obligations under Part IV Division 4 of the Insurance Act in respect of the auditing of information provided under this reporting standard.
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 paragraph 5).
7. The information required by paragraph 3 of this reporting standard must be provided to APRA 4 months after the end of the reporting period to which the information relates.
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.
Authorisation
9. 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.
10. 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 12.
11. If an insurer provides the information required by this reporting standard through an agent under either subparagraphs 4(a) or (b), the agent will not be required to sign or authorise the information. However, the insurer must:
(a) obtain from the agent a paper copy of the completed form as provided to APRA (whether it was provided under subparagraph 4(a) or (b)); and
(b) cause the paper copy to be signed in accordance with paragraph 12; 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 11(c) where an insurer has undertaken to retain the signed copy of the completed form for an agreed period of time.
12. 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
13. APRA may make minor variations to the instructions, to clarify their application to the form without changing any substantive requirement in the form or instructions.
14. If APRA makes such a variation it must notify insurers in writing.
Transition
15. 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
16. In this reporting standard:
appointed auditor means an auditor appointed under paragraph 39(1)(a) of the Insurance Act;
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 paragraph 5 or, if applicable, paragraph 6.
17. 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 410.0
Movement in Outstanding Claims Provision
Instruction Guide
Introduction
The purpose of this form is to provide information on the following:
1. Balance of the outstanding claims provision by class of business (direct business and reinsurance). This can be disclosed net of reinsurance and non reinsurance recoveries;
2. Reserves/Provisions that have been released by class of business (direct business and reinsurance);
3. Additions/increments in the provisions by class of business (direct business and reinsurance).
For insurers writing direct insurance business - for each of the following accident years:
· current accident year
· accident year 1-3 years previous
· accident year 4-5 years previous
· accident year greater than 5 years previous
For insurers writing reinsurance business – for each of the following underwriting years:
· current underwriting year
· underwriting year 1-3 years previous
· underwriting year 4-5 years previous
· underwriting year greater than 5 years previous
This instruction guide is designed to assist in the completion of GRF 410.0 Movement in Outstanding Claims Provision and provides general directions for preparation and lodgment and explanatory notes for specific items.
Audit requirements
The information provided under the form is not required to be audited and has been exempted from the definition of ‘yearly statutory accounts’. Reporting entities
Forms are to be completed for the following reporting entities where appropriate:
1. Branch operations 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).
Unit of measurement
This form is to be presented in Australian currency, rounded to thousands of dollars, with no decimal place.
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’ (eg 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 an annual basis.
· 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 410.0 Movement in Outstanding Claims Provision.
Specific instructions
Classes of Insurance Business
1. Direct Business
The classes of business for companies that are not specialist reinsurers are as follows:
(I). Houseowners/Householders (H & H)
This class covers the common H & H policies inclusive of:
· Contents;
· Personal property;
· Arson; and
· Burglary.
Public liability normally attaching to these products are to be separated and included in Public and Product Liability class of business – item XIII.
(II). Commercial Motor Vehicle
Motor vehicle insurance (including third party property damage) other than insurance covering vehicles defined below under Domestic Motor Vehicle. It includes long and medium haul trucks, cranes and special vehicles, and policies covering fleets.
(III). Domestic Motor Vehicle
Motor vehicle insurance (including third party property damage) covering private use motor vehicles including utilities and lorries, motor cycles, private caravans, box and boat trailers and other vehicles not normally covered by business or commercial policies.
(IV). Travel
Insurance against losses associated with travel including loss of baggage and personal effects, losses on flight cancellations and overseas medical costs.
(V). Fire and Industrial Special Risks (ISR)
Fire
Includes all policies normally classified as 'Fire' and includes:
· sprinkler leakage;
· subsidence;
· windstorm;
· hailstone;
· crop;
· arson; and
· loss of profits and any extraneous risk normally covered under fire policies, e.g. flood.
ISR
Standard policy wordings exist for this type of policy. All policies which contain such standard wordings or where the wording is substantially similar are to be classified as ISR.
(VI). Marine
Includes Marine Hull (including pleasure craft) and Marine Cargo (including sea and inland transit insurance).
(VII). Aviation
Aviation (including aircraft hull and aircraft liability).
(VIII). Mortgage
Insurance against losses arising from the failure of debtors to meet financial obligations to creditors or under which payment of debts is guaranteed. It includes lease guarantee.
(IX). Consumer Credit (CCI)
Insurance to protect a consumer's ability to meet the loan repayments on personal loans and credit card finance in the event of death or loss of income due to injury, illness or unemployment.
(X). Other Accident
Includes the following types of insurance:
· Miscellaneous accident (involving cash in transit, theft, loss of money);
· All risks (baggage, sporting equipment, guns);
· Engineering when not part of ISR or Fire policy;
· Plate glass when not part of packaged policy (e.g. houseowners /householders)
· Guarantee (Insurance Bonds);
· Live Stock;
· Pluvius; and
· Sickness and Accident (which provides stated benefits where the insured is killed or suffers loss of specific parts of the body or is prevented from carrying out the insured’s normal occupation. In addition, regular benefits may be paid over a short period of time (typically less than 3 years), noting that continuous disability policies are now considered to be Life Insurance Policies and should not be provided by general insurance companies).
(XI). Other
All other insurance business not specifically mentioned elsewhere. It includes, for example:
· All guarantees (e.g. fidelity Guarantee)
· Trade Credit;
· Extended Warranty (includes insurance by a third party for a period in excess of the manufacturer's or seller’s normal warranty);
· Kidnap and Ransom; and
· Contingency.
(XII). Compulsory Third Party Motor Vehicle (CTP)
This class consists only of CTP business.
(XIII). Public and Product Liability
· Public Liability covers legal liability to the public in respect of bodily injury or property damage arising out of the operation of the insured's business. Product Liability includes policies that provide for compensation for loss and or injury caused by, or as a result of, the use of goods and also environmental clean-up caused by pollution spills where not covered by Fire and ISR policies.
· Also will include builders warranty insurance.
· Includes public liability attaching to houseowners/householders policies.
(XIV). Professional Indemnity (PI)
Includes Directors' and Officers' liability insurance plus legal expense insurance. Cover for legal expenses is generally included in this type of policy.
(XV). Employers' Liability (EL)
Includes:
· Workers' compensation;
· Seamen's compensation; and
· Domestic workers compensation.
2. Reinsurance Business
The classes of business for companies that provide reinsurance are as follows:
Treaty Proportional: This refers to all forms of quota share and surplus reinsurance written on a treaty reinsurance arrangement where the reinsurer is bound to accept all business ceded by the reinsured subject to the terms and conditions of the pre-agreed treaty wording, and shares in the same proportion of premium and losses of the reinsured.
Treaty Excess of Loss: This refers to all reinsurance arrangements where the reinsurer is bound to accept all business ceded by the reinsured and the reinsurer pays losses only above an agreed predetermined limit (retention) up to an agreed maximum amount.
Facultative Proportional: This refers to non-treaty arrangements where each reinsurance contract is on an individual offer and acceptance basis and the reinsurer shares in the same proportion of premium and losses of the reinsured.
Facultative Excess of Loss: This refers to non-treaty arrangements where each reinsurance contract is on an individual offer and acceptance basis. The reinsurer pays losses only above an agreed predetermined limit (retention) up to an agreed maximum amount.
Reinsurance non-split
This line item classification disclosed under Reinsurance class of business is to be used where it is not possible for the insurer to separately slit out all the classes of reinsurance businesses. However as required by GPS 115 Capital Adequacy: Insurance Risk Capital Charge (GPS 115), where an insurer writes inwards reinsurance business and is unable to split this business into the classes and types listed, they are to use the highest casualty factors on their outstanding claims liabilities.
Where an insurer writes inwards reinsurance which spans multiple classes and the insurer cannot readily split the contract between classes, APRA suggests that the contract should be allocated using one of the following methods:
(a) allocate the contract to the category which represents the greatest exposure; or
(b) allocate the contract to the category representing the greatest premium income.
An insurer that writes inwards reinsurance is free to choose which of the above methods it uses, or may use another appropriate method, provided the same method is used for all contracts and all subsequent periods.
Outstanding Claims Provision net of RI Recoveries (undiscounted)
The Outstanding Claims Provision is to be disclosed by type of business (direct business and inward reinsurance business), net of reinsurance and non reinsurance recoveries, as at the reporting date.
The Outstanding Claims Provision relates to the liability provision that has been recognised by the insurer in GRF 300.0 Statement of Financial Position, however for the purposes of this form, the Outstanding Claims Provision must be undiscounted.
For the purposes of this form the total of the OCP for the current financial year (on an undiscounted basis) is to be allocated across the respective time buckets specified on the form. Accordingly, each year that this form is completed the OCP that is recorded for the respective time buckets will likely change as this is reassessed.
For the “Direct business” and “Reinsurance” business, amounts are to include all Outstanding Claims Provisions associated with:
· the insurance business written directly by the insurer;
· reinsurance business under the “Reinsurance” section of Type of Business column. Inward reinsurance includes amounts, which relate to inward facultative reinsurance and to inward treaty reinsurance.
· business sourced through underwriting pools or Joint Ventures, or portfolio transfers/acquisitions.
Accident Year
Direct writers of insurance business are to complete this form based on accident year. This refers to the financial year that the losses/claims associated with individual policies are incurred.
Underwriting Year
Insurers writing reinsurance business are to complete this form based on accident year. This refers to the financial year of the insurer in which the policy incepts, regardless of when the premiums and claims are actually reported, booked or paid. For example, the 2005 underwriting year for an insurer with a 30 June balance date includes premiums and claims (both paid and outstanding) relating to policies incepting in the period 1 July 2005 to 30 June 2006. For an insurer with a 31 December balance date, the 2005 underwriting year includes premiums and claims (both paid and outstanding) relating to policies incepting in the period 1 January 2005 to 31 December 2005.
Reserve Release
Reserve release refers the occasions when a provision was created/posted for a particular prior financial year and subsequently it is found that this provision will be more than is required to pay for the losses associated with this particular accident year for direct writers of insurance and underwriting year for reinsurance writers. In these instances the insurer releases these excess provisions and they become profits in the current financial year of the insurer.
Claim payments (that are debited out of the outstanding claims provision for accounting purposes) are not to be classified as a reserve release for the purposes of this form.
Reserve Strengthening
Reserve strengthening refers the occasions when a provision has been created/posted for a particular prior financial year and subsequently it is found that this provision will be insufficient to pay for the losses associated with this particular accident year for direct writers of insurance and underwriting year for reinsurance writers. In these instances the insurer strengthens or increases these provisions in the current financial year by adding additional provisions to accommodate the losses associated with this particular prior accident year and this becomes a reduction in profit (i.e. claims expense in profit and loss in the current financial year).
[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.
