Part 3. Basis of preparation - Financial Sector (Collection of Data) (reporting standard) determination No. 111 of 2023 - 3. Basis of preparation | Zoe
Financial Sector (Collection of Data) (reporting standard) determination No. 111 of 2023
3. Basis of preparation3. Basis of preparation
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The General Instruction Guide is intended to assist in the completion and lodgement of the reporting standards required to be lodged with APRA under the Reporting Standards made under section 13 of the Financial Sector (Collection of Data) Act 2001 by companies registered under the Life Act. In this document 'life company' means any company registered under the Life Act, including a friendly society. References to 'life insurers' apply to life companies other than friendly societies.
Detailed instructions for the individual reporting items are provided in the specific instructions for each reporting standard. These specific instructions need to be considered in conjunction with this document, the relevant reporting standards and prudential standards[1].
This General Instruction Guide covers all the reporting standards for life companies.
2. Reporting level
This section details the reporting levels for completion of each reporting standard. Each reporting standard outlines whether reporting is required in respect of:
Each statutory fund for a life insurer and each approved benefit fund for a friendly society;
The shareholder fund for a life insurer and the management fund for a friendly society; and
The life company (i.e. company as whole for both life insurers & friendly societies).
3. Basis of preparation
3.1. Year to date
The financial information required to be reported must be reported as at the close of business for the last day of the reporting period, or for the year-to-date period ending at the close of business on the last day of the reporting period, as relevant.
3.2. General accounting basis
In completing the reporting standards, unless otherwise stated specifically, reporting life companies are to follow the basis consistent with the relevant Australian Accounting Standards. In particular, appropriate consideration must be given to the interpretation, the basis for measurement, and the netting between revenues/expenses items and financial assets/liabilities.
3.3. Actuarial valuation basis
All actuarial valuations and calculations included in, or used in the preparation of the reporting standards must be performed in accordance with the relevant prudential standards. The determination of policy liabilities must be in accordance with Prudential Standard LPS 340 Valuation of Policy Liabilities (LPS 340).
APRA recognises that full actuarial and other valuation procedures may not be used for valuing policy liabilities in all reporting periods. In such cases, reasonable estimation may be applied for valuing policy liabilities and such estimation needs to be based on the detailed valuation procedures. It must be noted that where such estimation processes have taken place, the approximating valuation methodology used by the life company must be subject to the advice of the Appointed Actuary, in line with the requirements of Prudential Standard CPS 320 Actuarial and Related Matters.
3.4. Fair value approach
For capital reporting purposes, fair values must be determined in accordance with Prudential Standard LPS 112 Capital Adequacy: Measurement of Capital.
For accounting reporting purposes, fair value has the same meaning as defined in AASB 13 Fair Value Measurement.
3.5. Units of measurement
Unless otherwise indicated by the specific item instructions, all reporting standards are to be prepared in whole Australian dollars (AUD) with no decimal place. Ratios are to be expressed to 2 decimal places. Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.
3.6. Definitions
Definitions for the individual data items are included in the specific reporting instructions for each of the reporting standards.
Definitions, unless specified otherwise, apply to all life insurers and friendly societies. In a number of reporting standards, the term ‘statutory fund’ has been used to refer to a statutory fund of a life insurer or a benefit fund of a friendly society in the specific instructions. The term, ‘general fund’ has been used to refer to the shareholders’ fund of a life insurer or the management fund of a friendly society in the specific instructions.
Additionally, reference to shareholders has been used to refer to ‘members’ of a mutual association or society.
3.7. Related parties
Where this term is used or referred to in the reporting standards, it has the same meaning as it does in AASB 124 Related Party Disclosures.
4. Audit requirements
The reporting standards must be subjected to audit review and testing as detailed in Prudential Standard LPS 310 Audit and Related Matters.
5. APRA Product Group classification
For consistency of reporting across the range of reporting standards applicable to life companies, APRA adopts a single set of product groupings for life insurers and friendly societies. The appropriate APRA product groups must be used in accordance with the specific reporting standard.
The following tables specify the product groups applicable to life insurers and friendly societies.
5.1. Life insurers
The following product groups fall under participating and non-participating benefits. The expressions ‘participating benefits’ and ‘non-participating benefits’ are defined in the Life Act.
Within the relevant reporting standard, APRA has listed the product groups that apply.
Ref.
Product Group
Notes
L1
Conventional
Includes whole of life policies and endowment policies.
L2
Annuity with longevity risk
Annuities providing periodic payments that are dependent on the continuance of human life.
L3
Individual death – Stepped premium
Death benefit within policies issued on an individual basis with stepped premium.
L3_1
Individual lump sum risk – Stepped premium
Lump sum benefit within policies issued on an individual basis with stepped premium. Lump sum benefit includes death, TPD and trauma benefits.
L4
Individual TPD – Stepped premium
TPD benefit within policies issued on an individual basis with stepped premium.
L5
Individual trauma – Stepped premium
Trauma benefit within policies issued on an individual basis with stepped premium
L6
Individual disability income insurance – Stepped premium
Disability income insurance benefit within policies issued on an individual basis with stepped premium.
L7
Individual death – Other
Death benefit within policies issued on an individual basis with non-stepped premium.
L7_1
Individual lump sum risk – Other
Lump sum benefit within policies issued on an individual basis with non-stepped premium. Lump sum benefit includes death, TPD and trauma benefits.
L8
Individual TPD – Other
TPD benefit within policies issued on an individual basis with non-stepped premium.
L9
Individual trauma – Other
Trauma benefit within policies issued on an individual basis with non-stepped premium
L10
Individual disability income insurance – Other
Disability income insurance benefit within policies issued on an individual basis with non-stepped premium.
L11
Group death
Death benefit within policies issued on a group (wholesale) basis.
L11_1
Group lump sum risk
Lump sum benefit within policies issued on a group (wholesale) basis. Lump sum benefit includes death, TPD and trauma benefits.
L12
Group TPD
TPD benefit within policies issued on a group (wholesale) basis.
L13
Group trauma
Trauma benefit within policies issued on a group (wholesale) basis.
L14
Group disability income insurance
Disability income insurance benefit within policies issued on a group (wholesale) basis.
L15
Investment linked
Investment linked policies where policy benefits are associated with the performance of the supporting assets.
L16
Investment policy with discretionary additions
Investment account business within the meaning of section 14 of the Life Act.
L17
Other investment policy
Includes all other investment policies not specifically categories in L15 and L16.
L18
Annuity without longevity risk
Annuities providing periodic payments that are not dependent on the continuance of human life.
L19
Other
Includes all other policies not specifically categories above. However, do not use this Product Group unless APRA has been consulted beforehand.
Refer to Reporting Standard LRS 750.0 Claims and Disputes (LRS 750.0) for the definitions of ‘Death’, ‘TPD’, ‘Trauma’ and ‘DII’.
Refer to LRS 750.0 for the definitions of ‘Group’ and ‘Individual’.
Stepped premium policies are the policies where premiums increase each year according to risk factors (i.e. age). Other individual policies are the individual policies that are not stepped premium policies (e.g. level premium policies and hybrid stepped premium policies). For a reinsurer, determination of whether the premium structure of a reinsurance contract issued is stepped or non-stepped must be based on the premium structure of the treaty, and not based on the premium structure of the underlying risks written by the cedants.
5.2. Friendly Societies
Ref.
Product Group
Notes
F1
Education
F2
Investment Account
As defined in section 14 of the Life Insurance Act 1995.
F3
Annuity and Superannuation
F4
Defined Benefit Risk
All products classified as defined benefit, including defined benefit funeral products
F5
Capital Guaranteed Defined Contribution Funeral
Capital guaranteed funeral products that are classified as Defined Contribution.
F6
Investment Linked
As defined in section 14 of the Life Insurance Act 1995.
F7
Unallocated Benefit Fund Reserve
Value of benefit funds which has not been allocated to either the benefit fund members or to management fund.
F8
Members’ Capital and Retained Profits
Members’ capital and retained profits allocated to members.
The classification of participating and non-participating benefits does not apply to friendly societies.
6. Principles for allocating AASB 17 Insurance Contracts (AASB 17) numbers to APRA product groups (life insurers)
Life insurers are to apply the allocation principles (outlined below) to allocate AASB 17 numbers to APRA product groups (outlined under section 5) where it is not possible to clearly identify AASB 17 numbers and assign it to specific APRA product groups.
Principle 1: To the extent that AASB 17 balance sheet and income statement items can be readily allocated to APRA product groups, they must be so allocated. Otherwise, the items (including CSM and / or loss component) are to be allocated using allocation approaches. The allocation approaches are to reflect allocation drivers determined based on accounting and / or actuarial judgments. For example, an insurer may decide to determine annual premium income and / or expected claims to be the allocation drivers to allocate AASB 17 items using proportions and / or ratios.
Principle 2: A systematic and rational approach must be applied.
Principle 3: The approach must be consistent over time. However, an insurer may change the approach if it views that the approach is no longer appropriate based on accounting and / or actuarial judgements.
Principle 4: The aggregate of the allocated numbers across APRA product groups must be consistent with AASB 17 numbers reported on a statutory basis.
Principle 5: A single allocation approach need not necessarily be applied.
Allocation approaches and allocation drivers must be clearly documented. This would support clarity and consistent application of the approaches and drivers for APRA product group reporting over time. Insurers must to prepare a document outlining how they have applied the allocation principles to allocate AASB 17 items to APRA product groups for APRA reporting.
For clarity, life insurers must not use allocation principles to allocate AASB 17 insurance and reinsurance assets and liabilities across the components of the Life Act reporting structure (for details, refer to the requirements outlined in LPS 340).