Financial Sector (Collection of Data) determination No. 3 of 2005 Reporting Standard GRS 130.0 (2005) 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’) MAKE the reporting standard set out in the Schedule, which applies to financial sector entities of the kind specified in paragraph 2 of the reporting standard. Under section 15 of the Act, I DECLARE that the reporting standard shall begin to apply to those entities on the later of 1 July 2005 and the date of registration on the Federal Register of Legislative Instruments.. Dated 21 June 2005 [signed] ……………………............ Charles Littrell Executive General Manager Policy, Research and Statistics Division APRA Interpretation In this Notice APRA means the Australian Prudential Regulation Authority.
Schedule
Reporting Standard GRS 130.0 (2005)
Off-Balance Sheet Business – Credit Substitutes Provided 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, off balance sheet exposures in the form of direct credit substitutes. This reporting standard outlines the overall requirements for the provision of this information to APRA. It should be read in conjunction with: · the versions of Form GRF 130.0 Off Balance Sheet Business – Credit Substitutes Provided and Risk Charge (Form GRF 130.0) designated for a ‘Licensed Insurer’ and ‘Consolidated Insurance Group’ and the associated instructions (which are attached and all form part of this reporting standard); and · Prudential Standard GPS 110 Capital Adequacy for General Insurers and Guidance Note GGN 110.4 Investment Risk Capital Charge.
Purpose
1. Data collected in each version of Form GRF 130.0 is used by APRA for the purpose of prudential supervision including assessing an insurer’s compliance with Prudential Standard GPS 110.0 Capital Adequacy for General Insurers.
Application and commencement
2. This reporting standard applies to all insurers and shall begin to apply to those entities on the later of 1 July 2005 and the date of registration on the Federal Register of Legislative Instruments.
Information required
3. An insurer must provide APRA with the information required by the version of Form GRF 130.0 designated for a ‘Licensed Insurer’ for each reporting period. 4. An insurer that is a highest parent entity in relation to a consolidated insurance group must also provide APRA with the information required by the version of Form GRF 130.0 designated for a ‘Consolidated Insurance Group’ for each reporting period.
Forms and method of submission
5. The information required by this reporting standard must be given to APRA either: (a) in electronic form, using one of the electronic submission mechanisms provided by the ‘Direct to APRA’ (also known as ‘D2A’) application; or (b) manually completed on paper, which must be faxed or mailed to APRA’s head office. Note: the Direct to APRA application software and paper forms may be obtained from APRA.
Reporting periods and due dates
6. Subject to paragraph 7, 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 from an insurer by paragraph 3 read with subparagraph 6(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. (The annual information required from a highest parent entity under paragraph 4 read with subparagraph 6(b) is not required to be audited. APRA proposes to determine an exemption, under section 7 of the Insurance Act, in relation to the obligations under Part IV Division 4 of the Act in respect of the auditing of this information.). 7. 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 6(a) or (b)). 8. 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 6(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 6(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 6(b) must be provided to APRA by the time specified in subparagraph 8(b) of this reporting standard (unless an extension is granted under paragraph 10). 9. The information required by paragraph 4 of this reporting standard from an insurer that is a highest parent entity must be provided to APRA by the following times: (a) in the case of the quarterly information required by subparagraph 6(a) – 30 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 6(b) – 4 months after the end of the reporting period to which the information relates. 10. 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
11. The information provided by an insurer under this reporting standard (other than the information required from a highest parent entity under paragraph 4) must be the product of processes and controls that have been reviewed and tested by the approved 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 approved auditor to form an opinion on the accuracy and reliability of the data. 12. 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
13. If an insurer submits information under this reporting standard using the ‘Direct to APRA’ software, it will be necessary for an officer of the insurer to digitally sign, authorise and encrypt the relevant data. For this purpose, APRA’s certificate authority will issue ‘digital certificates’, for use with the software, to officers of the insurer who have authority from the insurer to transmit the data to APRA. 14. 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
15. 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. 16. If APRA makes such a variation it must notify insurers in writing. Transitional 17. If a reporting period of an insurer ended on 30 June 2005, or ends after that date, the insurer must report under this reporting standard in respect of that reporting period. Interpretation 18. In this reporting standard: Accounting Standard AASB 1024 means the accounting standard so designated made by the Australian Accounting Standards Board, being the accounting standard that applied in respect of reporting periods (within the meaning of the accounting standard) commencing immediately before 1 January 2005; approved auditor means an auditor who has been approved by APRA under section 40 of the Insurance Act; business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays; consolidated insurance group means a group comprising: (a) an insurer that is a highest parent entity; and (b) each subsidiary under the control (within the meaning of Accounting Standard AASB 1024) of that insurer, whether the subsidiary is incorporated in Australia or not; 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. highest parent entity means an insurer that satisfies all of the following conditions: (a) it is incorporated in Australia; (b) it has at least one subsidiary under its control (within the meaning of Accounting Standard AASB 1024); and (c) it is not itself a subsidiary of an insurer that is incorporated in Australia; 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 appropriate, paragraph 7. 19. A reference to a prudential standard or guidance note means the prudential standard or guidance note, made under section 32 of the Insurance Act, mentioned in the reference, as amended from time to time. If the prudential standard or guidance note has been revoked and replaced, the reference shall be taken to be to the prudential standard or guidance note that has replaced it.
Reporting Form GRF 130.0 Off-Balance Sheet Business - Direct Credit Substitutes Provided and Risk Charge
Instruction Guide
Introduction This form can be used to calculate the capital charge applicable for an insurer’s (and reinsurer’s) off-balance sheet exposures for capital adequacy purposes (refer to GPS 110 Capital Adequacy for General Insurers and GGN 110.4 Investment Risk Capital Charge paragraphs 20 – 29).
Audit requirements
The form relating to authorised insurance entities and reinsurance entities is required to be subject to audit review and testing. The forms relating to the consolidated insurance group reporting unit is not subject to audit review and testing. The scope and nature of audit testing required is outlined in the applicable Audit Guidance Statement issued by the Auditing and Assurance Board of the Australian Accounting Research Foundation. 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 approved 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
Forms are to be completed for the following reporting entities only where required: 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); 3. Authorised reinsurance entities (reference to licensed insurer in the form means total operations of the licensed entity); and 4. Consolidated insurance groups (refer to form ‘Consolidated Insurance Group’). For the purposes of APRA prudential reporting, the consolidated insurance group is interpreted as the accounts incorporating the highest parent entity in a group structure, that is an Australian authorised general insurance entity (for the purposes of the Insurance Act 1973), and includes all subsidiaries, associates and joint ventures (registered both in Australia and overseas) of that parent entity. For the purposes of this form, the highest parent entity in the corporate group does not include a company (e.g. non-operating holding company) that is not an authorised general insurance entity. Definition of subsidiaries should be consistent with the requirements of Australian accounting standards AASB 1024 ‘Consolidated Accounts’ and definition of associates should be consistent with AASB 1016 ‘Accounting for Investments in Associates’. Exemptions from the Consolidated Insurance Group requirements · Australian authorised insurers which do not have any subsidiaries are not required to complete the forms for this reporting unit. · Australian authorised insurers that have subsidiaries, but the financial position of the consolidated insurance group is not materially different from that of the licensed insurance entity, are not required to complete the forms for this reporting unit (i.e. the subsidiaries do not have any material dealings/balances). Unit of measurement This form is to be prepared in thousands of Australian dollars (AUD). Amounts denominated in a currency other than Australian currency are to be converted to AUD in accordance with AASB 1012 ‘Foreign Currency Translation’. The general requirements of AASB 1012 for translation are: 1. Foreign currency monetary items outstanding at the reporting date must be translated at the spot rate at the reporting date; and 2. Other items outstanding at the reporting date must not be retranslated subsequent to initial recognition of the transaction. Monetary items are defined to mean money held and assets and liabilities that are to be received or paid in fixed or determinable amounts of money (e.g. claims payments, reinsurance recoveries). Monetary items arising under foreign currency derivative contracts at the reporting date must be translated as follows: · Where the exchange rate is fixed in the contract, at that fixed exchange rate; and · Where the exchange rate varies, at the spot rate at the reporting date. 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. See the Reporting Requirements table for details.
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 the Reporting Requirements table.
Specific instructions Non market related items This term ‘non market’ refers to items that are not transacted in financial markets, specifically financial market products such as derivative financial instruments. These types of transactions are not to be included in this form. Transactions and exposures to derivative financial instruments are recorded in GRF 160.0 Derivative Activity and Risk Charge. Principal amount For locally incorporated insurers (including reinsurers), report the principal amount (refers to the face value or gross amount) for off-balance sheet transactions, which give rise to credit exposures. Categories of off-balance sheet business The categories of off-balance sheet transactions are as follows:
1. Direct Credit Substitutes
This includes any irrevocable off-balance sheet obligation, which carry the same credit risk as a direct extension of credit. The following are examples constituting a direct credit substitute (i.e. the risk of loss depends on the creditworthiness of the counterparty, or the party on which a potential claim is acquired): · An undertaking to make a payment to a third party in the event that a counterparty fails to meet a financial obligation; or · An undertaking to a counterparty to acquire a potential claim on another party in the event of default by that party. This includes potential credit exposures arising from the issue/provision of following: · guarantees; · credit derivatives (i.e. selling credit protection); and · standby letters of credit serving as financial guarantees for loans, securities and any other financial liabilities. 2. Contingencies Contingent liabilities arising from trade-related obligations which are secured against an underlying shipment of goods This includes documentary letters of credit issued, acceptances on trade bills, shipping guarantees issued and any other trade-related contingencies.
3. Sale & Repurchase Agreements (“Repos”) This relates to arrangements whereby an insurer sells a loan, security or other asset to another party with a commitment to repurchase the asset at an agreed price on an agreed future date.[1] Any assets acquired by an insurer under reverse repos (i.e. purchase and resale agreements) are to be treated as collateralized loans to the counterparty.[2] 4. Assets Sold With Recourse This includes any asset sales (to the extent that such assets are not included in on-balance sheet) by an insurer where the holder of the asset is entitled to “put” the asset back to the insurer within an agreed period or under certain prescribed circumstances, e.g. deterioration in the value or credit quality of the asset concerned.[3] 5. Forward Asset Purchases This includes commitments to purchase at a specified future date and on pre-arranged terms, an asset from another party, including written put options on specified assets with the character of a credit enhancement.[4] Written put options expressed in terms of market rates for currencies or financial instruments bearing no credit risk are excluded from risk assets. For the purposes the APRA forms do not 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 112.2. 6. Partly Paid Shares and Securities This includes any amounts owing on the uncalled portion of partly paid shares and securities held by an insurer, which represent commitments with certain drawdown by the issuer at a future date.[5] 7. Placements of Forward Deposits This relates to any agreement between an insurer and another party whereby the insurer will place a deposit at an agreed rate of interest with that party at a predetermined future date. 8. All Other Non-Market-Related Off-Balance Sheet Items Record all other off balance sheet non-market related items that are not specifically covered in the form 9. Total Non-Market-Related Off-Balance Sheet Business This is the total of all values disclosed for items listed in the form. 10. Of Which Total Business that is Deemed as Inside Australia Of the value recorded for “Total Non-Market-Related Off Balance Sheet Business”, report the value that relates to business that is deemed to be recorded as Inside Australia. Refer to GPS 120 Assets in Australia for General Insurer for further information. 11. Investment Capital Factors These are the applicable investment capital factors (percentages) that are to be applied to the exposures. The investment capital factors are based on counterparty/asset rating grades and are set out in GGN 110.4 Investment Risk Capital Charge. 12. Required Risk Charge Represents the required risk charge for each counterparty/asset rating grade specified (i.e. columns). This is calculated based on the total non-market-related off balance sheet business per counterparty/asset rating grade and the appropriate investment capital factor. 13. Total Off-Balance Sheet Required Risk Charge Represents the aggregate required risk charge for all exposures to each counterparty/asset rating grade specified (i.e. columns). This figure will be included in the calculation of the insurer’s minimum capital requirement. 14. Total Non-Market-Related Off-Balance Sheet Business (total of item 9) Which are Provide to Related Parties: Of the total non-market off balance sheet business/exposure disclosed in the table (i.e. total of items disclosed in number 9.), report that amount which has been provided to related parties or in relation to related parties as listed in the form. 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 licensed insurer. Related party has the same meaning as defined in AASB 1017 ‘Related Party Disclosure’. AASB 1017 defines related party to include the parent entity of the Insurer, controlled entities, associates, joint ventures and directors of the licensed insurance entity and other entities that are deemed to be related in accordance with AASB 1017. In accordance with AASB 1017 related party means, in relation to a reporting entity any: (a) other entity that at any time during the financial year, has control or significant influence over the reporting entity; or (b) other entity that at any time during the financial year, is subject to control or significant influence by the reporting entity; or (c) other entity that, at any time during the financial year, is controlled by the same entity that controls the reporting entity. Referred to as a situation in which entities are subject to common control; or (d) other entity that, at any time during the financial year, is controlled by the same entity that significantly influences the reporting entity; or (e) other entity that, at any time during the financial year, is significantly influenced by the same entity that controls the reporting entity; or (f) director of the reporting entity or any of their director-related entities; or (g) director of any other entity identified as a related party under any of paragraphs (a) to (e), or any of their director-related entities; But excludes any other entity (except those identified as a related party under paragraph (f)) where the related party relationship results solely from normal dealings of: (h) financial institutions; or (i) authorised trustee corporations; or (j) fund managers; or (k) trade unions; or (l) statutory authorities; or (m) government departments; or (n) local governments.[6] AASB 1017 defines director-related entities as meaning “the spouses of such directors, relatives of such directors or spouses and any other entity under the joint or several control or significant influence of such directors, spouses or relatives”. Relative in relation to a person is defined in the Corporations Law to mean the spouse, partner, son, daughter, or brother or sister of the person.
[1] These transactions are risk weighted according to the type of assets or the issuer of securities and not according to the counterparty with whom the transaction is made, where the credit risk associated with the underlying asset which has been sold (temporarily under a repo or with recourse) or purchased, remains with the insurer.
[2] The appropriate risk weight to be applied to a reverse repo transaction is determined on the basis of the counterparty to the transaction or the underlying asset if it is an eligible collateral security.
[3] Refer footnote 1.
[4] Refer footnote 1.
[5] Refer footnote 1.
[6] Extracted from ICAA Members' Handbook December 2001 issue, AASB 1017.
