Financial Sector (Collection of Data) determination No. 24 of 2005 Reporting Standard GRS 410.0 (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.
Reporting Standard GRS 410.0 (2005)
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: · the versions of Form GRF 410.0 Movement in Outstanding Claims Provision (Form GRF 410.0) designated for a ‘Licensed Insurer’ and ‘Consolidated Insurance Group’ and the instructions to the versions of the form (which are attached and all form part of this reporting standard).
1. Data collected in each version of 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 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.
3. An insurer must provide APRA with the information required by the version of Form GRF 410.0 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 410.0 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 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. 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 paragraph 6). 8. The information required by paragraphs 3 and 4 of this reporting standard must be provided to APRA 4 months after the end of the reporting period to which the information relates. 9. 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.
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. 11. 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. 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: (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 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. Transitional 15. 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 16. 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; 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 paragraph 6 or, if applicable, paragraph 7.
Reporting Form GRF 410.0
Movement in Outstanding Claims Provision
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 direct insurance business writers - 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); 3. Authorised reinsurance entities (reference to licensed insurer in the form means total operations of the licensed entity); and 4. Consolidated insurance groups. Note: the form for the consolidated insurance group is only required to complete the information requirements on the form. No risk change is applied to the consolidated insurance group at this stage. 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 which 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 presented in Australian currency, rounded to thousands of dollars, with no decimal place. As a general rule, amounts denominated in foreign currency are to be converted to AUD in accordance with the requirements of the Australian accounting standards, notably 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 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. See the Reporting Requirements table for details.
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.
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 8. (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)
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), 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. (XIV). Professional Indemnity (PI) Includes Directors' and Officers' liability insurance plus legal expense insurance. Cover for legal expenses general 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 are specialist reinsurers are as follows: (I). Facultative; (II). Proportional; and (III). Excess of loss. (I). Facultative Reinsurance The reinsurance of individual risks by offer and acceptance wherein the reinsurer has the “faculty” (option) to accept or reject each offer by the ceding company. (II). Proportional Reinsurance A proportional treaty is an agreement between an insurer and a reinsurer in which the reinsurer shares an identical proportion of the premiums and losses of the ceding company. (III). Excess of Loss Reinsurance Reinsurance which, subject to a specified limit, indemnifies the ceding company against the loss in excess of a specified retention. This type of reinsurance can involve: · any one risk reinsurance; · any one event reinsurance; · catastrophe reinsurance; · aggregate excess of loss reinsurance; and · stop loss reinsurance. 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 GGN 110.3 Insurance Risk Capital Charge, where an insurer writes inwards reinsurance business and is unable to split this business into the classes and types listed in Table 2 of that Guidance Note, 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
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 year that the losses/claims associated with individual policies are incurred. Underwriting Year Writers of reinsurance business can complete this form based on underwriting year. Underwriting year refers to the year that the individual policy attaches and the subsequent risk associated with this policy accepted by the insurer, regardless of when the premiums and losses are actually reported, booked or paid. For example the 2001 underwriting year includes results in calendar year 2001 and all future calendar years on business bound in 2001.
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).