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
GGN 110.4 Investment Risk Capital Charge outlines the treatment of eligible collateral and guarantees as risk mitigants.
The capital charge for Investment Risk may be reduced where the insurer holds certain types of collateral against an asset, or where the asset has been guaranteed, as a means of reducing risk.
The form is broken into 2 parts:
Part A - Eligible Collateral Provided to Reporting Insurer; and
Part B - Guarantees Provided to Reporting Insurer
Part A - Eligible Collateral Provided to Reporting Insurer
Where an insurer possesses recognised collateral against an asset, it may apply the Investment Risk Capital Factor relevant to the collateral to the value of the asset (instead of applying the capital factor that would otherwise apply to the asset). Collateral will be recognised only to the extent that it takes the form of a charge, mortgage or other security interest in, or over, an Eligible Collateral Item.
Eligible Collateral Items are cash, Government securities, or debt obligations where the obligor has a counterparty rating in Grade 1, 2 or 3. The ‘Eligible Collateral Item’ must also be held for the period for which the asset is held. Where the market value of the collateral does not cover the full value of the asset, only that part of an asset that is covered by collateral may be assigned the Investment Capital Factor applicable to the collateral.
This form facilitates the calculation of whether the insurer is able to claim a reduction in the investment capital charge as calculated in the Investments forms. Accordingly the insurer’s investments are to be entered into the Investments Form (and capital calculation) without adjusting for any guarantee or eligible collateral.
Note: if the eligible collateral supports more than one asset type which each have different investment capital factors, you will be required to separately record each type of asset to correctly calculate the reduction in the investment capital charge. In this case record each different type of asset (that has a different investment capital factor) on separate lines and allocate the eligible collateral provided between these different assets (e.g. could be prorated based on the proportion of each type of supported asset to the total value of supported assets).
A brief outline of the required data for each column in the form is provided to assist in completion:
Name of entity providing the eligible collateral to the reporting insurer
Disclose the name of the entity that is providing the eligible collateral to the reporting insurer.
Market value of the eligible collateral items provided as credit support for assets of the Insurer $'000
Where there is various Eligible collateral items (i.e. mix of assets satisfying columns (2) – (4)), which support the one asset type of the reporting insurer, allocate the eligible assets according to the appropriate columns (i.e. don’t lump them all into the one column or total column).
Cash or Government securities
Cash and Government securities to be ‘Eligible Collateral’ must be held for the period for which the asset is held. These reporting items should be brought to account at the market value of the outstanding balance where appropriate.
Cash
Eligible cash refers to Australian and foreign currency notes and coins of the reporting entity. Include notes and coins in transit between any branches or offices of the reporting entity.
Do not include any deposits at call or short term or any such funds held as part of the Insurer’s investments portfolio.
Government securities
Eligible government securities refers to securities issued by the following (as outlined in Attachment 1 of GGN 110.4 Investment Risk Capital Charge):
(a) Australian Commonwealth Government;
(b) Australian State or Territory government; or
(c) The national government of a foreign country where:
The security has a grade 1 counterparty rating; or, if not rated,
The long term foreign currency counterparty rating of that country is Grade 1.
Debt Obligation with a counterparty rating of Grade 1
This can be determined in accordance with Attachment 2 of GGN 110.4 Investment Risk Capital Charge.
Input the market value of such debt obligations in this column.
Debt Obligation with a counterparty rating of Grade 2
This can be determined in accordance with Attachment 2 of GGN 110.4 Investment Risk Capital Charge.
Input the market value of such debt obligations in this column.
Debt Obligation with a counterparty rating of Grade 3
This can be determined in accordance with Attachment 2 of GGN 110.4 Investment Risk Capital Charge.
Input the market value of such debt obligations in this column.
Total Eligible Collateral Provided
Represents the sum of columns (2) – (4). This field is automatically calculated by the form.
Assets of the insurer that are subject of the credit support.
Under these columns report only the value of assets that are subject to the credit support.
Investment capital factor of assets being supported
Input the investment capital factor that is applicable for the type of asset being supported (by the eligible collateral). Attachment 1 of GGN 110.4 Investment Risk Capital Charge outlines the investment capital factors that are applicable for each type of asset.
If the eligible collateral supports more than one asset type which have different investment capital factors, you will be required to separately record each type of asset to correctly calculate the reduction in the investment capital charge. In this case record each different type of asset (that has a different investment capital factor) on separate lines and allocate the eligible collateral provided between these different assets (e.g. could be prorated based on the proportion of each type of supported asset to the total value of supported assets).
Market value of assets subject to credit support $’000
Record the market value of the assets that are subject to the credit support.
Related Entity (place a "P" for parent entity, “S” for subsidiaries entity or “O” for other related party in column)
For each credit support provided to the Insurer, disclosure the nature of the counterparty providing the support if it is a related party, by marking the appropriate column (parent entity “P”, subsidiary “S”, or other related party “O”).
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:
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.
Adjustment to Investment Capital Charge
This field automatically calculated the required reduction in the investment capital charge (as calculated in accordance with the GRF 140 series) due to the support of the ‘Eligible Collateral Items’.
Part B - Guarantees Provided to Reporting Insurer
Assets of the reporting insurer that have been explicitly, unconditionally and irrevocably guaranteed for their remaining term to maturity by a guarantor with a counterparty rating (or for governments, the long-term foreign currency credit rating) of Grades 1, 2 or 3 may be assigned the Investment Capital Factor that would be applicable to the guarantor.
Guarantees provided to an insurer by its own parent or a related entity are not eligible for this treatment. Refer to previous page for definition of related entity.
Where the value of the guarantee does not cover the full market value of the asset, only that part of an asset that is covered by the guarantee may be assigned the Investment Capital Factor applicable to the guarantor.
This form facilitates the calculation of whether the insurer is able to claim a reduction in the investment capital charge as calculated in the GRF 140 series. Accordingly the insurer’s investments are to be entered into the GRF 140 series (and capital calculation) without adjusting for any guarantee.
Name of entity providing guarantee
Disclose the name of the entity that is providing the guarantee or direct credit support to the reporting insurer.
Value of the Guarantee Received in Relation to Assets of the Insurer $'000
Disclose the value of the guarantee received by the reporting insurer that is supporting specific assets of the insurer.
Counterparty rating Grade of Guarantor
Input the APRA rating grade applicable for the counterparty giving the guarantee (i.e. ratings 1 – 5). Refer to Attachment 2 of GGN 110.4 Investment Risk Capital Charge for a table relating APRA rating grades to accepted market counterparty rating bands (e.g. S&P counterparty rating bands)
Assets of the Insurer that are subject of the credit support
Investment Capital Factor of Assets Being Supported by the Guarantee
Input the investment capital factor that is applicable for the type of asset being supported (by the guarantee). Attachment 1 of GGN 110.4 Investment Risk Capital Charge outlines the investment capital factors that are applicable for each type of asset.
If the guarantee supports more than one asset type which have different investment capital factors, you will be required to separately record each type of asset to correctly calculate the reduction in the investment capital charge. In this case record each different type of asset (that has a different investment capital factor) on separate lines and allocate the eligible guarantee provided between these different assets (e.g. could be prorated based on the proportion of each type of supported asset to the total value of supported assets).
Market Value of the assets subject to the credit support
Report the value of the assets that are subject to the credit support (market/fair value should be used).
Related Entity
For each guarantee to the Insurer, disclosure the nature of the counterparty providing the support if it is a related party, by marking the appropriate column (parent entity “P”, subsidiary “S”, or other related party “O”).
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:
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.
Adjustment to Investment Capital Charge
This field automatically calculated the required reduction in the investment capital charge (as calculated in accordance with the Investment Forms) due to the support of the guarantor.