Instructions for specific itemsInstructions for specific items

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.