Financial Sector (Collection of Data) (reporting standard) determination No. 10 of 2010 - GRS 310 (2010) - Revenue, Expenses and Statement of Financial Performance
Reporting Form GRF 310.1Reporting Form GRF 310.1
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The purpose of GRF 310.1 Premium Revenue and Reinsurance Expense is to provide information on written and earned premium revenue gross and net of reinsurance expense by class of business, which supports the summarised underwriting result disclosed in GRF 310.0 Statement of Financial Performance.
The form reports total gross written, gross earned and net earned premium revenue by class of business, on accrual and cashflow bases, for both direct and inwards reinsurance business.
The following items should be reported:
total gross written premium;
gross written premium relating to unclosed business;
gross unearned premium liability at the beginning of the financial year on a AASB 1023 basis;
gross unearned premium liability at the end of the reporting period on a AASB 1023 basis;
gross earned premium on a AASB 1023 ‘General Insurance Contracts’ (AASB 1023) basis excluding fire service levy and other levies imposed by state and territory governments;
fire service levy and other levies imposed by state and territory governments;
gross earned premium on a AASB 1023 basis including fire service levy and other levies imposed by state and territory governments;
outwards reinsurance expense on a AASB 1023 basis;
deferred reinsurance expense asset at the beginning of the financial year based on deferred reinsurance expense reported in GRF 300.0 Statement of Financial Position;
deferred reinsurance expense asset at the end of the reporting period based on deferred reinsurance expense reported in GRF 300.0 Statement of Financial Position;
total reinsurance expense reported in GRF 300.0 Statement of Financial Position;
net earned premium revenue; and
total reinsurance expense as reported under AASB 1023.
Audit requirements
The form relating to authorised insurance entities and reinsurance entities is required to be subject to audit review and testing.
The scope and nature of audit testing required is outlined in the applicable Auditing and Assurance Standards Board Guidance Statement issued by the Auditing and Assurance Standards Board.
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 (the Act). This means that:
the completed form for the financial year must be audited by the Appointed 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)); and
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); and
Authorised reinsurance entities (reference to licensed insurer in the form means total operations of the licensed entity).
Definitions
Definitions for data reporting items required by this form have been provided where possible in the instructions under the section headed ‘Specific Instructions’.
Unit of measurement
Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ (AASB 121).
The general requirements of AASB 121 are:
Foreign currency monetary items outstanding at the reporting date[5] must be translated at the spot rate[6] at the reporting date.
Foreign currency non-monetary items[7] that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction.
Foreign currency non-monetary items that are measured at fair value will be translated at the exchange rate at the date when fair value was determined.
Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with AASB 139 ‘Financial Instruments: Recognition and Measurement’ (AASB 139). However, those foreign currency derivatives that are not within the scope of AASB 139 (e.g. some foreign currency derivatives that are embedded in other contracts) remain within the scope of AASB 121.
For APRA purposes equity items must be translated using the foreign currency exchange rate at the date of investment or acquisition. Post acquisition changes in equity are required to be translated on the date of the movement.
As foreign currency derivatives are measured at fair value, the currency derivative contracts are translated at the spot rate at the reporting date.
Exchange differences should be recognised in profit and loss in the period which they arise. For foreign currency derivatives, the exchange differences would be recognised immediately in profit and loss if the hedging instrument is a fair value hedge. For derivatives used in a cash flow hedge, the exchange differences should be recognised directly in equity.
The ineffective portion of the exchange differences in all hedges would be recognised in profit and loss.
Translation of financial reports of foreign operations.
A foreign operation is defined in AASB 121 as meaning an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.
Exchange differences relating to foreign currency monetary items that form part of the net investment of an entity in a foreign operation, must be recognised as a separate component of equity.
Translation of financial reports should otherwise follow the requirements in AASB 121.
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.
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 Reporting Standard GRS 310.1 Premium Revenue and Reinsurance Expense.
Basis of preparation
Insurers should follow the recognition and measurement requirements of the Australian accounting standards in completing this form.
The interpretation and required measurement basis for items listed in the form are specified in these instructions.
Netting
Unless otherwise specifically stated, institutions are allowed to take advantage of netting agreements in relation to disclosure of data items in this form. Institutions are to comply with the prerequisite for netting outlined in Australian accounting standards AASB 7 ‘Financial Instruments: Disclosures’, AASB 139 and AASB 132 ‘Financial Instruments: Presentation’.
Related party disclosure
Amounts due from, loans to, debentures of, shares in, or units in a trust or body corporate that is related to the insurer are to be disclosed for items of assets and liabilities where indicated in the form. For the purposes of this form, related bodies corporate are to be interpreted consistently with the meaning as in AASB 124 ‘Related Party Disclosures’ (AASB 124).
In accordance with AASB 124, related party means a party that directly or indirectly through one or more intermediaries:
(a) controls, is controlled by or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);
(b) has significant influence over the entity or has joint control over the entity; or
(c) is an associate (as defined in AASB 128 ‘Investments in Associates’) of the entity; or
(d) is a joint venture in which the entity is a venturer (see AASB 131 ‘Interests in Joint Ventures’); or
(e) is a member of the key management personnel of the entity or its parent; or
(f) is a close member of the family of any individual referred to in (a), (b) or (e); or
(g) is an entity that its controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (e) or in (f); or
(h) is a post-employment benefit plan for the benefit of the employees of the entity, or of any entity that is a related party of the entity.
Specific instructions
Classes of Insurance Business
Direct Business
The classes of insurance business 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 (XIII).
(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)
Fire
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) and 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
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 by the terms of the policy provides benefits for no more than three years.
(XI). Other
All other insurance business not specifically mentioned elsewhere. It includes, for example:
Trade Credit;
Extended Warranty (where the insurer extends a 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.
Includes public liability attaching to houseowners/householders policies.
(XIV). Professional Indemnity (PI)
PI covers professionals against liability incurred as a result of errors and omissions in performing professional services which has resulted in economic losses suffered by third parties.
Includes Directors' and Officers' liability insurance plus legal expense insurance. Cover for legal expenses is generally 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 provide reinsurance are as follows:
Treaty Proportional: This refers to all forms of quota share and surplus reinsurance written on a treaty reinsurance arrangement where the reinsurer is bound to accept all business ceded by the reinsured subject to the terms and conditions of the pre-agreed treaty wording, and shares in the same proportion of premium and losses of the reinsured.
Treaty Excess of Loss: This refers to all reinsurance arrangements where the reinsurer is bound to accept all business ceded by the reinsured and the reinsurer pays losses only above an agreed predetermined limit (retention) up to an agreed maximum amount.
Facultative Proportional: This refers to non-treaty arrangements where each reinsurance contract is on an individual offer and acceptance basis and the reinsurer shares in the same proportion of premium and losses of the reinsured.
Facultative Excess of Loss: This refers to non-treaty arrangements where each reinsurance contract is on an individual offer and acceptance basis. The reinsurer pays losses only above an agreed predetermined limit (retention) up to an agreed maximum amount.
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 split out all the classes of reinsurance businesses.
Where an insurer writes inwards reinsurance which spans multiple classes and the insurer cannot readily split the contract between classes, the contract must be allocated using an appropriate method, including 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 underwrites 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.
Premium revenue
Premium revenue must be reported separately for:
Direct business; and
Inwards reinsurance business.
Premium revenue must be recognised on a basis that is consistent with the requirements of AASB 1023.
In accordance with AASB 1023:
Premium revenue shall be recognised from the attachment date as soon as there is a basis on which it can be reliably estimated:
over the period of the general insurance contract for direct business; or
over the period of indemnity for reinsurance business;
in accordance with the pattern of the incidence of risk expected under the general insurance contract[8].
Reinsurers are required to recognise the premium based on the gross premium income to be written by the direct insurer under the contract for proportional reinsurance. For excess of loss reinsurance contracts, the premium revenue is to be recognised on the basis of the agreed minimum/deposit premium, which will be subject to a final adjustment factor applied to the final declared values of the premium determined.
Premium revenue must be discounted where it is to be received beyond the current year of cover under an insurance/reinsurance contract. In these cases, use the discount rate as required in calculating outstanding claims liabilities in accordance with AASB 1023.
Premium revenue excludes amounts collected on behalf of third parties i.e. government stamp duty and taxes.
Levies charged to insured, such as fire service levies, are to be included as total premium revenue, but are to be reported separately.
Premium refunds and rebates are to be deducted from premium revenue.
For instalment premium policies, the amount of the annualised premium is to be used.
Where premium is calculated on an adjustment basis, the estimated annual premium is to be brought to account, with the estimated premium being replaced by the actual amount as it becomes known.
Where premium is accepted on a deposit basis, the full annual premium is to be brought into account.
Premium revenue must be gross of reinsurance expense.
Total gross written premium includes premium receivable on unclosed business. This includes the business which has been accepted by the insurer/reinsurer prior to the balance date but where there is insufficient information to fully identify the business.
Part 1 and Part 2
For ‘Direct Business” and ‘Inwards Reinsurance Business’, amounts are to be reported as follows:
(1) Total gross written premium revenue
Report premium revenue from business written directly by the insurer in ‘Part 1: Direct Business’. Report inwards reinsurance premiums under ‘Part 2: Reinsurance Business’. This should exclude Fire Service Levy (FSL) or other levies imposed by state and territory governments.
Also includes business sourced through insurance intermediaries such as co-insurance, underwriting pools or joint ventures, or portfolio transfers.
Joint ventures
Joint ventures are to be interpreted as defined by the AASB 131 ‘Interests in Joint Ventures’.
Coinsurance and underwriting pools
Insurance business allocated through underwriting pools and coinsurance arrangements by an entity acting as agent must be accounted for by the accepting insurer as direct insurance business (AASB 1023).
Direct insurers or reinsurers may form underwriting pools or enter coinsurance arrangements as vehicles for jointly insuring particular risks or types of risks. Premiums, claims and other expenses are usually shared in agreed ratios by insurers involved in these arrangements. Many underwriting pools and coinsurance arrangements involve the acceptance of risks by an entity acting as an agent for pool members or coinsurers. The entity receives premiums and pays claims and expenses, and allocates shares of the business to each pool member or coinsurer in agreed ratios. As the entity acting as agent is not an insurer, the business allocated to pool members and coinsurers is not reinsurance business. Pool members and coinsurers will need to treat such business allocated to them as direct insurance business.[9]
Some underwriting pools and coinsurance arrangements involve members of the pool or coinsurers directly underwriting risks and then passing all of those risks into the pool or arrangement. These risks are then shared among pool members or coinsurers. For this type of underwriting pool or arrangement, an insurer treats its share of the business that other insurers place with the pool or arrangement as inwards reinsurance, and the business that it writes and passes into the pool or arrangement as direct insurance business which it reinsures to the extent of the shares in the pool or arrangement of the other pool members or coinsurers. This approach results in the insurer properly reflecting its obligations to those it has directly insured and the substance of the transactions with the pool members or coinsurers.
Portfolio transfers
Portfolio transfer, as defined by AASB 1023, is a term used to describe the process by which premiums and claims on direct insurance business is transferred from one insurer to another by means of direct sale, not by reinsurance.
When responsibility in relation to claims on transferred insurance business passes from the transferring insurer to the accepting insurer the transfer must be accounted for as a portfolio assumption by the accepting insurer, and a portfolio withdrawal by the transferring insurer. In this instance, the accepting insurers will recognise the amount of unexpired premium revenue and insurance liabilities for which the transferring insurer is no longer responsible. Transfers of business effected through the Insurance Act requiring Federal Court approval shall be treated in this manner.
Where the responsibility in relation to claims on transferred insurance business remains with the transferring business, the transfer shall be treated by the transferring insurer and the accepting insurer as reinsurance business.
Premiums Received on a cashflow basis (in Part 3: Total)
This is the amount of premiums actually received over the reporting period (on a year to date basis). It is to be reported in aggregate for direct written business and reinsurance business.
This relates to all premiums received on a cashflow basis in the current financial year, regardless of the financial year in which the premiums may have been recognised as revenue (i.e. a prior financial year).
(2) Gross written premium revenue relating to unclosed business
This column requires separate identification of gross premium revenue relating to unclosed business. This includes the business which has been accepted by the insurer/reinsurer prior to the balance date but there is insufficient information to fully identify the business.
(3) and (4) AASB 1023 Gross unearned premium liability (UPL)
Gross UPL is to be reported in this form at both the start of the financial year and the end of the reporting period. The UPL is to be reported in this form in accordance with AASB 1023.
This column is calculated automatically by the form and represents the sum of column (5) and column (6).
(8) Reinsurance expense
Reinsurance expense is to be recognised in accordance with the pattern of reinsurance service received as required by AASB 1023.
Reinsurance expense will be recognised from the attachment date over the period of indemnity of the reinsurance contract in accordance with the expected pattern of the incidence of risk. This may vary according to the type of reinsurance contract as outlined below.
For reinsurance written on a risks attaching or, equivalently, an underwriting period basis, current reinsurance contracts are fully matched to the underlying insurance portfolios. Reinsurance coverage for the underlying portfolio is recognised as the underlying policies are written.
For reinsurance written on a losses occurring basis, current reinsurance contracts provide coverage for any risks exposed during the reinsurance period irrespective of when the underlying business was written. Such reinsurance covers both the unexpired portion of policies in force at the contract commencement date and that portion of new business and renewals written during the year that is earned up to the contract expiry date. This latter portion relates to business which has not yet been written at the contract commencement date.
APRA would expect that initially the full minimum and deposit premium would be recognised as an expense, with any necessary adjustments due to experience at subsequent reporting dates.
Where payments under a reinsurance contract extend beyond the current year of cover, reinsurance expense is to be discounted using similar discount rates as required in measuring insurance liabilities in accordance with AASB 1023.
(9) and (10) GRF 300.0 Deferred Reinsurance Expense (DRE)
Deferred Reinsurance Expense is to be reported in this form at both the start of the financial year and the end of the reporting period. Deferred Reinsurance Expense is to be reported in this form as per GRF 300.0 Statement of Financial Position.
(11) Total Reinsurance expense
This column is calculated automatically by the form and represents The sum of column (8) and column (9), less column (10).
For some insurers the reinsurance expense reported in this column may be different from the reinsurance expense reported at column 13.
(12) Net premium revenue
This is automatically calculated by the form and represents the AASB 1023 Gross earned premium (including FSL) less total reinsurance expense.
(13) Total reinsurance expense per AASB 1023
Report the total reinsurance expense that would be reported under AASB 1023. Where there is no difference from column 11 ‘Total Reinsurance expense’ input the same number as in column 11. Where the insurer does not ordinarily calculate reinsurance expense under AASB 1023, input zero.. This item is a memo item for reconciliation purposes only.
Business with related entities:
Report premium revenue/reinsurance expense items which are from/in connection with the following related entities. Related parties have been defined earlier in this instruction guide:
Parent entity
Controlled entities / Controlled entities of the parent entity
For branches, the line item ’Controlled entities / Controlled entities of the parent’ is to be interpreted as amounts in relation to ‘Controlled entities of the parent’, and for licensed insurance entities amounts are in relation to ‘Controlled entities’ of the reporting insurer.