This form can be used to calculate the capital base of the licensed insurer for the purposes of deriving a capital adequacy measure and to gauge compliance with the Minimum Capital Requirement (MCR) in accordance with GPS 110 Capital Adequacy and GGN 110.1 Measurement of Capital Base.
GGN 110.1 Measurement of Capital Base specifies the measurement of the capital base. While the inclusion of a particular capital instrument in an insurer’s capital base remains subject at all times to APRA’s approval, the range of instruments that are eligible for inclusion in the capital base of an insurer are outlined in the guidance note.
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
This form is not applicable to licensed branch insurers.
Forms are to be completed for the following reporting entities where appropriate:
Authorised insurance entities including a mutual (refer to form ‘Licensed Insurer’);
Authorised reinsurance entities (refer to form ‘Licensed Insurer’); and
Consolidated insurance groups (refer to form ‘Consolidated Insurance Group’).
Note: the consolidated insurance group is only required to complete the information requirements on the form. No risk charge 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 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).
Definitions
Definitions for data reporting items required by this form have been provided where possible in the instructions under the section headed ‘Specific Instructions’. In addition, the ‘Glossary of Terms’ also contains a list of definitions of common data reporting items.
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; and
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
To calculate the eligible capital base, enter a value in column 1 headed “Value” (Item 1) for each line item applicable to the insurer and the spreadsheet will calculate the amount eligible for inclusion in the capital base (Item 3). Total Tier 1, Tier 2 and Total capital is also calculated.
Refer to GGN 110.1 Measurement of Capital Base for further information on the method of calculation and definitions.
Tier 1 capital
Tier 1 capital comprises the highest quality capital instruments that are both permanent and non-cumulative in nature. Eligible Tier 1 capital net of required deductions must constitute at least 50% of an insurer’s capital base.
Items 4 - 8
These items on the form may be included as part of the insurer’s capital base without the need for APRA’s prior approval.
Items 10. and 11.
Prior approval from APRA is required before an insurer is able to include instruments covered by these items in this form in its Tier 1 capital.
Items 4. and 5. (and 8.B. for Consolidate Insurance Group)
These items must correspond to the amounts disclosed in GRF 300.0 Statement of Financial Position. Do not use the figures that are disclosed in the reporting insurers annual financial accounts prepared in accordance with Australian accounting standards.
Item 6. Retained profits or accumulated losses at end of Reporting Period
This item must equal Retained profits or accumulated losses at end of Reporting Period as disclosed in GRF 310.0 Statement of Financial Performance.
Item 7. Technical provisions in excess of liability valuation
Include in this item the value of technical insurance provisions (Premium Liabilities and Outstanding Claims Liabilities) that are recognised in GRF 300.0 Statement of Financial Position – Licensed Insurer, that are in excess of the technical provisions required by GPS 210 Liability Valuation for General Insurers. This is calculated on a net basis as per the following:
The following calculates the total OCP and Premium Liabilities net of Reinsurance and Non Reinsurance Recoveries as reported in GRF 300.0 Statement of Financial Position – Licensed Insurer:
Sum of the insurance liabilities:
Item “18. OCP – Current Liabilities”; plus
Item “27. OCP – Non-current Liabilities”; plus
Item “19. Premium Liabilities – Current Liabilities”; plus
Less sum of reinsurance and non reinsurance recoveries:
Item 2.4.16. Total net amounts recoverable on reinsurance contracts reported in item 2.4.13, that relate to claims recognised in the calculation of the Outstanding Claim Provision (i.e. other than reinsurance recoveries relating to claims that have been paid) – Current Assets; plus
Item 7.3.16. Total net amounts recoverable on reinsurance contracts reported in item 7.3.13, that relate to claims recognised in the calculation of the Outstanding Claim Provision (i.e. other than reinsurance recoveries relating to claims that have been paid) contracts – Non-current Assets; plus
Item 2.5. Expected reinsurance recoveries on 'Premium Liabilities' – Current Assets; plus
Item 7.4. Expected reinsurance recoveries on 'Premium Liabilities' – Non-current Assets; plus
Item 2.2.2.1. Total net amounts recoverable other than reinsurance recoveries receivable that is reported in item 2.2.2, that relate to claims recognised in the calculation of the Outstanding Claim Provision (i.e. other than recoveries relating to claims that have been paid) Liabilities' – Current Assets; plus
Item 7.1.2.1. Total net amounts recoverable other than reinsurance recoveries receivable that is reported in item 7.1.2, that relate to claims recognised in the calculation of the Outstanding Claim Provision (i.e. other than recoveries relating to claims that have been paid) – Non-current Assets
Total OCP and Premium Liabilities net of Reinsurance Recoveries per GRF 300.0 Statement of Financial Position – Licensed Insurer as calculated by the above:
Less the sum of the insurance liabilities net of reinsurance and non reinsurance recoveries per the following:
GRF 210.0 OCP and Risk Charge – ‘Total "Net" OCP (OCP Net of Reinsurance and Non Reinsurance Recoveries) for all classes of business; plus
GRF 210.1 Premium Liabilities and Risk Charge - ‘Total "Net" Premium Liabilities (Premium Liabilities Net of Expected Reinsurance and Non Reinsurance Recoveries) for all classes of business.
Where the excess is positive, this is reported in Item 7. Technical provisions in excess of liability valuation of GRF 120.0 Determination of Capital Base.
Note: If the technical insurance provisions recognised by the insurer in GRF 300.0 Statement of Financial Position are less than the value required by GPS 210 Liability Valuation for General Insurers (and by GRF 210.0 and GRF 210.1), the amount of the deficiency must be recognised in GRF 310.0 Statement of Financial Performance as a claims expense (either relating to Premium Liabilities or Outstanding Claims Provision). The reduction in current year profit from GRF 310.0 Statement of Financial Performance is then included in Tier 1 capital in this form.
Essentially the total (net) OCP and Premium Liabilities recognised in GRF 300.0 Statement of Financial Position – Licensed Insurer cannot be less than the total OCP and Premium Liabilities per GRF 210.0 OCP and Risk Charge and GRF 210.1 Premium Liabilities and Risk Charge.
Item 8. Tax effect of excess technical provision (do not deduct tax effect if it has been recognised as a FITB/Deferred Tax Asset)
Any excess of technical insurance provisions added back to Tier 1 capital must be adjusted for the tax effect (i.e. the corporate tax rate multiplied by the amount added back).
Note: this requirement is not mandating the recognition of a deferred tax asset (or FITB) in GRF 300.0 Statement of Financial Position. This adjustment is required purely for prudential capital purposes to derive the accounting after tax cost to capital of creating the excess insurance provision.
The adjustment for the tax effect is not required where the excess technical insurance provision has been included in the recognition of a deferred tax asset (or FITB) associated with the recognition of Premium Liabilities and Outstanding Claims Liabilities in GRF 300.0 Statement of Financial Position. Deducting the tax effect in this case would constitute double counting, as FITBs are deducted from Tier 1 capital (net of any PDIT).
Item 8.B. Minority interest in subsidiaries on consolidation (only applicable for the Consolidated Insurance Group)
This item only relates to the consolidated insurance group. This item is to be consistent with the value disclosed in GRF 300.0 Statement of Financial Position - Consolidated Insurance Group.
Sub total of items 4 - 8
This represents the total of items 4 – 8 that do not require APRA approval to be included in the determination of the capital base.
Item 10 ‘Non-cumulative irredeemable preference shares’ and Item 11 ‘Other “innovative” capital instruments’.
A capital instrument is not eligible for inclusion in Tier 1 capital to the extent that its inclusion will result in the aggregate amount of items “10 Non-cumulative irredeemable preference shares” and item “11 Other innovative capital instruments” exceeding 20% of aggregate Tier 1 capital (before required deductions). Any amount ineligible for inclusion as Tier 1 capital as a result of this limit will be eligible for inclusion as Tier 2 capital.
Item 12. Sub total of items 10 & 11
This represents the total of Items “10 & 11” and will be automatically calculated. In accordance with GPS 110 Capital Adequacy for General Insurers, these items can not exceed 20% of Total Tier 1 capital before deductions. Any excess will be advised by a message on the form and automatically included in Tier 2 capital under the item heading “Ineligible Tier 1 capital”.
Item 13. Total Tier 1 capital
This figure calculates the total Tier 1 capital (i.e. items 4 – 11). The total will automatically adjust for the 20% cap on item “10 and 11” being included in Tier 1 capital.
Deductions from Tier 1 capital
Assets of an identifiable intangible nature and goodwill (i.e. unidentifiable intangible asset) and any net deferred tax assets (i.e. Future Income Tax Benefits net of any Provision for Deferred Income Tax) are to be deducted from Total Tier 1 capital in the line items provided. These are explained further below.
Item 14. Goodwill
The value of goodwill that is to be disclosed in this line item is the sum of the following:
For the Licensed Insurer:
The total amortised value of goodwill (unidentifiable intangible asset) as recognised in item “11 in GRF 300.0 Statement of Financial Position; plus
The component of the value of ‘Total other investments’ (i.e. investments in controlled entities) which represents purchased goodwill (i.e. current value less value of identifiable net tangible assets). This is reported in line item 9.5.A. of GRF 300.0 Statement of Financial Position).
For the Consolidated Insurance Group:
The total amortised value of goodwill (unidentifiable intangible asset) as recognised in item 11 in GRF 300.0 Statement of Financial Position.
Item 15. Identifiable Intangible Assets
Disclose the value of any identifiable intangible assets recognised in GRF 300.0 Statement of Financial Position. The value disclosed must equate to the amortised balance of identifiable Intangible assets disclosed in the Statement of Financial Position.
Item 16. Future income tax benefits/Deferred Tax Assets (net of any Deferred Tax Liabilities)
Disclose the value of FITB/Deferred Tax Assets recognised in GRF 300.0 Statement of Financial Position, net of any PDIT (provision for deferred income tax)/Deferred tax liabilities that are also recognised in GRF 300.0 Statement of Financial Position. The value disclosed must not be negative (i.e. a net PDIT balance after deducting FITB). Accordingly if the balance of PDIT exceeds FITB, zero must be disclosed.
Item 17. Other deductions required by APRA
No items will generally be included in this field. Items will generally only be disclosed in this line where APRA has specifically requested or directed the reporting insurer to deduct a specific item from Tier 1 capital.
Item 18. Total Deductions from Tier 1 capital
Represents the total of items 14 to 17
Item 19. Adjusted Total Tier 1 capital
This figure is automatically calculated and represents Item “13 Total Tier 1 capital” less item 18.
Tier 2 Capital
Items 20 – 41
Prior approval from APRA is required before an insurer is able to include instruments covered by these items in this form in its Tier 2 capital.
Tier 2 capital is limited to a maximum of 100% of an insurers eligible Tier 1 capital (net of deductions) and is divided into Upper Tier 2 and Lower Tier 2 capital.
A capital instrument is not eligible for inclusion in Tier 2 capital to the extent that its inclusion will result in the aggregate amount of eligible Lower Tier 2 capital exceeding 50% of eligible Tier 1 capital (net of deductions).
Capital instruments with a limited life (i.e. Lower Tier 2 capital) must have an original maturity greater than 5 years. These instruments will also be subject to amortisation over the last four years of their life according to the schedule set out in paragraph 17 of GGN 110.1 Measurement of Capital Base and as reflected in the associated form for these instructions.
Item 20. Ineligible Tier 1 capital
This item refers to excess of items “10 Non-cumulative irredeemable preference shares” and item “11 Other innovative capital instruments” due to 20% cap on inclusion in Tier 1. The form will automatically include the excess in this field.
Item 21. Other Tier 2 capital approved by APRA
No items will generally be included in this field. Items will generally only be disclosed in this line where APRA has specifically requested or directed the reporting insurer.
Item 26. Total Upper Tier 2 Capital
Represents the total of items 20 – 25
Item 42. Total Lower Tier 2 Capital
Represents the total of items 27 – 41 Total lower Tier 2 capital must not exceed 50% of Total Adjusted Tier 1 capital. This limit is automatically calculated by the form and will notify where it has been breached.
Item 43. Total Tier 2 Capital
Represents the total of items “26 Total Upper Tier 2 Capital” and Item “42 Total Lower Tier 2 Capital”. Total Tier 2 capital must not exceed the amount of ‘Adjusted Total Tier 1 capital’. This limit is automatically calculated by the form and will notify where it has been breached.
Item 44. Total Capital Base
Represents the total of ‘Adjusted Total Tier 1 capital’ and Item “43 Total Tier 2 Capital”. This amount is used in the calculation of the insurer’s minimum capital requirement.
Note: While a capital base is calculated for the consolidated insurance group, a MCR is not calculated for the consolidated insurance group at this stage.