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Reporting Standard LRS 100.0

Solvency

Objective of this reporting standard

This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001. It requires all registered life insurance companies to report to APRA, in general, on a quarterly and an annual basis in relation to solvency.

This reporting standard outlines the overall requirements for the provision of relevant information to APRA. It should be read in conjunction with the Form LRF 100.0 Solvency, and the associated instructions (both of which are attached and form part of this reporting standard).

Purpose

1. Data Information collected in Form LRF 100.0 Solvency (LRF 100.0) is used by APRA for the purpose of prudential supervision, including assessing compliance with prudential standards and actuarial standards where appropriate. It may also be used by the Reserve Bank of Australia, the Australian Bureau of Statistics and the Australian Securities and Investments Commission.

Application

2. This reporting standard applies to all life insurance companies including friendly societies (together referred to as life companies) registered under the Life Insurance Act 1995 (Life Insurance Act).

Information required

3. A life company must provide APRA with the information required by Form LRF 100LRF 100.0 for each reporting period.

Note: the instructions for Form LRF 100LRF 100.0 explain in more detail the information that is required.

4. The quarterly quarterly information required to be provided to APRA under this reporting standard is not not intended to be consideredform part of the financial statements financial statements, within the meaning of section 124 of the Life Insurance Act, given by the life company to APRA. Only Items 1 and 2 of the annual information required to be provided to APRA under this reporting standard are intended to form part of the annual return, within the meaning of section 124 of the Life Insurance Act, given by the life company to APRAto be considered part of the annual return given by the life company to APRA.

Method of submission

5. The information required by this reporting standard must be given to APRA either:

(a) in electronic form using the ‘Direct to APRA’ application, applying one of the electronic submission mechanisms under that application; or

(b) by completing Form LRF 100LRF 100.0 on paper and mailing the completed form to APRA

Note: the ‘Direct to APRA’ application software and paper forms may be obtained from APRA.

Reporting periods and due dates

6. Subject to paragraph 7, a life company must provide the information required by this reporting standard:

(a) in unaudited form - in respect of each quarter based on the financial year
of the life company; and

(b) in audited form - in respect of each financial year of the life company.

Note 1: this means that this form will be submitted five times for a full financial year.

Note 2: the annual audited form must be submitted in conjunction with the annual auditor’s report, as required under Prudential Standard LPS 310 Audit and Actuarial Requirements Paragraph 8.

7. APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular life company, to require it to provide the information required by this reporting standard more frequently, or less frequently, having regard to:

(a) the particular circumstances of the life company;

(b) the extent to which the information is required for the purposes of the prudential supervision of the life company; and

(c) the requirements of the Reserve Bank of Australia or the Australian Bureau of Statistics or the Australian Securities and Investments Commission.

8. The quarterly information required by this reporting standard in unaudited form must be provided to APRA within 20 business days after the end of the reporting period to which the information relates. The annual information required by this reporting standard in audited form must be provided to APRA within four months after the end of the reporting period to which the information relates.

9. APRA may grant a life company an extension of a due date in writing, in which case the new due date for the provision of the information will be the date on the notice of extension.

Quality control

10. The information provided by a life company under this reporting standard must be the product of processes and controls that have been reviewed and tested by the auditor of the life company.

11. All information provided by a life company under this reporting standard must be subject to processes and controls developed by the life company for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the life company to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.

12. Information provided to APRA in audited form must be audited by the auditor of the life company.

13. Actuarial valuations and calculations included in, or used in the preparation of, the information provided to APRA must be in accordance with the actuarial standards and prudential standards in force for the reporting period. However, life companies may use reasonable estimates when preparing information that will not be audited (i.e. for the first four submissions of information for a full financial year). The instructions to LRF 100LRF 100.0 include general principles on the use of estimates.

Authorisation

14. If the officer of a life company provides the information required by this reporting standard:

(a) using Direct to APRA (D2A), the officer must digitally authorise, submit the data to APRA and receive a D2A receipt number for the information to be considered given to APRA. APRA will issue ‘digital certificates’ to officers of the life company who have authority to transmit the data to APRA; or

(b) on paper, the relevant completed form must be signed on the front page by the principal executive officer or chief financial officer of the life company.

Note: information in draft returns saved at APRA using D2A will not be considered to be provided to APRA for the purposes of the life company's obligations under this reporting standard.

Minor alterations to forms and instructions

15. APRA may make minor variations to:

(a) a form that is part of this reporting standard, and the instructions to such a form, to correct technical, programming or logical errors, inconsistencies or anomalies; or

(b) the instructions to a form, to clarify their application to the form

without changing any substantive requirement in the form or instructions.

16. If APRA makes such a variation it must notify in writing each life company that is required to report under this reporting standard.

Transitional

17. A life company must report in accordance with this reporting standard for any reporting period ending on or after 1 January 2008. However, a life company must also report to APRA in accordance with the Prudential Rules which applied before the commencement of this reporting standard in respect of any reporting period ending before 1 January 2008.

Note: as an additional transitional measure, a life company must also report to APRA in accordance with Reporting Standard LRS 901 Transitional Arrangements 2008.

Interpretation

18. In this reporting standard:

business days means ordinary business days, exclusive of Saturdays, Sundays or public holidays;

principal executive officer means the principal executive officer of the life company for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the entity;

reporting period means a reporting period under paragraph 6 or, if applicable, paragraph 7.

Solvency

Objective of this reporting standard

This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001. It requires all registered life insurance companies to report to APRA, in general, on a quarterly and an annual basis in relation to solvency.

This reporting standard outlines the overall requirements for the provision of relevant information to APRA. It should be read in conjunction with the Form LRF 100.0 Solvency, and the associated instructions (both of which are attached and form part of this reporting standard).

Purpose

1. Data Information collected in Form LRF 100.0 Solvency (LRF 100.0) is used by APRA for the purpose of prudential supervision, including assessing compliance with prudential standards and actuarial standards where appropriate. It may also be used by the Reserve Bank of Australia, the Australian Bureau of Statistics and the Australian Securities and Investments Commission.

Application

2. This reporting standard applies to all life insurance companies including friendly societies (together referred to as life companies) registered under the Life Insurance Act 1995 (Life Insurance Act).

Information required

3. A life company must provide APRA with the information required by Form LRF 100LRF 100.0 for each reporting period.

Note: the instructions for Form LRF 100LRF 100.0 explain in more detail the information that is required.

4. The quarterly quarterly information required to be provided to APRA under this reporting standard is not not intended to be consideredform part of the financial statements financial statements, within the meaning of section 124 of the Life Insurance Act, given by the life company to APRA. Only Items 1 and 2 of the annual information required to be provided to APRA under this reporting standard are intended to form part of the annual return, within the meaning of section 124 of the Life Insurance Act, given by the life company to APRAto be considered part of the annual return given by the life company to APRA.

Method of submission

5. The information required by this reporting standard must be given to APRA either:

(a) in electronic form using the ‘Direct to APRA’ application, applying one of the electronic submission mechanisms under that application; or

(b) by completing Form LRF 100LRF 100.0 on paper and mailing the completed form to APRA

Note: the ‘Direct to APRA’ application software and paper forms may be obtained from APRA.

Reporting periods and due dates

6. Subject to paragraph 7, a life company must provide the information required by this reporting standard:

(a) in unaudited form - in respect of each quarter based on the financial year
of the life company; and

(b) in audited form - in respect of each financial year of the life company.

Note 1: this means that this form will be submitted five times for a full financial year.

Note 2: the annual audited form must be submitted in conjunction with the annual auditor’s report, as required under Prudential Standard LPS 310 Audit and Actuarial Requirements Paragraph 8.

7. APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular life company, to require it to provide the information required by this reporting standard more frequently, or less frequently, having regard to:

(a) the particular circumstances of the life company;

(b) the extent to which the information is required for the purposes of the prudential supervision of the life company; and

(c) the requirements of the Reserve Bank of Australia or the Australian Bureau of Statistics or the Australian Securities and Investments Commission.

8. The quarterly information required by this reporting standard in unaudited form must be provided to APRA within 20 business days after the end of the reporting period to which the information relates. The annual information required by this reporting standard in audited form must be provided to APRA within four months after the end of the reporting period to which the information relates.

9. APRA may grant a life company an extension of a due date in writing, in which case the new due date for the provision of the information will be the date on the notice of extension.

Quality control

10. The information provided by a life company under this reporting standard must be the product of processes and controls that have been reviewed and tested by the auditor of the life company.

11. All information provided by a life company under this reporting standard must be subject to processes and controls developed by the life company for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the life company to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.

12. Information provided to APRA in audited form must be audited by the auditor of the life company.

13. Actuarial valuations and calculations included in, or used in the preparation of, the information provided to APRA must be in accordance with the actuarial standards and prudential standards in force for the reporting period. However, life companies may use reasonable estimates when preparing information that will not be audited (i.e. for the first four submissions of information for a full financial year). The instructions to LRF 100LRF 100.0 include general principles on the use of estimates.

Authorisation

14. If the officer of a life company provides the information required by this reporting standard:

(a) using Direct to APRA (D2A), the officer must digitally authorise, submit the data to APRA and receive a D2A receipt number for the information to be considered given to APRA. APRA will issue ‘digital certificates’ to officers of the life company who have authority to transmit the data to APRA; or

(b) on paper, the relevant completed form must be signed on the front page by the principal executive officer or chief financial officer of the life company.

Note: information in draft returns saved at APRA using D2A will not be considered to be provided to APRA for the purposes of the life company's obligations under this reporting standard.

Minor alterations to forms and instructions

15. APRA may make minor variations to:

(a) a form that is part of this reporting standard, and the instructions to such a form, to correct technical, programming or logical errors, inconsistencies or anomalies; or

(b) the instructions to a form, to clarify their application to the form

without changing any substantive requirement in the form or instructions.

16. If APRA makes such a variation it must notify in writing each life company that is required to report under this reporting standard.

Transitional

17. A life company must report in accordance with this reporting standard for any reporting period ending on or after 1 January 2008. However, a life company must also report to APRA in accordance with the Prudential Rules which applied before the commencement of this reporting standard in respect of any reporting period ending before 1 January 2008.

Note: as an additional transitional measure, a life company must also report to APRA in accordance with Reporting Standard LRS 901 Transitional Arrangements 2008.

Interpretation

18. In this reporting standard:

business days means ordinary business days, exclusive of Saturdays, Sundays or public holidays;

principal executive officer means the principal executive officer of the life company for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the entity;

reporting period means a reporting period under paragraph 6 or, if applicable, paragraph 7.

Objective of this reporting standard

This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001. It requires all registered life insurance companies to report to APRA, in general, on a quarterly and an annual basis in relation to solvency.

This reporting standard outlines the overall requirements for the provision of relevant information to APRA. It should be read in conjunction with the Form LRF 100.0 Solvency, and the associated instructions (both of which are attached and form part of this reporting standard).

Transitional

17. A life company must report in accordance with this reporting standard for any reporting period ending on or after 1 January 2008. However, a life company must also report to APRA in accordance with the Prudential Rules which applied before the commencement of this reporting standard in respect of any reporting period ending before 1 January 2008.

Note: as an additional transitional measure, a life company must also report to APRA in accordance with Reporting Standard LRS 901 Transitional Arrangements 2008.

Interpretation

18. In this reporting standard:

business days means ordinary business days, exclusive of Saturdays, Sundays or public holidays;

principal executive officer means the principal executive officer of the life company for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the entity;

reporting period means a reporting period under paragraph 6 or, if applicable, paragraph 7.

Reporting Form LRF 100LRF 100.0

Solvency

Instruction Guide

Introduction

Form LRF 100.0 Solvency (LRF 100.0) provides APRA with the necessary information on the solvency requirement of each statutory fund, as well as solvency reserve, ratio & coverage, and component details, to undertake an assessment of a life insurance company’s regulatory solvency position. It also assists APRA in its supervision of compliance with the requirements of the Life Insurance Act 1995.

This Instruction Guide is designed to assist reporting entities in the completion of LRF 100LRF 100.0. The Instruction Guide provides:

• general directions and notes regarding preparation and lodgement; and
• instructions relating to specific items.

General directions and notes

Reporting levels

LRF 100LRF 100.0 must be completed by all life insurance companies, including friendly societies.

The form is to be completed separately for each statutory fund (approved benefit fund).

LRF 100LRF 100.0 contains four sections:

1. Solvency Requirement;
2. Solvency Reserve/Ratio/Coverage;
3. Solvency Inadmissible Assets; and
4. Solvency Resilience Requirement.

Within each section, reporting items are to be completed at total fund level.

For the purposes of reporting under this form, contracts are to be classified in accordance with Prudential Standard LPS 350 Contract Classification for the Purpose of Regulatory Reporting to APRA (LPS 350).

Unit of measurement

LRF 100LRF 100.0 is to be prepared in thousands of Australian dollars (AUD). Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.

Definitions

Definitions for data reporting items required by this form have been provided where appropriate in the instructions under the section headed ‘Instructions for specific items’.

Definitions, unless specified, apply to all life insurance companies, including friendly societies as if each reference to a statutory fund, or shareholders’ fund, were a reference to an approved benefit fund, or management fund, respectively. Likewise, reference to shareholders should be taken to embrace ‘members’ of a mutual association and/or a society. The term ‘life companies’ or ‘life insurance companies’ includes friendly societies unless stated otherwise. This is in line with the usage of terms in the Life Insurance Act 1995.

Reporting period

Life companies are required to report the information in the reporting form on a quarterly and annual basis.

• The quarterly information is to be completed as at the end of each quarter based on the financial year of the life company, not the calendar year.
• The annual information is to be completed as at the end of the financial year of the life company.
• The financial information requested in this form is to be reported as at the close of business for the last day of the reporting period.

Basis of preparation

In completing this form, unless specifically stated otherwise, institutions are to follow the basis that is used for the preparation of the annual financial statements in accordance with the Australian accounting standards.

Asset values are to include interest or dividend income accrued but not received. All assets of a statutory fund are to be reported in this form at Fair Value, with movements in Fair Values recognised in Profit or Loss. NB this treatment differs from Australian accounting standards, which do not allow assets to be valued at Fair Value in all circumstances eg owner occupied property.

Actuarial valuations and calculations included in, or used in the preparation of, the form must be in accordance with prudential standards.

Whilst maintaining that the requirements of Prudential Standard LPS 2.04 Solvency Standard (LPS 2.04) apply on a continuous basis, APRA recognises that for some periods life insurance companies (including friendly societies) may not carry out full accounting, actuarial valuation, and audit procedures or do so in sufficient time to report on the return (for quarterly returns). Where this applies, some estimation could be applied reasonably at the current quarter to determine an approximation to the results that would be obtained if full detailed valuations had been carried out.

APRA expects that all life insurance companies (including friendly societies) will utilise their best endeavours to ensure that any estimations adopted are a good and reasonable basis of approximation, and are consistent with the requirements set out in LPS 2.04. The estimation process needs to be sufficiently rigorous in order to be acceptable and at a minimum should be of a standard that would be considered appropriate for use in reporting to management and the Board of directors. APRA generally expects that the approximation methodology used will be approved by the Appointed Actuary; this provides an assurance that he or she is satisfied that the methods should be reasonably acceptable and consistent with the requirements in LPS 2.04.

If additional clarification is required for specific items in this form, reference should be made to the section ‘Instructions for specific items’, which is provided as a guide.

Form to be on a gross of reinsurance basis

APRA would like to remind reporting entities that LPS 2.04 applies on a gross of reinsurance basis. This includes MTV, CTV and Solvency Liability. In effect, the reinsurance asset is no longer to be set off against the liabilities side (i.e. netting), but is to be added to the assets side.

For further background, refer to subsection 3.6 (‘Reinsurance’) in LPS 2.04; and in particular, paragraph 6.4 of LPS 2.04 (under Part B – Methodologies).

Instructions for specific items

This form is designed to report items defined by LPS 2.04. Therefore the following instructions are largely intended to deal with matters not already defined or discussed in the Prudential Standard or to highlight particular aspects of the reporting requirements.

While these instructions apply to all life insurance companies, including friendly societies, not all items may be applicable to both: some items may not be applicable to friendly societies while others may not be applicable to life insurers.

1. Solvency Requirement

This part of the form consists of Items 1.1 to 1.11 inclusive. This section of the form aligns directly with the methodology of LPS 2.04 as set out in Section 6 of that standard.

1.1. Greater of Solvency Liability and Minimum Termination Value (MTV)

Each of the values in this section is to be reported Gross of outwards reinsurance.

In paragraphs 6.2 and 6.3 of LPS 2.04, the actuary is relieved of calculating the total Solvency Liability (SL) and the total MTV (respectively) for a related product group (RPG) under certain conditions. For aggregating purposes, the single amount calculated for an RPG should be included in both the SL and the MTV, rather than not including any value for the un-required item.

Item 1.1.3 is a reported amount, not a derived amount, as effectively the maximum is taken at the RPG level and then aggregated across the statutory fund.

1.1.4. Amount of reinsurance/risk mitigation difference included in each item above

While the above items (Solvency Liability, MTV and ‘Greater of’ amount) are to be reported Gross of reinsurance outwards, paragraph 6.4 of LPS 2.04 allows an item of difference to be included as an offset or addition to each of these items. Report the effective amount of difference included within 1.1.3.

1.2. Expense Reserve

For friendly societies, report ‘zero’ under items 1.2.1 and 1.2.2 as according to paragraph 9.1 of LPS 2.04, the expense reserve is Nil in the case of a friendly society.

1.2.2. Less: Offset Statutory Capital

Value of Offset Statutory Capital should be shown as a negative number under this item.

1.2.3. Expense Reserve [derived item]

This item is calculated automatically by the form, as a sum of items 1.2.1 and 1.2.2. The amount of the derived item should not be less than zero.

1.3. Sub-total of above items [derived item]

This is a derived field that represents the sum of items 1.1.3 and 1.2.3.

1.4.3 Solvency Current Termination Value (SCTV) [derived item]

This item is calculated by the form. It equals item 1.4.1 ‘Current Termination Value’ plus item 1.4.2 ‘Amount of reinsurance/risk mitigation difference applicable to CTV’.

1.6. Other Liabilities

Other Liabilities must be as recorded in the Statement of Financial Position (Form LRF 300.1) Statement of Financial Position (SF and SF Eliminations) (LRF 300.1). This provides a consistent base for determining the Solvency and Capital Adequacy Reserves. To the extent that the value of Other Liabilities would vary under the relevant solvency /capital adequacy scenario, such impact is to be reflected in the value of the Solvency/Capital Adequacy Liability or Resilience Reserve, etc, as appropriate for the relevant scenario.

1.6.2. Eligible Amount of Approved Subordinated Debt

The eligible amount is the quantum of the approved subordinated debt (as determined in accordance with the approval letter received from APRA) that can be used in meeting the solvency/capital adequacy requirements of the statutory fund. Any amounts of approved subordinated debt should be entered as positive values.

Refer to the Iinstruction guides to Guide Forms LRF 300.1 Statement of Financial Position (SF and SF Eliminations) (LRF 300.1) and LRF 300.2 Statement of Financial Position (SF Total, SHF, SH Elim, Entity) (LRF 300.2)LRF 300.1 and LRF 300.2, item 20 ‘Approved Subordinated Debt’ for more information.

1.6.3. Other Liabilities (adjusted for Subordinated Debt) [derived item]

This is a derived field that equals item 1.6.1 minus item 1.6.2.

1.7. Total Amount of Liabilities for Solvency purposes ( = L ) [derived item]

No value to be entered under this item as it is calculated by the form, as sum of items 1.5 and 1.6.3.

1.10. Other Significant Item - Solvency

This item is for any reserves established by the Actuary in relation to additional risks or costs that are not otherwise reflected in the prescribed requirements of LPS 2.04. Include any transitional adjustment required to the Solvency Requirement.

2. Solvency Reserve/Ratio/Coverage

2.2. Solvency Reserve [derived item]

The Total Solvency Requirement (at Item 1.11) is the sum of the various items that constitute the final result:

• Greater of Solvency Liability and Minimum Termination Value (MTV), including amount of investment linked (IL) risk margin included in MTV (Item 1.1.3);
• Expense Reserve (Item 1.2.3);
• Any amount additionally held to reflect the minimum of the Current Termination Value (CTV) (excess, if any, of Item 1.5 over Item 1.3);
• Other liabilities apart from eligible amount of approved subordinated debt (Item 1.6.3);
• Solvency Inadmissible Assets Reserve (Item 1.8);
• Net amount of Solvency Resilience Reserve (Item 1.9.5); and
• Other Significant Item – Solvency: transitional adjustments if any (Item 1.10).

Solvency Reserve (Item 2.2) is then calculated as the excess of Total Solvency Requirement over and above Total Minimum Liabilities (at Item 2.1.4); it therefore implicitly embodies and reflects the additional reserves / margins identified above.

2.3. 2.3 Solvency Reserve Ratio (%) [derived item]

This is calculated automatically by derivations contained within the form, as:

Solvency Reserve (Item 2.2)

divided by

Total Minimum Liabilities (Item 2.1.4)

2.4. Amounts Available for Solvency

This is the amount that will be compared with the Solvency Reserve to establish ‘coverage’. The following components correspond reconcile with to items in LRF 300.1 Statement of Financial Position (LRF 300.1):

2.4.1. Life Insurance Act Net Assets

This is Item 28 (or, equally, Item 23) on LRF 300.1. Note that it includes the amount of Unallocated Benefit Fund reserves (Item 25.1 on LRF 300.1), which is clear from the derivation of Item 28 on that form.

2.4.2. Policy Owner Retained Profits at end of period

This is Item 18 on LRF 300.1.

2.4.3. Eligible Amount of Approved Subordinated Debt [derived item]

This is Item 20.1 on LRF 300.1, but is also available on this form, at Item 1.6.2.

2.4.4. Excess of Policy Liability (including Policy Owner Bonuses) over MTV

Again, this item is to be calculated Gross of outwards reinsurance (for both parts of the calculation – Policy Liability, and MTV).

2.5. Solvency Coverage [derived item]

This is calculated automatically by derivations contained within the form, as:

Total Amounts Available for Solvency (Item 2.4.5)

divided by

Solvency Reserve (Item 2.2)

3. Inadmissible Assets

In completing this section, life companies should refer to LPS 2.04 Section 10.

Amounts entered in the Value column are the full value of any asset which is wholly or partly inadmissible, and should be consistent with what is reported in LRF 300.1. A Value entry is not required for Item 3.6.

Amounts entered in the Inadmissible Amounts column represent the inadmissible portion of the assets reported in the Value column. These amounts add up to the Inadmissible Assets Reserve.

4. Resilience Requirements

In completing this section, life companies should refer to LPS 2.04 Section 11.

While the first ‘Adjustment’ column relates solely to the Yield change element of Credit Risk, the second ‘Adjustment’ column reflects the prescribed yield change and the application of the Diversification benefit. The insertion of this further column assists in making the logical flow of this part of the form align more closely with the methodology in LPS 2.04.

4.1.12. Assets with non-standard resilience factors

This asset class should only be used in rare cases. It is intended to cover situations where assets are disaggregated into (1) an identifiable sub-asset and (2) a residual that does not fit into any of the asset sectors specified by LPS 2.04 for resilience purposes, or where a non-standard risk has been modelled in accordance with paragraph 11.10 of LPS 2.04.

4.2. Assets with no resilience requirement

This is for assets that are admissible but do not have resilience requirements.

4.3. Total Admissible Assets

The sum of Item 4.3 and the Inadmissible Amounts items 3.1 to 3.5 should be equal to the total assets in LRF 300.1.

4.4.2. Effective borrowings

These are to be calculated on a look through basis.

4.4.4. Other liabilities, apart from borrowings and tax liabilities

Only exclude the items specified in the title. Therefore this item includes approved subordinated debt.

Reporting Form LRF 100LRF 100.0

Solvency

Instruction Guide

Introduction

Form LRF 100.0 Solvency (LRF 100.0) provides APRA with the necessary information on the solvency requirement of each statutory fund, as well as solvency reserve, ratio & coverage, and component details, to undertake an assessment of a life insurance company’s regulatory solvency position. It also assists APRA in its supervision of compliance with the requirements of the Life Insurance Act 1995.

This Instruction Guide is designed to assist reporting entities in the completion of LRF 100LRF 100.0. The Instruction Guide provides:

• general directions and notes regarding preparation and lodgement; and
• instructions relating to specific items.

General directions and notes

Reporting levels

LRF 100LRF 100.0 must be completed by all life insurance companies, including friendly societies.

The form is to be completed separately for each statutory fund (approved benefit fund).

LRF 100LRF 100.0 contains four sections:

1. Solvency Requirement;
2. Solvency Reserve/Ratio/Coverage;
3. Solvency Inadmissible Assets; and
4. Solvency Resilience Requirement.

Within each section, reporting items are to be completed at total fund level.

For the purposes of reporting under this form, contracts are to be classified in accordance with Prudential Standard LPS 350 Contract Classification for the Purpose of Regulatory Reporting to APRA (LPS 350).

Unit of measurement

LRF 100LRF 100.0 is to be prepared in thousands of Australian dollars (AUD). Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.

Definitions

Definitions for data reporting items required by this form have been provided where appropriate in the instructions under the section headed ‘Instructions for specific items’.

Definitions, unless specified, apply to all life insurance companies, including friendly societies as if each reference to a statutory fund, or shareholders’ fund, were a reference to an approved benefit fund, or management fund, respectively. Likewise, reference to shareholders should be taken to embrace ‘members’ of a mutual association and/or a society. The term ‘life companies’ or ‘life insurance companies’ includes friendly societies unless stated otherwise. This is in line with the usage of terms in the Life Insurance Act 1995.

Reporting period

Life companies are required to report the information in the reporting form on a quarterly and annual basis.

• The quarterly information is to be completed as at the end of each quarter based on the financial year of the life company, not the calendar year.
• The annual information is to be completed as at the end of the financial year of the life company.
• The financial information requested in this form is to be reported as at the close of business for the last day of the reporting period.

Basis of preparation

In completing this form, unless specifically stated otherwise, institutions are to follow the basis that is used for the preparation of the annual financial statements in accordance with the Australian accounting standards.

Asset values are to include interest or dividend income accrued but not received. All assets of a statutory fund are to be reported in this form at Fair Value, with movements in Fair Values recognised in Profit or Loss. NB this treatment differs from Australian accounting standards, which do not allow assets to be valued at Fair Value in all circumstances eg owner occupied property.

Actuarial valuations and calculations included in, or used in the preparation of, the form must be in accordance with prudential standards.

Whilst maintaining that the requirements of Prudential Standard LPS 2.04 Solvency Standard (LPS 2.04) apply on a continuous basis, APRA recognises that for some periods life insurance companies (including friendly societies) may not carry out full accounting, actuarial valuation, and audit procedures or do so in sufficient time to report on the return (for quarterly returns). Where this applies, some estimation could be applied reasonably at the current quarter to determine an approximation to the results that would be obtained if full detailed valuations had been carried out.

APRA expects that all life insurance companies (including friendly societies) will utilise their best endeavours to ensure that any estimations adopted are a good and reasonable basis of approximation, and are consistent with the requirements set out in LPS 2.04. The estimation process needs to be sufficiently rigorous in order to be acceptable and at a minimum should be of a standard that would be considered appropriate for use in reporting to management and the Board of directors. APRA generally expects that the approximation methodology used will be approved by the Appointed Actuary; this provides an assurance that he or she is satisfied that the methods should be reasonably acceptable and consistent with the requirements in LPS 2.04.

If additional clarification is required for specific items in this form, reference should be made to the section ‘Instructions for specific items’, which is provided as a guide.

Form to be on a gross of reinsurance basis

APRA would like to remind reporting entities that LPS 2.04 applies on a gross of reinsurance basis. This includes MTV, CTV and Solvency Liability. In effect, the reinsurance asset is no longer to be set off against the liabilities side (i.e. netting), but is to be added to the assets side.

For further background, refer to subsection 3.6 (‘Reinsurance’) in LPS 2.04; and in particular, paragraph 6.4 of LPS 2.04 (under Part B – Methodologies).

Instructions for specific items

This form is designed to report items defined by LPS 2.04. Therefore the following instructions are largely intended to deal with matters not already defined or discussed in the Prudential Standard or to highlight particular aspects of the reporting requirements.

While these instructions apply to all life insurance companies, including friendly societies, not all items may be applicable to both: some items may not be applicable to friendly societies while others may not be applicable to life insurers.

1. Solvency Requirement

This part of the form consists of Items 1.1 to 1.11 inclusive. This section of the form aligns directly with the methodology of LPS 2.04 as set out in Section 6 of that standard.

1.1. Greater of Solvency Liability and Minimum Termination Value (MTV)

Each of the values in this section is to be reported Gross of outwards reinsurance.

In paragraphs 6.2 and 6.3 of LPS 2.04, the actuary is relieved of calculating the total Solvency Liability (SL) and the total MTV (respectively) for a related product group (RPG) under certain conditions. For aggregating purposes, the single amount calculated for an RPG should be included in both the SL and the MTV, rather than not including any value for the un-required item.

Item 1.1.3 is a reported amount, not a derived amount, as effectively the maximum is taken at the RPG level and then aggregated across the statutory fund.

1.1.4. Amount of reinsurance/risk mitigation difference included in each item above

While the above items (Solvency Liability, MTV and ‘Greater of’ amount) are to be reported Gross of reinsurance outwards, paragraph 6.4 of LPS 2.04 allows an item of difference to be included as an offset or addition to each of these items. Report the effective amount of difference included within 1.1.3.

1.2. Expense Reserve

For friendly societies, report ‘zero’ under items 1.2.1 and 1.2.2 as according to paragraph 9.1 of LPS 2.04, the expense reserve is Nil in the case of a friendly society.

1.2.2. Less: Offset Statutory Capital

Value of Offset Statutory Capital should be shown as a negative number under this item.

1.2.3. Expense Reserve [derived item]

This item is calculated automatically by the form, as a sum of items 1.2.1 and 1.2.2. The amount of the derived item should not be less than zero.

1.3. Sub-total of above items [derived item]

This is a derived field that represents the sum of items 1.1.3 and 1.2.3.

1.4.3 Solvency Current Termination Value (SCTV) [derived item]

This item is calculated by the form. It equals item 1.4.1 ‘Current Termination Value’ plus item 1.4.2 ‘Amount of reinsurance/risk mitigation difference applicable to CTV’.

1.6. Other Liabilities

Other Liabilities must be as recorded in the Statement of Financial Position (Form LRF 300.1) Statement of Financial Position (SF and SF Eliminations) (LRF 300.1). This provides a consistent base for determining the Solvency and Capital Adequacy Reserves. To the extent that the value of Other Liabilities would vary under the relevant solvency /capital adequacy scenario, such impact is to be reflected in the value of the Solvency/Capital Adequacy Liability or Resilience Reserve, etc, as appropriate for the relevant scenario.

1.6.2. Eligible Amount of Approved Subordinated Debt

The eligible amount is the quantum of the approved subordinated debt (as determined in accordance with the approval letter received from APRA) that can be used in meeting the solvency/capital adequacy requirements of the statutory fund. Any amounts of approved subordinated debt should be entered as positive values.

Refer to the Iinstruction guides to Guide Forms LRF 300.1 Statement of Financial Position (SF and SF Eliminations) (LRF 300.1) and LRF 300.2 Statement of Financial Position (SF Total, SHF, SH Elim, Entity) (LRF 300.2)LRF 300.1 and LRF 300.2, item 20 ‘Approved Subordinated Debt’ for more information.

1.6.3. Other Liabilities (adjusted for Subordinated Debt) [derived item]

This is a derived field that equals item 1.6.1 minus item 1.6.2.

1.7. Total Amount of Liabilities for Solvency purposes ( = L ) [derived item]

No value to be entered under this item as it is calculated by the form, as sum of items 1.5 and 1.6.3.

1.10. Other Significant Item - Solvency

This item is for any reserves established by the Actuary in relation to additional risks or costs that are not otherwise reflected in the prescribed requirements of LPS 2.04. Include any transitional adjustment required to the Solvency Requirement.

2. Solvency Reserve/Ratio/Coverage

2.2. Solvency Reserve [derived item]

The Total Solvency Requirement (at Item 1.11) is the sum of the various items that constitute the final result:

• Greater of Solvency Liability and Minimum Termination Value (MTV), including amount of investment linked (IL) risk margin included in MTV (Item 1.1.3);
• Expense Reserve (Item 1.2.3);
• Any amount additionally held to reflect the minimum of the Current Termination Value (CTV) (excess, if any, of Item 1.5 over Item 1.3);
• Other liabilities apart from eligible amount of approved subordinated debt (Item 1.6.3);
• Solvency Inadmissible Assets Reserve (Item 1.8);
• Net amount of Solvency Resilience Reserve (Item 1.9.5); and
• Other Significant Item – Solvency: transitional adjustments if any (Item 1.10).

Solvency Reserve (Item 2.2) is then calculated as the excess of Total Solvency Requirement over and above Total Minimum Liabilities (at Item 2.1.4); it therefore implicitly embodies and reflects the additional reserves / margins identified above.

2.3. 2.3 Solvency Reserve Ratio (%) [derived item]

This is calculated automatically by derivations contained within the form, as:

Solvency Reserve (Item 2.2)

divided by

Total Minimum Liabilities (Item 2.1.4)

2.4. Amounts Available for Solvency

This is the amount that will be compared with the Solvency Reserve to establish ‘coverage’. The following components correspond reconcile with to items in LRF 300.1 Statement of Financial Position (LRF 300.1):

2.4.1. Life Insurance Act Net Assets

This is Item 28 (or, equally, Item 23) on LRF 300.1. Note that it includes the amount of Unallocated Benefit Fund reserves (Item 25.1 on LRF 300.1), which is clear from the derivation of Item 28 on that form.

2.4.2. Policy Owner Retained Profits at end of period

This is Item 18 on LRF 300.1.

2.4.3. Eligible Amount of Approved Subordinated Debt [derived item]

This is Item 20.1 on LRF 300.1, but is also available on this form, at Item 1.6.2.

2.4.4. Excess of Policy Liability (including Policy Owner Bonuses) over MTV

Again, this item is to be calculated Gross of outwards reinsurance (for both parts of the calculation – Policy Liability, and MTV).

2.5. Solvency Coverage [derived item]

This is calculated automatically by derivations contained within the form, as:

Total Amounts Available for Solvency (Item 2.4.5)

divided by

Solvency Reserve (Item 2.2)

3. Inadmissible Assets

In completing this section, life companies should refer to LPS 2.04 Section 10.

Amounts entered in the Value column are the full value of any asset which is wholly or partly inadmissible, and should be consistent with what is reported in LRF 300.1. A Value entry is not required for Item 3.6.

Amounts entered in the Inadmissible Amounts column represent the inadmissible portion of the assets reported in the Value column. These amounts add up to the Inadmissible Assets Reserve.

4. Resilience Requirements

In completing this section, life companies should refer to LPS 2.04 Section 11.

While the first ‘Adjustment’ column relates solely to the Yield change element of Credit Risk, the second ‘Adjustment’ column reflects the prescribed yield change and the application of the Diversification benefit. The insertion of this further column assists in making the logical flow of this part of the form align more closely with the methodology in LPS 2.04.

4.1.12. Assets with non-standard resilience factors

This asset class should only be used in rare cases. It is intended to cover situations where assets are disaggregated into (1) an identifiable sub-asset and (2) a residual that does not fit into any of the asset sectors specified by LPS 2.04 for resilience purposes, or where a non-standard risk has been modelled in accordance with paragraph 11.10 of LPS 2.04.

4.2. Assets with no resilience requirement

This is for assets that are admissible but do not have resilience requirements.

4.3. Total Admissible Assets

The sum of Item 4.3 and the Inadmissible Amounts items 3.1 to 3.5 should be equal to the total assets in LRF 300.1.

4.4.2. Effective borrowings

These are to be calculated on a look through basis.

4.4.4. Other liabilities, apart from borrowings and tax liabilities

Only exclude the items specified in the title. Therefore this item includes approved subordinated debt.

Introduction

Form LRF 100.0 Solvency (LRF 100.0) provides APRA with the necessary information on the solvency requirement of each statutory fund, as well as solvency reserve, ratio & coverage, and component details, to undertake an assessment of a life insurance company’s regulatory solvency position. It also assists APRA in its supervision of compliance with the requirements of the Life Insurance Act 1995.

This Instruction Guide is designed to assist reporting entities in the completion of LRF 100LRF 100.0. The Instruction Guide provides:

• general directions and notes regarding preparation and lodgement; and
• instructions relating to specific items.

General directions and notes

Reporting levels

LRF 100LRF 100.0 must be completed by all life insurance companies, including friendly societies.

The form is to be completed separately for each statutory fund (approved benefit fund).

LRF 100LRF 100.0 contains four sections:

1. Solvency Requirement;
2. Solvency Reserve/Ratio/Coverage;
3. Solvency Inadmissible Assets; and
4. Solvency Resilience Requirement.

Within each section, reporting items are to be completed at total fund level.

For the purposes of reporting under this form, contracts are to be classified in accordance with Prudential Standard LPS 350 Contract Classification for the Purpose of Regulatory Reporting to APRA (LPS 350).

Unit of measurement

LRF 100LRF 100.0 is to be prepared in thousands of Australian dollars (AUD). Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.

Definitions

Definitions for data reporting items required by this form have been provided where appropriate in the instructions under the section headed ‘Instructions for specific items’.

Definitions, unless specified, apply to all life insurance companies, including friendly societies as if each reference to a statutory fund, or shareholders’ fund, were a reference to an approved benefit fund, or management fund, respectively. Likewise, reference to shareholders should be taken to embrace ‘members’ of a mutual association and/or a society. The term ‘life companies’ or ‘life insurance companies’ includes friendly societies unless stated otherwise. This is in line with the usage of terms in the Life Insurance Act 1995.

Reporting period

Life companies are required to report the information in the reporting form on a quarterly and annual basis.

• The quarterly information is to be completed as at the end of each quarter based on the financial year of the life company, not the calendar year.
• The annual information is to be completed as at the end of the financial year of the life company.
• The financial information requested in this form is to be reported as at the close of business for the last day of the reporting period.

Basis of preparation

In completing this form, unless specifically stated otherwise, institutions are to follow the basis that is used for the preparation of the annual financial statements in accordance with the Australian accounting standards.

Asset values are to include interest or dividend income accrued but not received. All assets of a statutory fund are to be reported in this form at Fair Value, with movements in Fair Values recognised in Profit or Loss. NB this treatment differs from Australian accounting standards, which do not allow assets to be valued at Fair Value in all circumstances eg owner occupied property.

Actuarial valuations and calculations included in, or used in the preparation of, the form must be in accordance with prudential standards.

Whilst maintaining that the requirements of Prudential Standard LPS 2.04 Solvency Standard (LPS 2.04) apply on a continuous basis, APRA recognises that for some periods life insurance companies (including friendly societies) may not carry out full accounting, actuarial valuation, and audit procedures or do so in sufficient time to report on the return (for quarterly returns). Where this applies, some estimation could be applied reasonably at the current quarter to determine an approximation to the results that would be obtained if full detailed valuations had been carried out.

APRA expects that all life insurance companies (including friendly societies) will utilise their best endeavours to ensure that any estimations adopted are a good and reasonable basis of approximation, and are consistent with the requirements set out in LPS 2.04. The estimation process needs to be sufficiently rigorous in order to be acceptable and at a minimum should be of a standard that would be considered appropriate for use in reporting to management and the Board of directors. APRA generally expects that the approximation methodology used will be approved by the Appointed Actuary; this provides an assurance that he or she is satisfied that the methods should be reasonably acceptable and consistent with the requirements in LPS 2.04.

If additional clarification is required for specific items in this form, reference should be made to the section ‘Instructions for specific items’, which is provided as a guide.

Form to be on a gross of reinsurance basis

APRA would like to remind reporting entities that LPS 2.04 applies on a gross of reinsurance basis. This includes MTV, CTV and Solvency Liability. In effect, the reinsurance asset is no longer to be set off against the liabilities side (i.e. netting), but is to be added to the assets side.

For further background, refer to subsection 3.6 (‘Reinsurance’) in LPS 2.04; and in particular, paragraph 6.4 of LPS 2.04 (under Part B – Methodologies).

Instructions for specific items

This form is designed to report items defined by LPS 2.04. Therefore the following instructions are largely intended to deal with matters not already defined or discussed in the Prudential Standard or to highlight particular aspects of the reporting requirements.

While these instructions apply to all life insurance companies, including friendly societies, not all items may be applicable to both: some items may not be applicable to friendly societies while others may not be applicable to life insurers.

1. Solvency Requirement

This part of the form consists of Items 1.1 to 1.11 inclusive. This section of the form aligns directly with the methodology of LPS 2.04 as set out in Section 6 of that standard.

1.1. Greater of Solvency Liability and Minimum Termination Value (MTV)

Each of the values in this section is to be reported Gross of outwards reinsurance.

In paragraphs 6.2 and 6.3 of LPS 2.04, the actuary is relieved of calculating the total Solvency Liability (SL) and the total MTV (respectively) for a related product group (RPG) under certain conditions. For aggregating purposes, the single amount calculated for an RPG should be included in both the SL and the MTV, rather than not including any value for the un-required item.

Item 1.1.3 is a reported amount, not a derived amount, as effectively the maximum is taken at the RPG level and then aggregated across the statutory fund.

1.1.4. Amount of reinsurance/risk mitigation difference included in each item above

While the above items (Solvency Liability, MTV and ‘Greater of’ amount) are to be reported Gross of reinsurance outwards, paragraph 6.4 of LPS 2.04 allows an item of difference to be included as an offset or addition to each of these items. Report the effective amount of difference included within 1.1.3.

1.2. Expense Reserve

For friendly societies, report ‘zero’ under items 1.2.1 and 1.2.2 as according to paragraph 9.1 of LPS 2.04, the expense reserve is Nil in the case of a friendly society.

1.2.2. Less: Offset Statutory Capital

Value of Offset Statutory Capital should be shown as a negative number under this item.

1.2.3. Expense Reserve [derived item]

This item is calculated automatically by the form, as a sum of items 1.2.1 and 1.2.2. The amount of the derived item should not be less than zero.

1.3. Sub-total of above items [derived item]

This is a derived field that represents the sum of items 1.1.3 and 1.2.3.

1.4.3 Solvency Current Termination Value (SCTV) [derived item]

This item is calculated by the form. It equals item 1.4.1 ‘Current Termination Value’ plus item 1.4.2 ‘Amount of reinsurance/risk mitigation difference applicable to CTV’.

1.6. Other Liabilities

Other Liabilities must be as recorded in the Statement of Financial Position (Form LRF 300.1) Statement of Financial Position (SF and SF Eliminations) (LRF 300.1). This provides a consistent base for determining the Solvency and Capital Adequacy Reserves. To the extent that the value of Other Liabilities would vary under the relevant solvency /capital adequacy scenario, such impact is to be reflected in the value of the Solvency/Capital Adequacy Liability or Resilience Reserve, etc, as appropriate for the relevant scenario.

1.6.2. Eligible Amount of Approved Subordinated Debt

The eligible amount is the quantum of the approved subordinated debt (as determined in accordance with the approval letter received from APRA) that can be used in meeting the solvency/capital adequacy requirements of the statutory fund. Any amounts of approved subordinated debt should be entered as positive values.

Refer to the Iinstruction guides to Guide Forms LRF 300.1 Statement of Financial Position (SF and SF Eliminations) (LRF 300.1) and LRF 300.2 Statement of Financial Position (SF Total, SHF, SH Elim, Entity) (LRF 300.2)LRF 300.1 and LRF 300.2, item 20 ‘Approved Subordinated Debt’ for more information.

1.6.3. Other Liabilities (adjusted for Subordinated Debt) [derived item]

This is a derived field that equals item 1.6.1 minus item 1.6.2.

1.7. Total Amount of Liabilities for Solvency purposes ( = L ) [derived item]

No value to be entered under this item as it is calculated by the form, as sum of items 1.5 and 1.6.3.

1.10. Other Significant Item - Solvency

This item is for any reserves established by the Actuary in relation to additional risks or costs that are not otherwise reflected in the prescribed requirements of LPS 2.04. Include any transitional adjustment required to the Solvency Requirement.

2. Solvency Reserve/Ratio/Coverage

2.2. Solvency Reserve [derived item]

The Total Solvency Requirement (at Item 1.11) is the sum of the various items that constitute the final result:

• Greater of Solvency Liability and Minimum Termination Value (MTV), including amount of investment linked (IL) risk margin included in MTV (Item 1.1.3);
• Expense Reserve (Item 1.2.3);
• Any amount additionally held to reflect the minimum of the Current Termination Value (CTV) (excess, if any, of Item 1.5 over Item 1.3);
• Other liabilities apart from eligible amount of approved subordinated debt (Item 1.6.3);
• Solvency Inadmissible Assets Reserve (Item 1.8);
• Net amount of Solvency Resilience Reserve (Item 1.9.5); and
• Other Significant Item – Solvency: transitional adjustments if any (Item 1.10).

Solvency Reserve (Item 2.2) is then calculated as the excess of Total Solvency Requirement over and above Total Minimum Liabilities (at Item 2.1.4); it therefore implicitly embodies and reflects the additional reserves / margins identified above.

2.3. 2.3 Solvency Reserve Ratio (%) [derived item]

This is calculated automatically by derivations contained within the form, as:

Solvency Reserve (Item 2.2)

divided by

Total Minimum Liabilities (Item 2.1.4)

2.4. Amounts Available for Solvency

This is the amount that will be compared with the Solvency Reserve to establish ‘coverage’. The following components correspond reconcile with to items in LRF 300.1 Statement of Financial Position (LRF 300.1):

2.4.1. Life Insurance Act Net Assets

This is Item 28 (or, equally, Item 23) on LRF 300.1. Note that it includes the amount of Unallocated Benefit Fund reserves (Item 25.1 on LRF 300.1), which is clear from the derivation of Item 28 on that form.

2.4.2. Policy Owner Retained Profits at end of period

This is Item 18 on LRF 300.1.

2.4.3. Eligible Amount of Approved Subordinated Debt [derived item]

This is Item 20.1 on LRF 300.1, but is also available on this form, at Item 1.6.2.

2.4.4. Excess of Policy Liability (including Policy Owner Bonuses) over MTV

Again, this item is to be calculated Gross of outwards reinsurance (for both parts of the calculation – Policy Liability, and MTV).

2.5. Solvency Coverage [derived item]

This is calculated automatically by derivations contained within the form, as:

Total Amounts Available for Solvency (Item 2.4.5)

divided by

Solvency Reserve (Item 2.2)

3. Inadmissible Assets

In completing this section, life companies should refer to LPS 2.04 Section 10.

Amounts entered in the Value column are the full value of any asset which is wholly or partly inadmissible, and should be consistent with what is reported in LRF 300.1. A Value entry is not required for Item 3.6.

Amounts entered in the Inadmissible Amounts column represent the inadmissible portion of the assets reported in the Value column. These amounts add up to the Inadmissible Assets Reserve.

4. Resilience Requirements

In completing this section, life companies should refer to LPS 2.04 Section 11.

While the first ‘Adjustment’ column relates solely to the Yield change element of Credit Risk, the second ‘Adjustment’ column reflects the prescribed yield change and the application of the Diversification benefit. The insertion of this further column assists in making the logical flow of this part of the form align more closely with the methodology in LPS 2.04.

4.1.12. Assets with non-standard resilience factors

This asset class should only be used in rare cases. It is intended to cover situations where assets are disaggregated into (1) an identifiable sub-asset and (2) a residual that does not fit into any of the asset sectors specified by LPS 2.04 for resilience purposes, or where a non-standard risk has been modelled in accordance with paragraph 11.10 of LPS 2.04.

4.2. Assets with no resilience requirement

This is for assets that are admissible but do not have resilience requirements.

4.3. Total Admissible Assets

The sum of Item 4.3 and the Inadmissible Amounts items 3.1 to 3.5 should be equal to the total assets in LRF 300.1.

4.4.2. Effective borrowings

These are to be calculated on a look through basis.

4.4.4. Other liabilities, apart from borrowings and tax liabilities

Only exclude the items specified in the title. Therefore this item includes approved subordinated debt.