This form collects information to calculate the Concentration Risk Capital Charge in accordance with GPS 110 Capital Adequacy and GGN 110.5 Concentration Risk Capital Charge.
GGN 110.5 Concentration Risk Capital Charge details the calculation using the Prescribed Method to determine the Minimum Capital Requirement (MCR). It sets out the issues that an insurer should consider in setting its Maximum Event Retention (MER) for catastrophe purposes. It is the responsibility of the insurer’s Board and management to ensure that the MER is set at a level which is consistent with the insurer’s risk profile and its reinsurance program.
Audit requirements
The form relating to authorised insurance entities and reinsurance entities is required to be subject to audit review and testing. The form 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 where appropriate:
Branch insurers of a foreign parent insurer (reference to licensed insurer in the form means total operations of the branch, excluding the parent operations);
Authorised insurance entities, including mutual entities (reference to licensed insurer in the form means total operations of the licensed entity);
Authorised reinsurance entities (reference to licensed insurer in the form means total operations of the licensed entity); and
Consolidated insurance groups.
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).
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.
Unit of measurement
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:
Foreign currency monetary items outstanding at the reporting date must be translated at the spot rate at the reporting date.
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.
Specific instructions
While the forms needs to be lodged on a quarterly basis to enable the calculation of a capital charge, as this analysis is normally completed formally on an annual basis, there is no need to remodel the charge each quarter.
Refer to GGN 110.5 Concentration Risk Capital Charge for further information on the method of calculation and definitions.
Maximum Event Retention
Refers to the MER and is the largest loss to which an insurer will be exposed (taking into account the probability of that loss) due to a concentration of policies, after netting out any reinsurance recoveries.
The company should assume that all valid claims under these reinsurance arrangements would be paid to the company by the reinsurer.
Include all relevant classes, giving rise to claims on the company from any one single event (including co-insurance).
Cost of one reinstatement
Input the cost of one reinstatement premium for the insurer’s catastrophe reinsurance.
Total Maximum Event Retention charge
This is automatically calculated by the form. It represents the addition of the value input for the MER and the value entered for the cost of one reinstatement premium. This amount is included in the calculation of the MCR for the insurer.
Division Reporting Form GRF 170.0 - Financial Sector (Collection of Data) determination No. 14 of 2005 - Reporting Form GRF 170.0 | Zoe