Financial Sector (Collection of Data) (reporting standard) determination No. 5 of 2016
Reporting Standard GRS 114.0_G Asset Risk Charge (Level 2 Insurance Group)
Financial Sector (Collection of Data) Act 2001
I, Steven John Davies, 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:
(a) REVOKE Financial Sector (Collection of Data) (reporting standard) determination No. 30 of 2013, including Reporting Standard GRS 114.0_G Asset Risk Charge (Level 2 Insurance Group) made under that Determination; and
(b) DETERMINE Reporting Standard GRS 114.0_G Asset Risk Charge (Level 2 Insurance Group), in the form set out in the Schedule, which applies to the financial sector entities to the extent provided in paragraph 3 of the reporting standard.
Under section 15 of the Act, I DECLARE that the reporting standard shall begin to apply to those financial sector entities, and the revoked reporting standard shall cease to apply, on 30 June 2016.
This instrument commences on 30 June 2016.
Dated: 19 July 2016
[Signed]
Steven John Davies
General Manager
Statistics
Interpretation
In this Determination:
APRA means the Australian Prudential Regulation Authority.
financial sector entity has the meaning given by section 5 of the Act.
Schedule
Reporting Standard GRS 114.0_G Asset Risk Charge (Level 2 Insurance Group) comprises the 17 pages commencing on the following page.
This Reporting Standard sets out the requirements for the provision of information to APRA relating to the calculation of the Level 2 insurance group’s Asset Risk Charge.
It includes Form GRF 114.0_G Asset Risk Charge (G) and associated specific instructions and must be read in conjunction with the general instruction guide and Prudential Standard GPS 114 Capital Adequacy: Asset Risk Charge.
2. Information collected in Form GRF 114.0_G Asset Risk Charge (G) (GRF 114.0_G) is used by APRA for the purpose of prudential supervision, including assessing compliance with the capital standards.
3. This Reporting Standard applies to a parent entity of a Level 2 insurance group as defined in Prudential Standard GPS 001 Definitions (GPS 001). This Reporting Standard applies for reporting periods ending on or after 30 June 2016. The parent entity of a Level 2 group is required to ensure that each requirement in this Reporting Standard is complied with.
Note: The ‘Direct to APRA’ application software may be obtained from APRA.
(b) in respect of each financial year of the Level 2 insurance group on an audited basis.
Note: The annual information required by paragraphs 4, 5 and 6(b), together with certain annual information required by other reporting standards, will form part of the Level 2 insurance group’s annual accounts within the meaning of GPS 001. Prudential Standard GPS 310 Audit and Related Matters (GPS 310) contains the relevant provisions governing audits.
8. The information required by this Reporting Standard in respect of a Level 2 insurance group must be provided to APRA:
(a) within the time stated in Reporting Standard GRS 001 Reporting Requirements (GRS 001); or
(b) in the case of information provided in accordance with paragraph 7, within the time specified by notice in writing.
Note: GPS 310 requires a Level 2 insurance group to ensure that its Group Auditor conducts a limited assurance review of the group’s annual accounts. Accordingly, the Group Auditor’s report(s) as required by GPS 310 (relating to the information required by paragraph 4) must be provided to APRA by the time specified in GRS 001 (unless an extension of time is granted under GRS 001).
9. On the written application of the parent entity of a Level 2 insurance group, APRA may by notice in writing to the parent entity exclude the requirement under subparagraph 6(a) to provide half yearly information.
10. The information provided by the parent entity of a Level 2 insurance group under this Reporting Standard must be the product of systems, processes and controls that have been reviewed and tested by the Group Auditor of the Level 2 insurance group. This will require the Group Auditor to review and test the Level 2 insurance group’s systems, processes and controls designed to enable the group to report reliable financial information to APRA. This review and testing must be done on:
(a) an annual basis or more frequently if necessary to enable the Group Auditor to form an opinion on the reliability and accuracy of data; and
(b) at least a limited assurance engagement consistent with professional standards and guidance notes issued by the Auditing and Assurance Standards Board (AUASB) as may be amended from time to time, to the extent that they are not inconsistent with the requirements of GPS 310.
11. All information provided by the parent entity of a Level 2 insurance group under this Reporting Standard must be subject to systems, processes and controls developed by the Level 2 insurance group for the internal review and authorisation of that information. It is the responsibility of the Board and senior management of the parent entity of the Level 2 insurance group to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.
12. When an officer, or agent, of a parent entity of a Level 2 insurance group provides the information required by this Reporting Standard using the ‘Direct to APRA’ software it will be necessary for an officer, or agent, to digitally sign the relevant information using a digital certificate acceptable to APRA.
13. If a parent entity of a Level 2 insurance group provides the information required by this Reporting Standard through an agent who submits using the ‘Direct to APRA’ software, on the parent entity of the Level 2 insurance group’s behalf, the parent entity of the Level 2 insurance group must:
(a) obtain from the agent a copy of the completed form with the information provided to APRA; and
(b) retain the completed copy.
14. An officer, or agent, of a parent entity of a Level 2 insurance group who submits the information under this Reporting Standard for, or on behalf of, the parent entity of a Level 2 insurance group must be authorised by either:
(a) the Principal Executive Officer of the parent entity of the Level 2 insurance group; or
(b) the Chief Financial Officer of the parent entity of the Level 2 insurance group.
15. APRA may, by written notice to the parent entity of a Level 2 insurance group, vary the reporting requirements of Form GRF 114.0_G in relation to that Level 2 insurance group.
16. In this Reporting Standard (including the attachments):
(a) unless the contrary intention appears, words and expressions have the meanings given to them in GPS 001; and
(b) APRA-authorised reinsurer means an insurer carrying on reinsurance business. For the purposes of this definition, a Lloyd’s underwriter as defined under the Insurance Act is an APRA-authorised reinsurer if it carries on reinsurance business;
capital standards means the prudential standards which relate to capital adequacy as defined in GPS 001;
Chief Financial Officer means the chief financial officer of the parent entity of the Level 2 insurance group, by whatever name called;
financial year means the financial year (within the meaning of the Corporations Act 2001) of the parent entity of the Level 2 insurance group;
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.
general instruction guide refers to the general Instruction guide set out in Attachment A of GRS 001;
Group Auditor has the meaning given in GPS 310;
Insurance Act means the Insurance Act 1973;
insurer means a general insurer within the meaning of section 11 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.
non-APRA authorised reinsurer means any reinsurer that is not an APRA-authorised reinsurer;
Principal Executive Officer means the current principal executive officer of the entity, regardless of title, and whether or not he or she is a member of the governing board of the entity; and
reporting period means a period mentioned in subparagraph 6(a) or 6(b) or, if applicable, paragraph 7.
GRF_114_0 _G: Asset Risk Charge (G)
These instructions must be read in conjunction with the general instruction guide.
Explanatory notes
Look-through treatment
For asset and liability items that have been treated on a look-through basis for the purpose of Prudential Standard GPS 114 Capital Adequacy: Asset Risk Charge (GPS 114), the effective underlying exposures after adjustments for look-through as well as their resultant impacts on capital base respectively are to be reported in this form.
Derivative treatment
All items should be reported gross of impacts from derivatives. The fair value of open derivative positions should be captured in items 1.5 and 1.11.
Assets subject to stress
All components of assets that are either:
are to be excluded from the calculation of Asset Risk Charge.
Include investment income receivable with the asset that generated the income when reporting on this form.
Asset stress scenario
Where it is determined that under a certain asset stress scenario there would be an improvement of capital base (i.e. a zero risk charge component), it is not required to report the components of impact on capital base for that asset stress scenario as at the end of the relevant reporting period. All asset stress scenarios that would give rise to a positive risk charge component must be reported.
Tax benefit
Unlike Level 1 insurers, Level 2 insurance groups can rely on tax benefits of other entities within the Level 2 insurance group. However, a Level 2 insurance group cannot recognise tax benefits whose value is contingent on the tax benefits being used by entities outside the Level 2 insurance group.
Currency stress
Level 2 insurance groups must make all consolidation adjustments for intra-group arrangements before applying the currency stress.
Default stress
Level 2 insurance groups must make all consolidation adjustments for intra-group arrangements before applying the default stress.
International business
A Level 2 insurance group may use a best endeavours basis to determine the identification of asset or counterparty exposures for international business. The best endeavours basis must use information held by entities within the Level 2 insurance group, or otherwise publicly available information, in a manner consistent with the group’s documented credit risk management policies.
Instructions for specific items
Section 1: Asset Risk Charge Calculation
(1) Adjusted pre-stress value – Total amount
This column reports the value of all relevant items within the balance sheet of the Level 2 insurance group as at the reporting date. The reported figures are before the application of any designated asset stresses, net of the effect of any look-through adjustments.
(2) to (11) Impact on Capital Base
These columns report the impacts on the capital base of the Level 2 insurance group arising from the application of the real interest rate stress (upwards and downwards), expected inflation stress (upwards and downwards), currency stress (upwards and downwards), equity stress, property stress, credit spread stress and default stress respectively. Specifications of the stresses are determined in accordance with GPS 114.
The figures reported should be the contribution of the relevant items towards the change in capital base under the scenario considered. For example, negative values would be reported for decreases to assets and increases to liabilities. Positive values would be reported for increases to assets and decreases to liabilities.
(2) RIR Upwards
The real interest rates stress measures the impact on a Level 2 insurance group's capital base of changes in real interest rates. It also affects nominal interest rates.
The upward movement in real and nominal interest rates is 0.25 times the nominal risk-free interest rate. The upward movement is limited to a maximum of 200 basis points.
(3) RIR Downwards
The downward movement in real and nominal interest rates is 0.2 times the nominal risk-free interest rate. The downward movement is limited to a maximum of 200 basis points.
(4) INF Upwards
The expected inflation stress measures the impact on a Level 2 insurance group's capital base of changes to expected Consumer Price Index inflation rates. It also affects nominal interest rates.
The upward movement is 125 basis points.
(5) INF Downwards
The downward movement is 100 basis points.
(6) CUR Upwards
The currency stress measures the impact on a Level 2 insurance group's capital base of changes in foreign currency exchange rates.
The upward movement is an increase of 25 per cent in the value of the Australian dollar against all foreign currencies.
(7) CUR Downwards
The downward movement is a decrease of 25 per cent in the value of the Australian dollar against all foreign currencies.
(8) Equity
The equity stress measures the impact on a Level 2 insurance group's capital base of a fall in equity and other asset values.
This stress applies to both listed and unlisted equity assets and to any other assets that are not considered in any of the other asset risk stresses. This stress also includes an increase to equity volatility.
(9) Property
The property stress measures the impact on a Level 2 insurance group's capital base of changes in property and infrastructure asset values.
(10) Credit Spreads
The credit spreads stress measures the impact on a Level 2 insurance group's capital base of an increase in credit spreads and the risk of default.
This stress applies to interest bearing assets, including cash deposits and floating rate assets. Credit derivatives and zero-coupon instruments such as bank bills must also be included.
(11) Default
The default stress measures the impact on a Level 2 insurance group's capital base of the risk of counterparty default. It applies to reinsurance assets, over the counter derivatives, unpaid premiums and all other credit or counterparty exposures that have not been affected by the credit spreads stress. In accordance with GPS 114, only the central estimates of reinsurance assets are to be subject to default stress.
This is the value, as at the relevant date, of notes and coins; deposits withdrawable or redeemable within 24 hours; and securities purchased under agreements to resell.
This amount should correspond to Item 1 in GRF 300.0_G Statement of Financial Position (GRF 300.0_G).
1.2. Non-reinsurance receivables
This is the value, as at the relevant date, of non-reinsurance receivables of the Level 2 insurance group.
It is automatically calculated as the sum of Items 1.2.1 to 1.2.4.
1.2.1. Non-reinsurance recoveries
This is the value, as at the relevant date, of non-reinsurance recoveries receivable by the Level 2 insurance group.
This amount should correspond to Item 2.2 in GRF 300.0_G.
1.2.2. Net premiums receivable
This is the amount related to insurance premiums due but not yet received as at the relevant date, net of provision for doubtful debts.
This amount should correspond to Item 2.3.10 in GRF 300.0_G.
1.2.3. Current tax assets
This is the value of current tax assets determined in accordance with Australian Accounting Standards.
This amount should correspond to Item 2.6 in GRF 300.0_G.
1.2.4. Other receivables
This is the amount of non-reinsurance receivables which have not been reported in items 1.2.1 to 1.2.3.
1.3. Investments
This represents the aggregate value of investments that are reported in GRF 300.0_G. Derivative instruments that are used to hedge investments in these forms are not to be included.
It is automatically calculated as the sum of Items 1.3.1 to 1.3.5.
1.3.1. Interest rate investments
This is the value of debt securities held by the Level 2 insurance group as at the relevant date, plus the value of deposits and placements that have been classified by the Level 2 insurance group as assets backing insurance liabilities for statutory reporting purposes. A debt security is a transferable instrument evidencing a relationship of indebtedness. It is characterised by having a definable return that is not based on the economic performance of the issuing entity.
This amount should correspond to Item 3.1 in GRF 300.0_G.
1.3.2. Equities
This is the value, as at the relevant date, of equity securities and of subordinated debt securities. Equity securities are, as defined by the Australian Accounting Standards, contracts that evidence a residual interest in the assets of an entity after deducting all its liabilities. This includes equity securities lent or sold by the entity under repurchase agreements, where the transaction does not result in the transfer of the rights of ownership of the securities away from the entity to another party. Subordinated debt is a debt security where the claim to repayment ranks lower in priority to other claims.
This amount should correspond to Item 3.2 in GRF 300.0_G.
1.3.3. Property
This is the value of property held by the Level 2 insurance group as at the relevant date, in accordance with the classification and measurement basis under the relevant accounting standards.
This amount should correspond to Item 3.3 in GRF 300.0_G.
1.3.4. Loans and advances
This is, as at the relevant date, the principal amount of loans and advances provided, net of associated provisions for impairment and deferred fee income, and including any accrued interest. Loans and advances are those financial assets categorised as "Loans and receivables" in the accounting standards other than "Trade receivables" and "Cash".
This amount should correspond to Item 3.4 in GRF 300.0_G.
1.3.5. Indirect investments
This is the value, as at the relevant date, of the net assets of unit trusts or managed investment schemes invested in by the Level 2 insurance group, or mandates individually managed on behalf of the Level 2 insurance group.
This amount should correspond to Item 3.5 in GRF 300.0_G.
1.4. Deferred tax assets
The deferred tax assets relates to the value of tax benefits that may be recognised in future financial periods, as consistent with the asset risk scenario under consideration.
1.5. Derivatives
This is the value of all open derivative positions reported as assets in GRF 300.0_G.
This amount should correspond to Item 4 in GRF 300.0_G.
1.6. Total other investments
This is the value of strategic investments / acquisitions of the Level 2 insurance group. Do not include investments that constitute assets backing general insurance liabilities.
This amount should correspond to Item 10 in GRF 300.0_G.
1.7. Other assets
This is the value of the assets that have not been reported in items 1.1 to 1.6 above but does not include assets in excess of the concentration limits set out in Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge or assets which are deducted from capital base such as surplus in defined benefit superannuation funds of which the Level 2 insurance group is an employer-sponsor.
1.8. Net outstanding claims liabilities
This is the value, as at the relevant date, of the net outstanding claims liabilities determined in accordance with Prudential Standard GPS 320 Actuarial and Related Matters (GPS 320).
This amount should correspond to the total net outstanding claims liabilities reported in Column 10 of Section 5 in GRF 115.0A_G Outstanding Claims Liabilities – Insurance Risk Charge – Australia by Class of Business or in Column 9 of Section 5 in GRF 115.0B_G Outstanding Claims Liabilities – Insurance Risk Charge – Australia by Region.
1.9. Adjusted net premiums liabilities
This is the value, as at the relevant date, of the net premium liabilities determined in accordance with GPS 320.
This amount should correspond to the total net premium liabilities reported in Column 4 of Section 15 in GRF 115.1A_G Premiums Liabilities – Insurance Risk Charge – Australia by Class of Business or GRF 115.1B_G Premiums Liabilities – Insurance Risk Charge – Australia by Region.
1.10. Deferred tax liabilities
This is the value of income taxes payable in future periods in respect of taxable temporary differences. The definition is interpreted consistently with Australian Accounting Standard AASB 112 Income Taxes.
1.11. Derivatives
This is the value of all open derivatives positions reported as liabilities in GRF 300.0_G.
This amount should correspond to Item 22.1 in GRF 300.0_G.
1.12. Other liabilities
This consists of all other liabilities of the Level 2 insurance group not separately identified in Items 1.8 to 1.11.
1.13. Reinsurance assets for default stress
This is the value, as at the relevant date, of the central estimates of reinsurance assets of the Level 2 insurance group. This must only be used for calculating the default stress.
It is automatically calculated as the sum of Items 1.13.1 to 1.13.3.
1.13.1. Reinsurance recoverables on outstanding claims and paid claims
This is the value of the central estimate of reinsurance recoverables in relation to reinsurance contracts for both paid and outstanding claims. This item does not include amounts under reinsurance contracts that do not meet the reinsurance documentation test or governing law requirements under Prudential Standard GPS 230 Reinsurance Management (GPS 230).
1.13.2. Deferred reinsurance expense
This is the value of central estimate of premiums ceded to reinsurers which are deferred in accordance with the pattern of reinsurance service received as per Australian Accounting Standard AASB 1023 General Insurance Contracts (AASB 1023). This item does not include amounts under reinsurance contracts that do not meet the reinsurance documentation test or governing law requirements under GPS 230.
1.13.3. Other reinsurance assets
This is the value of the central estimate, as at the relevant date, of any asset recognised by the Level 2 insurance group that relates to reinsurance, other than those reported in 1.13.1 or 1.13.3.
1.14. Off-balance sheet exposures
This is the value of off-balance sheet exposures that are subject to the Asset Risk Charge.
2. Impact on capital base
The impact on the capital base of each asset risk stress scenario is calculated automatically as the sum of Items 1.1 to 1.14. A negative number indicates a reduction in the capital base.
3. Risk charge components
The risk charge component for each asset risk stress scenario is the reduction in the capital base from item 2, reported as a positive value with a minimum of zero. It is calculated automatically.
4. Aggregated risk charge component
The aggregated risk charge component must be calculated using the aggregation formula and correlation matrix in GPS 114. The formula allows for the likelihood of the asset risk stress scenarios occurring simultaneously.
4.1. Impact of diversification
This item must be calculated as the sum of the risk charge components used in calculating the aggregated risk charge component, less the aggregated risk charge component.
5. Less: Tax benefits deduction
This represents the tax benefits deducted from the aggregated risk charge component as determined in accordance with GPS 114. This comprises the tax benefits resulting from the Asset Risk Charge stresses, reduced to allow for the reduction in Asset Risk Charge due to the aggregation formula.
6. Adjustments to Asset Risk Charge as approved by APRA
If APRA is of the view that the Standard Method for calculating the Asset Risk Charge component of the prescribed capital amount does not produce an appropriate outcome in respect of a Level 2 insurance group, or a Level 2 insurance group has used inappropriate judgement or estimation in calculating the Asset Risk Charge, APRA may adjust the Asset Risk Charge calculation for that Level 2 insurance group.
Approved adjustments are to be reported separately in the associated table highlighting the description of the adjustment given, transitional status and amount of adjustment applied. An increase in the risk charge is to be reported as a positive amount.
This is calculated automatically as the sum of Column 3 in the table that follows.
7. Asset Risk Charge
The Asset Risk Charge relates to the risk of an adverse movement in a Level 2 insurance group's capital base due to credit or market risks. It is determined in accordance with GPS 114.
It is automatically calculated as Item 4 less Item 5 plus Item 6.
Section 2: Additional information
8. Assets fair values subject to credit spreads stress
This table reports the fair value of assets that are subject to the credit spreads stress, subdivided by counterparty grade and the following categories:
The counterparty grade is to be determined in accordance with GPS 001. Assets guaranteed by an Australian state or territory government must be reporting in the counterparty grade that applies after rating up one grade in accordance with GPS 114.
8.4. Total fair value by Grade
This item is automatically calculated as the sum of Items 8.1 to 8.3.
9. Stressed asset values post credit spreads stress
This table reports the stressed value of assets that are subject to the credit spreads stress, subdivided by counterparty grade and the following categories:
The counterparty grade is to be determined in accordance with GPS 001. Assets guaranteed by an Australian state or territory government must be reporting in the counterparty grade that applies after rating up one grade in accordance with GPS 114.
9.4. Total stressed assets by Grade
This item is calculated automatically as the sum of Items 9.1 to 9.3.
10. Yields used in stress scenarios
10.1. Dividend yield used in determination of equity stress (%)
This is the dividend yield of the ASX 200 index as at the reporting date, used in determining the reduction in equity asset values under the equity stress scenario. This item is only required if the risk charge component for the equity stress is greater than zero.
10.2. Rental yield used in determination of property stress (%)
This is the average rental yield for the property assets based on current leases as at the reporting date and net of expenses. If rental yields and falls in value have been determined separately for each property asset, an estimate of the average rental yield should be entered for this item. This item is only required if the risk charge component for the property stress is greater than zero due to property assets.
10.3. Earnings yield used in determination of property stress (%)
This is the average earnings yield before taxes as at the reporting date, used in determining the reduction in infrastructure asset values under the property stress scenario. This item is only required if the risk charge component for the property stress is greater than zero due to infrastructure assets.