Financial Sector (Collection of Data) (reporting standard) determination No. 19 of 2009 - GRS 131.0_G (2009) - Off Balance Sheet Exposure Risk Charge
4.0Total off-balance sheet exposure risk charge
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Off Balance Sheet Exposure Risk Charge (Level 2 Insurance Group)
Instruction Guide
Introduction
This form is used to calculate the required capital charge of a Level 2 insurance group’s off-balance sheet exposures for capital adequacy purposes in accordance with Prudential Standard GPS 111 Capital Adequacy: Level 2 Insurance Groups (GPS 111).
This form captures information on:
Credit substitutes provided;
Charges granted; and
Direct credit support provided to the Level 2 insurance group.
Audit requirements
The annual return of GRF 131.0_G Off Balance Sheet Exposure Risk Charge (Level 2 Insurance Group) required under paragraphs 3 and 5(c) of Reporting Standard GRS 131.0_G must be subject to a limited assurance[2] review by the Group Auditor (see Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance Groups (GPS 311)).
The Group Auditor must prepare a review report on the basis of a limited assurance engagement in accordance with the requirements of GPS 311. Assurance in the review report will be provided in the form of negative assurance. To express negative assurance in the review report, the auditor will use limited procedures to obtain sufficient appropriate evidence. Enquiries of the Level 2 insurance group’s staff and analytical procedures will be the primary tools used to obtain evidence. These procedures will not provide all the evidence that would be required in an audit.
The scope and nature of audit testing required is outlined in the Standard on Assurance Engagement ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information issued by the Auditing and Assurance Standards Board.
Reporting entities
GRF 131.0_G Off Balance Sheet Exposure Risk Charge (Level 2 Insurance Group) is to be completed by the parent entity of a Level 2 insurance group as defined under GPS 001.
Consolidation at Level 2 should cover the Level 2 insurance group as defined under GPS 001.
In the context of this form, that means that only off-balance sheet exposures with counterparties outside of the Level 2 insurance group will incur a risk charge. Where, for instance, one group company guarantees the obligations of another group company within the same region (Australia or International), those guarantees are not to be reported here as they are eliminated on consolidation. Where, for instance, an intra-group guarantee exists between regions, these guarantees are to be reported in this form, and then an inter-region elimination item is to be reported.
Unit of measurement
Part 4.0 - Financial Sector (Collection of Data) (reporting standard) determination No. 19 of 2009 - GRS 131.0_G (2009) - Off Balance Sheet Exposure Risk Charge - Total off-balance sheet exposure risk charge | Zoe
This form is to be presented in Australian dollars (AUD), rounded to thousands of dollars, with no decimal place.
Amounts denominated in foreign currency are to be converted to AUD in accordance with Australian accounting standards.
Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with Australian accounting standards.
Materiality
GRF 131.0_G Off Balance Sheet Exposure Risk Charge (Level 2 Insurance Group) is to be prepared based on the concept of materiality as applied in Australian accounting standards subject to APRA’s discretion. APRA’s discretion is likely to apply in instances where the application of materiality criteria is not suitable for prudential reporting purposes.
Reporting period
Level 2 insurance groups are required to report the information in the reporting form. This information is to be reported on three occasions in a Level 2 insurance group’s financial year. A Level 2 insurance group is required to submit:
semi-annual return which is to be completed in respect of each half year from the start of the financial year of the Level 2 insurance group; and
an audited annual return which will be based on a limited assurance review by the Group Auditor (see Audit requirements).
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 Level 2 insurance group.
Reporting lag
Submission times for Level 2 reporting forms are as follows (in accordance with GRS 131.0_G Off Balance Sheet Exposure Risk Charge):
The semi-annual return is to be lodged within three months after the end of the reporting period.
The audited annual return is to be lodged within four months after the end of the reporting period.
Adjustments
The parent entity of a Level 2 insurance group may apply in writing to APRA to vary the reporting requirements of GRF 131.0_G Off Balance Sheet Exposure Risk Charge (Level 2 Insurance Group) in relation to that Level 2 insurance group. APRA may, at its discretion, approve such an application in writing.
International business
Level 2 insurance groups are required to report financial data on both Australian and international exposures. For the purposes of segment reporting, Level 2 insurance groups are not to follow the requirements under the Australian accounting standards when completing this form.
For prudential reporting purposes ‘Australian Business’ is as defined in Prudential Standard GPS 001 Definitions (GPS 001) and means insurance business carried on by any Level 1 insurer within a Level 2 Insurance group. Therefore, all insurance business written by Level 1 insurers is deemed to be Australian business. ‘International Business’[3] is insurance business carried on by an entity within the group that is not authorised under the Insurance Act 1973.[4] This treatment is different to the requirements of AASB 1023 ‘General Insurance Contracts’ and other Australian accounting standards.
For entities which are not insurers within the Level 2 insurance group, items should be reported as:
‘Australian Business’ when they relate to an entity incorporated in Australia; and
‘International Business’ where they relate to an entity incorporated outside of Australia.
For prudential reporting purposes ‘Level 1 insurer’ is as defined in Prudential Standard GPS 001 Definitions (GPS 001).
Inter-region elimination
The value of inter-region or inter-segment transactions, which are eliminated on consolidation, need to be reported as negative values under ‘Inter-region elimination’.
Reporting Supplement
In determining the Investment Risk Capital Charge for off-balance sheet exposures, the Level 2 insurance group will need to complete the necessary calculations outside of this reporting form. These calculations do not constitute part of the formal accounts but must be submitted to APRA separately unless APRA advises otherwise. The reporting supplement is to be submitted to the Level 2 insurance group’s APRA Responsible Supervisor.
Investment Capital Factors
For the purposes of this form use the asset grade scales and the applicable investment capital factors set out in GPS 114 Capital Adequacy: Investment Risk Capital Charge (GPS 114).
Specific instructions
This form is to be completed by separating out ‘Australian business’ and aggregate ‘international business’. The value of inter-region or inter-segment transactions, which are eliminated on consolidation, need to be reported under ‘Inter-region elimination’. The total business for the group will be the sum of the Australian business, international business and any inter-region elimination.
The form is separated into the following parts:
Credit Substitutes Provided and Risk Charge
Charges Granted and Risk Charge
Credit Support Received
The requirements for each of these are detailed below:
1. Credit substitutes provided and risk charge
This section of the form allows Level 2 insurance groups to report the amount of direct credit substitutes provided by the group in accordance with the requirements contained in GPS 111.
Non market related items
This term ‘non market’ refers to items that are not transacted in financial markets.
Transactions relating specifically to financial market products such as derivative financial instruments are not to be included in these calculations. Information regarding exposures to derivative financial instruments is to be recorded in GRF 110.0_G Minimum Capital Requirement (Level 2 Insurance Group) under item 6 ‘Derivatives Activity and Risk Charge’.
Credit substitutes include:
Direct credit substitutes
This includes any irrevocable off-balance sheet obligations, which carry the same credit risk as a direct extension of credit. The following are examples constituting a direct credit substitute (i.e. the risk of loss depends on the creditworthiness of the counterparty, or the party on which a potential claim is acquired):
An undertaking to make a payment to a third party in the event that a counterparty fails to meet a financial obligation; or
An undertaking to a counterparty to acquire a potential claim on another party in the event of default by that party.
This includes potential credit exposures arising from the issue/provision of following:
standby letters of credit serving as financial guarantees for loans, securities and any other financial liabilities; and
bill endorsements
Trade-related contingencies
These are contingent liabilities arising from trade-related obligations which are secured against an underlying shipment of goods. This includes documentary letters of credit issued, acceptances on trade bills, shipping guarantees issued and any other trade-related contingencies.
Sale & Repurchase Agreements (“Repos”)
This relates to arrangements whereby a Level 2 insurance group sells a loan, security or other asset to another party with a commitment to repurchase the asset at an agreed price on an agreed future date.[5] Any assets acquired by a Level 2 insurance group under reverse repos (i.e. purchase and resale agreements) are to be treated as collateralised loans to the counterparty.[6]
Assets Sold With Recourse
This includes any asset sales (to the extent that such assets are not included in on-balance sheet) by the Level 2 insurance group where the holder of the asset is entitled to “put” the asset back to the Level 2 insurance group within an agreed period or under certain prescribed circumstances, e.g. deterioration in the value or credit quality of the asset concerned.[7]
Forward Asset Purchases
This includes commitments to purchase at a specified future date and on pre-arranged terms, an asset from another party, including written put options on specified assets with the character of a credit enhancement.[8]
Written put options expressed in terms of market rates for currencies or financial instruments bearing no credit risk are excluded from risk assets.
For the purposes of the APRA forms do not include market related securities that are recorded on a trade date basis and transacted in accordance with accepted financial market settlements periods. Such securities, for Level 2 insurance group reporting, are to be included in GRF 300.0_G Statement of Financial Position (Level 2 Insurance Group). These do not constitute forward asset purchases for the purposes of GRF 131.0_G Off Balance Sheet Exposure Risk Charge (Level 2 Insurance Group).
Partly Paid Shares and Securities
This includes any amounts owing on the uncalled portion of partly paid shares and securities held by the Level 2 insurance group, which represent commitments with certain drawdown by the issuer at a future date.[9]
Placements of Forward Deposits
This relates to any agreement between the Level 2 insurance group and another party whereby the Level 2 insurance group will place a deposit at an agreed rate of interest with that party at a predetermined future date.
Surety Bonds
Include, in the calculations, the value of surety bonds which are treated as a type of direct credit substitute by the Level 2 insurance group. The risk charge should be applied to 25 per cent of the value of the surety bond business as specified in GPS 114.
Other Non-Market-Related Off-Balance Sheet Items
Include, in the calculations, all other off-balance sheet non-market related items that are not specifically listed above.
1.1 Total non-market-related credit substitutes
Australian business
Report the total value of non-market-related credit substitutes provided by the Australian business of the Level 2 insurance group.
International business
Report the total value of non-market-related credit substitutes provided by the international business of the Level 2 insurance group.
Inter-region elimination
Report the value of inter-region or inter-segment transactions, which are eliminated on consolidation, under ‘Inter-region elimination’.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations.
1.2 Total off-balance sheet required risk charge
Calculation of the investment risk capital charge is to be achieved by applying, to the face value of the credit substitute reported in item 1.1, the investment capital factor that would be applied to the obligation or the asset over which the credit substitute has been written. Risk charges will be based on the counterparty / grade of the obligation / asset over which the credit substitute has been written and the appropriate investment capital factors specified in GPS 114.
Australian business
Report the total off-balance sheet required risk charge applicable to non-market-related credit substitutes provided by the Australian business of the Level 2 insurance group.
International business
Report the total off-balance sheet required risk charge applicable to non-market-related credit substitutes provided by the international business of the Level 2 insurance group.
Inter-region elimination
Report the value of inter-region transactions, which are eliminated on consolidation, under ‘Inter-region elimination’.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations.
2. Charges granted and risk charge
This section of the form requires Level 2 insurance groups to report the risk charge associated with the value of any charges granted over the assets of the group (e.g. to secure funding). This is to be done in accordance with GPS 111.
Note: Paragraph 34 of GPS 111 excludes the 100 per cent capital charge from applying to the international business of a Level 2 insurance group. That is, the requirements of 27 and 28 of GPS 114 only apply to charges granted from entities conducting Australian business (or non-insurers incorporated in Australia) where the counterparty is external to the group. Specific assets that are not subject to a charge or encumbrance will have no effect on the minimum capital requirement.
Type of charge/encumbrance
The following is not an exhaustive list but is provided as an example:
Fixed charge
A fixed charge is generally given in relation to a specific asset or assets and it will generally limit the ability or right of the Level 2 insurance group to deal with those assets.
Floating charge
A floating charge may be given over specific assets or all assets of the insurance company and may generally only crystallise and become a fixed charge on the occurrence of a specific event that is agreed between the parties (i.e. default on payment, or not maintaining specified interest coverage ratios).
Grade of Assets subject to charge
For the purposes of this form use the asset grade scales and the applicable investment capital factors set out in GPS 114.
2.1 Total required investment capital charge
Assets of the Level 1 insurers (and non-insurers incorporated in Australia) of the Level 2 insurance group that are under a fixed or floating charge, mortgage or other security are subject to an investment capital factor of 100 per cent, to the extent of indebtedness secured on those assets. This will replace the investment capital factor that would otherwise apply to the secured assets
Where the charged or encumbered security supports the group’s insurance liabilities, the investment capital factor of 100 per cent is applicable only to the amount by which the fair value of the charged assets exceeds the Level 2 group’s supported insurance liabilities.
The required investment capital charge applies to the value of charged assets receiving an investment capital factor of 100 per cent. This value is to be reported gross without deducting the investment risk charge rebate.
Australian business
Report the total required investment capital charge applicable to charged or encumbered assets from the Australian business of the Level 2 insurance group.
International business
It is expected that this value will be zero (see note under section 2).
Inter-region elimination
Report the value of inter-region transactions, which are eliminated on consolidation, under ‘Inter-region elimination’.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations.
2.2 Total investment capital charge rebate
This is the portion of the investment capital charge applicable to the charged assets if the 100 per cent investment capital factor was not applied.
Australian business
Report the total investment capital charge rebate applicable to the charged or encumbered assets from the Australian business of the Level 2 insurance group.
International business
It is expected that this value will be zero (see note under section 2).
Inter-region elimination
Report the value of inter-region transactions, which are eliminated on consolidation, under ‘Inter-region elimination’.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations.
2.3 Adjusted required investment capital charge
Australian business
This item is automatically calculated by the form and represents the difference between ‘Total required investment capital charge’ and ‘Total investment capital charge rebate’ from the Australian business of the Level 2 insurance group.
International business
This item is automatically calculated by the form and is expected to be zero.
Inter-region elimination
This item is automatically calculated by the form and represents the difference between ‘Total required investment capital charge’ and ‘Total investment capital charge rebate’ on inter-region eliminations.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations.
3. Credit support received
GPS 114 outlines the treatment of eligible collateral and guarantees as risk mitigants.
The capital charge for Investment Risk may be reduced where the Level 2 insurance group holds certain types of collateral against an asset, or where the asset has been guaranteed, as a means of reducing risk.
This section of the form requires Level 2 insurance groups to report the rebate which can be used to reduce the investment capital charge calculated in other forms. Accordingly, the fair value of the Level 2 insurance group’s investments is to be entered in other forms for the calculation of investment risk charge without adjusting for any guarantee or eligible collateral.
This section of the form is divided into two parts:
Eligible Collateral Provided to the Level 2 insurance group; and
Guarantees Provided to the Level 2 insurance group.
3.1 Eligible collateral provided to the Level 2 insurance group
Relating to reinsurance recoverables from non-APRA-authorised reinsurer in relation to Australian business[10]
Where the Level 1 insurers of the Level 2 insurance group possesses recognised collateral in Australia against reinsurance recoverables due from a non-APRA-authorised reinsurer, it may apply the Investment Capital Factor relevant to the collateral to the value of the reinsurance recoverables (instead of applying the capital factor that would otherwise apply to the reinsurance recoverables).
For the purposes of this paragraph, collateral is recognised only:
(a) to the extent that it takes the form of:
(i) assets held in Australia which form part of a trust fund maintained by a trustee resident in Australia;
(ii) deposits held by the insurer in Australia made by the non-APRA-authorised reinsurer;
(iii) a combination of the two forms of collateral specified in paragraphs (a) and (b); or
(iv) any other form of collateral as may be approved by APRA in writing in a particular case;
(b) if it provides effective security against liabilities arising under the reinsurance contract; and
(c) if it is not available for distribution to creditors of the reinsurer other than the insurer in the event of insolvency of the reinsurer.
Where the fair value of the collateral does not cover the full value of the reinsurance recoverables, only that part of the value of the reinsurance recoverables that is covered by collateral may be assigned the Investment Capital Factor applicable to the collateral.
The collateral must be effective for the expected period for payment of claims under the reinsurance contract under which the reinsurance recoverables arise. If this is impractical, the collateral must be effective for at least 2 years but be renegotiable each year to allow at least a year to identify alternative arrangements if the collateral cannot be renegotiated.
Collateral provided to the Level 2 insurance group other than for reinsurance recoverables from non-APRA-authorised reinsurers in relation to Australian business
Where the Level 2 insurance group possesses recognised collateral against an asset, it may apply the Investment Risk Capital Factor relevant to the collateral to the value of the asset (instead of applying the capital factor that would otherwise apply to the asset). Collateral will be recognised only to the extent that it takes the form of a charge, mortgage or other security interest in, or over, an Eligible Collateral Item.
Eligible collateral items must also be held for the period for which the asset is held. Where the fair value of the collateral does not cover the full value of the asset, only that part of an asset that is covered by collateral may be assigned the Investment Capital Factor applicable to the collateral. Refer to GPS 114 for these Investment Capital Factors.
Fair value
Fair value has the same meaning as defined in the Australian accounting standards.
Investment Capital Factors
For the purposes of this section of the form use the asset grade scales and the applicable investment capital factors set out in GPS 114.
3.1.1 Total assets being supported
Australian business
Report the total fair value of the assets of the Australian business of the Level 2 insurance group which are subject to credit support.
International business
Report the total fair value of the assets of the international business of the Level 2 insurance group which are subject to credit support.
Inter-region elimination
Report the value of inter-region transactions, which are eliminated on consolidation, under ‘Inter-region elimination’.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations.
3.1.2 Total eligible collateral provided
Australian business
Report the total fair value of eligible collateral items of the Australian business of the Level 2 insurance group which are providing credit support.
International business
Report the total fair value of eligible collateral items of the international business of the Level 2 insurance group which are providing credit support.
Inter-region elimination
Report the value of inter-region transactions, which are eliminated on consolidation, under ‘Inter-region elimination’.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations..
3.1.3 Adjustment to investment capital charge
This rebate can be used to reduce the investment capital charge calculated in other forms and is to be calculated in accordance with GPS 111.
The process for calculating the adjustment to investment capital charge is outlined below.
For each asset supported by collateral:
(i) Determine the investment capital charge for the collateral providing support.
Multiply the fair value of the collateral by the appropriate investment capital factor according to its grade. The investment capital factors for the various asset grades are outlined in GPS 114.
If the eligible collateral supports more than one asset type, having different investment capital factors, the support provided will need to be allocated appropriately between the different assets. For example, the eligible collateral could be prorated based on the proportion of each type of supported asset to the total value of supported assets.
Where there are various collateral items of differing grades supporting one asset, the investment risk charges applicable to each asset grade will need summed to produce the total risk charge for the collateral providing support.
(ii) Determine the proportion of the risk charge from eligible collateral that can be allocated to the asset.
For each asset receiving support, this is calculated as:
The risk charge for the collateral providing support (calculated in (i) above);
Multiplied by
The minimum of:
The fair value of the asset subject to the credit support divided by the fair value of the eligible collateral provided; or
One.
(iii) Determine the risk charge applicable to the value of the asset in excess of that covered by collateral.
For each asset, this is calculated as:
Fair value of the asset subject to collateral support;
Less
Fair value of the collateral provided;
Multiply the difference by
The appropriate investment risk capital factor for the grade of asset subject to collateral support.
Note: where the fair value of the collateral exceeds the fair value of the asset, the investment risk charge on the difference will be zero.
(iv) Determine the total risk charge applicable to the asset with collateral support provided.
For each asset, this is calculated as the sum of:
Item (ii), the proportion of the risk charge from eligible collateral that can be allocated to the asset; and
Item (iii), the risk charge applicable to value of the asset in excess of that covered by collateral.
(v) Determine the risk charge applicable to the asset if collateral support was not provided.
This is calculated as:
The fair value of the asset;
Multiplied by
The appropriate investment capital factor according to the grade of asset. The investment capital factors are based on the asset rating grades set out in GPS 114.
(vi) Determine the adjustment to the investment capital charge.
For each asset, this is calculated as:
Item (v), the risk charge applicable to the asset if collateral support was not provided;
Less
Item (iv), the total risk charge applicable to the asset with collateral support provided.
(vii) Determine the total adjustment to the investment capital charges.
This is calculated by summing all the adjustments to the investment capital charges for each asset (i.e. the sum of (vi) for each asset receiving support).
Australian business
Report the total adjustment to the investment capital charge due to the support of eligible collateral items from the Australian business of the Level 2 insurance group.
International business
Report the total adjustment to the investment capital charge due to the support of eligible collateral items from the international business of the Level 2 insurance group.
Inter-region elimination
Report the value of inter-region transactions, which are eliminated on consolidation, under ‘Inter-region elimination’.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations..
3.2 Guarantees or letters of credit provided to the Level 2 insurance group
Relating to reinsurance recoverables from non-APRA-authorised reinsurer
Where the Australian business of a Level 2 insurance group possesses a guarantee or a letter of credit in respect of the reinsurance recoverables due from a non-APRA-authorised reinsurer, the Investment Capital Factor to be used is that applicable to the guarantor or the issuer of the letter of credit, as the case may be. This applies only if[11]:
The guarantor or the issuer of the letter of credit is an authorised deposit-taking institution;
The guarantee or letter of credit is explicit, unconditional and irrevocable;
The guarantor or issuer of the letter of credit is obliged to pay the Level 1 insurer of the Level 2 insurance group in Australia; and
The obligation of the guarantor or issuer of the letter of credit to pay the Level 1 insurer of the Level 2 insurance group is specifically linked to performance of the reinsurance contract or contracts under which the reinsurance recoverables arise.
The guarantee or letter of credit must be effective for the expected period for payment of claims under the reinsurance contract under which the reinsurance recoverables arise. If this is impractical, the guarantee or letter of credit must be effective for at least 2 years but be renegotiable each year to allow at least a year to identify alternative arrangements if the guarantee or letter of credit cannot be renegotiated.
Guarantees provided to the insurer other than for reinsurance recoverables from non-APRA-authorised reinsurer
Where the guarantees provided to the Level 2 insurance group relates to an asset other than for reinsurance recoverables from a non-APRA-authorised reinsurer, the assets of the Level 2 insurance group that have been explicitly, unconditionally and irrevocably guaranteed for their remaining term to maturity by a guarantor with a counterparty rating (or for governments, the long-term foreign currency credit rating) of Grades 1, 2 or 3 may be assigned the Investment Capital Factor that would be applicable to the guarantor.
Where the value of the guarantee does not cover the full fair value of the asset, only that part of an asset that is covered by the guarantee may be assigned the Investment Capital Factor applicable to the guarantor. Fair value has the same meaning as defined in the Australian accounting standards.
This section of the form allows Level 2 insurance groups to report the rebate which can be used to reduce the investment capital charge calculated in other forms. Accordingly the fair value of the Level 2 insurance group’s investments is to be entered in other forms for the calculation of investment risk charge without adjusting for any guarantees.
Some parent entities of Level 2 insurance groups are not ultimate parent entities and therefore may receive guarantees from parent entities.
Guarantees provided to the Level 2 insurance group by its own parent or a related party of the parent are not eligible for this treatment.
Related party
‘Related party’ referred to in this form, has the same meaning as contained in the Australian accounting standards.
3.2.1 Adjustment to investment capital charge
The adjustment to the investment capital charge, due to guarantees provided to the Level 2 insurance group, is calculated in accordance with GPS 111. The process for calculating the adjustment to the investment capital charge is outlined below.
For each asset guaranteed:
(i) Determine the investment capital charge applicable to the guarantor.
For each asset guaranteed, this is calculated as:
The investment capital factor appropriate for the grade of guarantor. The investment capital factors for the various guarantor grades are outlined in GPS 114;
Multiplied by
The minimum of:
The fair value of the asset being guaranteed; or
The value of the guarantee.
If the guarantee supports more than one asset type, having different investment capital factors, the guarantee provided will need to be allocated appropriately between the different assets. For example, the guarantee could be prorated based on the proportion of each type of supported asset to the total value of supported assets.
(ii) Determine the capital charge applicable to the asset in excess of that covered by the guarantee.
This is calculated as:
The fair value of the asset subject to the guarantee;
Less
The value of the guarantee;
Multiply the difference by
The capital factor appropriate for the grade of asset being guaranteed. The investment capital factors are based on the asset rating grades set out in GPS 114.
(iii) Determine the total risk charge applicable to the asset with the guarantee provided.
For each asset, this is calculated as the sum of:
Item (i), the capital charge applicable to the guarantor; and
Item (ii), the capital charge applicable to the asset in excess of that covered by the guarantee.
(iv) Determine the risk charge applicable to the asset if the guarantee was not provided.
This is calculated as:
The fair value of the asset;
Multiplied by
The appropriate investment capital factor according to the grade of asset. The investment capital factors are based on the asset rating grades set out in GPS 114.
(v) Determine the adjustment to the investment capital charge.
For each asset, this is calculated as:
Item (iv), the risk charge applicable to the asset if the guarantee was not provided;
Less
Item (iii), the total risk charge applicable to the asset with the guarantee provided.
(vi) Determine the total adjustment to the investment capital charges.
This is calculated by summing all the adjustments to the investment capital charges for each asset (i.e. the sum of (v) for each asset supported by a guarantee).
Australian business
Report the total adjustment to the investment capital charge due to guarantees provided to the Australian business of the Level 2 insurance group.
International business
Report the total adjustment to the investment capital charge due to guarantees provided to the international business of the Level 2 insurance group.
Inter-region elimination
Report the value of inter-region transactions, which are eliminated on consolidation, under ‘Inter-region elimination’.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations..
4.0 Total off-balance sheet exposure risk charge
Australian business
This field automatically calculates the total off-balance sheet risk charge (or rebate) for the Australian business of the Level 2 insurance group. This is calculated as item 1.2 plus 2.3 less 3.1.3 less 3.2.1.
International business
This field automatically calculates the total off-balance sheet risk charge (or rebate) for the international business of the Level 2 insurance group.
Inter-region elimination
This field automatically calculates the total off-balance sheet risk charge (or rebate) for inter-region eliminations of the Level 2 insurance group.
Total business
This is automatically calculated by the form and represents the sum of Australian business, international business and inter-region eliminations. This amount will need to be included in the calculation of the Level 2 insurance group’s minimum capital requirement.