Reporting Standard GRS 150.0_G (2009) Asset Exposure Concentrations and Risk Charge

Financial Sector (Collection of Data) Act 2001

I, John Roy Trowbridge, a Member of APRA and delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (‘the Act’) MAKE the reporting standard set out in the Schedule, which applies to financial sector entities of the kind specified in paragraph 2 of the reporting standard.

Under section 15 of the Act, I DECLARE that the reporting standard shall begin to apply to those entities on registration of this instrument on the Federal Register of Legislative Instruments.

Dated 21 August 2009

[Signed]

John Trowbridge

Member
Interpretation

In this Determination

APRA means the Australian Prudential Regulation Authority.

Federal Register of Legislative Instruments means the register established under section 20 of the Legislative Instruments Act 2003.

Schedule

Reporting Standard GRS 150.0_G (2009) Asset Exposure Concentrations and Risk Charge comprises the 19 pages commencing on the next page.

Reporting Standard GRS 150.0_G (2009)

Asset Exposure Concentrations and Risk Charge

Objective of this reporting standard

This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001 (the Collection of Data Act). It requires Level 2 insurance groups to report to APRA, generally on a semi-annual and annual basis, any asset concentrations.

This reporting standard outlines the overall requirements for the provision of this information to APRA. It should be read in conjunction with:

• Form GRF 150.0_G Asset Exposure Concentrations and Risk Charge (Form GRF 150.0_G) and the instructions to that form (which are attached and form part of this reporting standard); and
• any prudential standards referenced in the attached instructions.

Purpose

1. Data collected in Form GRF 150.0_G is used by APRA for the purpose of prudential supervision including assessing a Level 2 insurance group’s compliance with the capital standards.

Application and commencement

2. This reporting standard applies to all Level 2 insurance groups for reporting periods commencing on or after 30 June 2009.

Information required

3. A Level 2 insurance group must provide APRA with the information required by the Form GRF 150.0_G for each reporting period specified in paragraph 5 for the Level 2 insurance group.

Forms and method of submission

4. 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 manually completing Form GRF 150.0_G on paper and mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales.

Where the information is submitted by means of an agent to whom the Level 2 insurance group has outsourced the function of providing the information on the Level 2 insurance group’s behalf, the agent may only provide the information in accordance with subparagraph 4(b) if the agent has contacted APRA and advised that the agent cannot submit the information in electronic form under subparagraph 4(a).

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

Reporting periods and due dates

5. Subject to paragraph 6, a Level 2 insurance group must provide the information required by this reporting standard:

(a) in respect of each half year based on the financial year (as defined in Prudential Standard GPS 001 Definitions (GPS 001)) of the Level 2 insurance group on an unaudited basis; and

(b) in respect of each financial year (as defined in GPS 001) of the Level 2 insurance group on an audited basis.

Note: The annual information required by paragraphs 3, 4 and 5(b) together with certain annual information required by other reporting standards, will form part of the Level 2 insurance group’s annual accounts within the meaning of GPS 001. Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance Groups (GPS 311) contains the relevant provisions governing audits.

6. APRA may, by notice in writing to the parent entity, change the reporting periods, or specified reporting periods, for a particular Level 2 insurance group to require it to provide the information:

(a) more frequently (if, having regard to the particular circumstances of the Level 2 insurance group, APRA considers it necessary or desirable to obtain information more frequently for the purposes of the prudential supervision of the Level 2 insurance group); or

(b) less frequently (if, having regard to the particular circumstances of the Level 2 insurance group and the extent to which it requires prudential supervision, APRA considers it unnecessary to require the Level 2 insurance group to provide the information as frequently.

7. The information required by paragraph 3 of this reporting standard from a Level 2 insurance group must be provided to APRA by the following times:

(a) in the case of the half yearly information required by subparagraph 5(a) – three months after the end of the reporting period to which the information relates; and

(b) in the case of the audited annual information required by subparagraph 5(b) – four months after the end of the reporting period to which the information relates.

Note: GPS 311 requires a Level 2 insurance group to ensure that its Group Auditor conducts a limited assurance review of the group’s annual accounts. Accordingly, the Group Auditor’s report(s) as required by GPS 311 (relating to the information required by paragraph 3) must be provided to APRA by the time specified in subparagraph 7(b) of this reporting standard (unless an extension is granted under paragraph 8).

8. APRA may by notice in writing to the parent entity grant a Level 2 insurance group an extension of a due date for the provision of the information, in which case the new due date will be the date on the notice of extension.

9. On the written application of the parent entity of a Level 2 insurance group, APRA may by notice in writing to the parent entity exclude the requirement under subparagraph 5(a) to provide half yearly information.

Quality control

10. The information provided by a Level 2 insurance group under this reporting standard must be the product of processes and controls that have been reviewed and tested by the Group Auditor of the Level 2 insurance group. This will require the Group Auditor to review and test the systems, processes and controls supporting the reporting of the information to ensure that they produce accurate data and are otherwise reliable. This review and testing must be done on:

(a) an annual basis to enable the Group Auditor to form an opinion on the accuracy and reliability of the data; and

(b) at least a limited assurance engagement consistent with the professional standards and guidance notes issued by the Auditing and Assurance Standards Board (AUASB) as may be amended from time to time, to the extent that they are not inconsistent with the requirements of Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance Groups.

11. The information provided by a Level 2 insurance group under this reporting standard must be subject to processes and controls developed by the Level 2 insurance group for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the parent entity of the Level 2 insurance group to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.

Authorisation

12. If an officer of a parent entity[1] of a Level 2 insurance group provides the information required by this reporting standard:

(a) under subparagraph 4(a), the officer must digitally sign, authorise and encrypt the information (for which purpose APRA’s certificate authority will issue digital certificates, for use with the ‘Direct to APRA’ application, to officers of the parent entity of the Level 2 insurance group who have authority from the parent entity of the Level 2 insurance group to transmit data to APRA); or

(b) under subparagraph 4(b), the completed form must be signed in accordance with paragraph 13.

13. If a Level 2 insurance group provides the information required by this reporting standard through an agent under either subparagraphs 4(a) or (b), the agent will not be required to sign or authorise the information. However, the Level 2 insurance group must:

(a) obtain from the agent a paper copy of the completed form as provided to APRA (whether it was provided under subparagraph 4(a) or (b)); and

(b) cause the paper copy to be signed in accordance with paragraph 13; and

(c) lodge the signed paper copy with APRA by mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales, by the relevant due date (unless APRA, in writing, waives the requirement to lodge the signed paper copy with APRA by varying this reporting standard in relation to the Level 2 insurance group).

Note: APRA may, for example, determine to waive the requirement under subparagraph 13(c) where a Level 2 insurance group has undertaken to retain the signed copy of the completed form for an agreed period of time.

14. If information under this reporting standard is provided in paper form, it must be signed on the front page of the relevant completed form by either:

(a) the Principal Executive Officer of the parent entity of the Level 2 insurance group; or

(b) the Chief Financial Officer of the parent entity of the Level 2 insurance group (whatever his or her official title may be).

Minor alterations to forms and instructions

15. APRA may make minor variations to 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 the parent entity of each Level 2 insurance group in writing.

Transition

17. Where APRA has granted a period of transition to a Level 2 insurance group by determining a later effective date for:

(a) Prudential Standard GPS 111 Capital Adequacy: Level 2 Insurance Group;

(b) Prudential Standard GPS 221 Risk Management: Level 2 Insurance Group; and

(c) Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance Group

a later effective date for this Reporting Standard will apply to the Level 2 insurance group as determined by APRA.

Adjustments

18. The parent entity of a Level 2 insurance group may apply in writing to APRA to vary the reporting requirements of GRF 150.0_G Asset Exposure Concentrations and Risk Charge in relation to that Level 2 insurance group. APRA may in its discretion in writing approve such an application.

Interpretation

19 In this reporting standard (including the attachments):

(a) Unless the contrary intention appears, words and expressions have the meanings given to them in Prudential Standard GPS 001 Definitions;

(b) APRA-authorised reinsurer means an insurer carrying on reinsurance business. For the purposes of this definition, a Lloyd’s underwriter as defined under the Act is an APRA-authorised reinsurer if it carries on reinsurance business;

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

capital standards means the prudential standards which relate to capital adequacy as defined in Prudential Standard GPS 001 Definitions;

foreign insurer means a foreign general insurer within the meaning of the Insurance Act;

Note: A reference to a ‘branch’ or ‘branch operation’ is a reference to the Australian operations of a foreign insurer.

Group Auditor has the meaning given in Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance Groups;

Insurance Act means the Insurance Act 1973;

insurer means a general insurer within the meaning of the Insurance Act;

Note: In the forms and instructions, a reference to an ‘authorised insurer’, ‘authorised insurance entity’ or ‘licensed insurer’ is a reference to an insurer, and a reference to an ‘authorised reinsurance entity’ is a reference to an insurer whose business consists only of undertaking liability by way of reinsurance.

Non-APRA authorised reinsurer means any reinsurer that is not an APRA-authorised reinsurer;

Principal Executive Officer means the current principal executive officer of the entity, regardless of title, and whether or not he or she is a member of the governing board of the entity;

reporting period means a period mentioned in subparagraph 5(a) or (b) or, if applicable, paragraph 6.

20 A reference to a prudential standard is a reference to the applicable prudential standard made under section 32 of the Insurance Act, as amended from time to time. If the prudential standard has been revoked and replaced, the reference shall be taken to be to the prudential standard that has replaced it.

Objective of this reporting standard

This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001 (the Collection of Data Act). It requires Level 2 insurance groups to report to APRA, generally on a semi-annual and annual basis, any asset concentrations.

This reporting standard outlines the overall requirements for the provision of this information to APRA. It should be read in conjunction with:

• Form GRF 150.0_G Asset Exposure Concentrations and Risk Charge (Form GRF 150.0_G) and the instructions to that form (which are attached and form part of this reporting standard); and
• any prudential standards referenced in the attached instructions.

Purpose

1. Data collected in Form GRF 150.0_G is used by APRA for the purpose of prudential supervision including assessing a Level 2 insurance group’s compliance with the capital standards.

Application and commencement

2. This reporting standard applies to all Level 2 insurance groups for reporting periods commencing on or after 30 June 2009.

Information required

3. A Level 2 insurance group must provide APRA with the information required by the Form GRF 150.0_G for each reporting period specified in paragraph 5 for the Level 2 insurance group.

Forms and method of submission

4. 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 manually completing Form GRF 150.0_G on paper and mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales.

Where the information is submitted by means of an agent to whom the Level 2 insurance group has outsourced the function of providing the information on the Level 2 insurance group’s behalf, the agent may only provide the information in accordance with subparagraph 4(b) if the agent has contacted APRA and advised that the agent cannot submit the information in electronic form under subparagraph 4(a).

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

Reporting periods and due dates

5. Subject to paragraph 6, a Level 2 insurance group must provide the information required by this reporting standard:

(a) in respect of each half year based on the financial year (as defined in Prudential Standard GPS 001 Definitions (GPS 001)) of the Level 2 insurance group on an unaudited basis; and

(b) in respect of each financial year (as defined in GPS 001) of the Level 2 insurance group on an audited basis.

Note: The annual information required by paragraphs 3, 4 and 5(b) together with certain annual information required by other reporting standards, will form part of the Level 2 insurance group’s annual accounts within the meaning of GPS 001. Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance Groups (GPS 311) contains the relevant provisions governing audits.

6. APRA may, by notice in writing to the parent entity, change the reporting periods, or specified reporting periods, for a particular Level 2 insurance group to require it to provide the information:

(a) more frequently (if, having regard to the particular circumstances of the Level 2 insurance group, APRA considers it necessary or desirable to obtain information more frequently for the purposes of the prudential supervision of the Level 2 insurance group); or

(b) less frequently (if, having regard to the particular circumstances of the Level 2 insurance group and the extent to which it requires prudential supervision, APRA considers it unnecessary to require the Level 2 insurance group to provide the information as frequently.

7. The information required by paragraph 3 of this reporting standard from a Level 2 insurance group must be provided to APRA by the following times:

(a) in the case of the half yearly information required by subparagraph 5(a) – three months after the end of the reporting period to which the information relates; and

(b) in the case of the audited annual information required by subparagraph 5(b) – four months after the end of the reporting period to which the information relates.

Note: GPS 311 requires a Level 2 insurance group to ensure that its Group Auditor conducts a limited assurance review of the group’s annual accounts. Accordingly, the Group Auditor’s report(s) as required by GPS 311 (relating to the information required by paragraph 3) must be provided to APRA by the time specified in subparagraph 7(b) of this reporting standard (unless an extension is granted under paragraph 8).

8. APRA may by notice in writing to the parent entity grant a Level 2 insurance group an extension of a due date for the provision of the information, in which case the new due date will be the date on the notice of extension.

9. On the written application of the parent entity of a Level 2 insurance group, APRA may by notice in writing to the parent entity exclude the requirement under subparagraph 5(a) to provide half yearly information.

Quality control

10. The information provided by a Level 2 insurance group under this reporting standard must be the product of processes and controls that have been reviewed and tested by the Group Auditor of the Level 2 insurance group. This will require the Group Auditor to review and test the systems, processes and controls supporting the reporting of the information to ensure that they produce accurate data and are otherwise reliable. This review and testing must be done on:

(a) an annual basis to enable the Group Auditor to form an opinion on the accuracy and reliability of the data; and

(b) at least a limited assurance engagement consistent with the professional standards and guidance notes issued by the Auditing and Assurance Standards Board (AUASB) as may be amended from time to time, to the extent that they are not inconsistent with the requirements of Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance Groups.

11. The information provided by a Level 2 insurance group under this reporting standard must be subject to processes and controls developed by the Level 2 insurance group for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the parent entity of the Level 2 insurance group to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.

Authorisation

12. If an officer of a parent entity[1] of a Level 2 insurance group provides the information required by this reporting standard:

(a) under subparagraph 4(a), the officer must digitally sign, authorise and encrypt the information (for which purpose APRA’s certificate authority will issue digital certificates, for use with the ‘Direct to APRA’ application, to officers of the parent entity of the Level 2 insurance group who have authority from the parent entity of the Level 2 insurance group to transmit data to APRA); or

(b) under subparagraph 4(b), the completed form must be signed in accordance with paragraph 13.

13. If a Level 2 insurance group provides the information required by this reporting standard through an agent under either subparagraphs 4(a) or (b), the agent will not be required to sign or authorise the information. However, the Level 2 insurance group must:

(a) obtain from the agent a paper copy of the completed form as provided to APRA (whether it was provided under subparagraph 4(a) or (b)); and

(b) cause the paper copy to be signed in accordance with paragraph 13; and

(c) lodge the signed paper copy with APRA by mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales, by the relevant due date (unless APRA, in writing, waives the requirement to lodge the signed paper copy with APRA by varying this reporting standard in relation to the Level 2 insurance group).

Note: APRA may, for example, determine to waive the requirement under subparagraph 13(c) where a Level 2 insurance group has undertaken to retain the signed copy of the completed form for an agreed period of time.

14. If information under this reporting standard is provided in paper form, it must be signed on the front page of the relevant completed form by either:

(a) the Principal Executive Officer of the parent entity of the Level 2 insurance group; or

(b) the Chief Financial Officer of the parent entity of the Level 2 insurance group (whatever his or her official title may be).

Minor alterations to forms and instructions

15. APRA may make minor variations to 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 the parent entity of each Level 2 insurance group in writing.

Transition

17. Where APRA has granted a period of transition to a Level 2 insurance group by determining a later effective date for:

(a) Prudential Standard GPS 111 Capital Adequacy: Level 2 Insurance Group;

(b) Prudential Standard GPS 221 Risk Management: Level 2 Insurance Group; and

(c) Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance Group

a later effective date for this Reporting Standard will apply to the Level 2 insurance group as determined by APRA.

Adjustments

18. The parent entity of a Level 2 insurance group may apply in writing to APRA to vary the reporting requirements of GRF 150.0_G Asset Exposure Concentrations and Risk Charge in relation to that Level 2 insurance group. APRA may in its discretion in writing approve such an application.

Interpretation

19 In this reporting standard (including the attachments):

(a) Unless the contrary intention appears, words and expressions have the meanings given to them in Prudential Standard GPS 001 Definitions;

(b) APRA-authorised reinsurer means an insurer carrying on reinsurance business. For the purposes of this definition, a Lloyd’s underwriter as defined under the Act is an APRA-authorised reinsurer if it carries on reinsurance business;

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

capital standards means the prudential standards which relate to capital adequacy as defined in Prudential Standard GPS 001 Definitions;

foreign insurer means a foreign general insurer within the meaning of the Insurance Act;

Note: A reference to a ‘branch’ or ‘branch operation’ is a reference to the Australian operations of a foreign insurer.

Group Auditor has the meaning given in Prudential Standard GPS 311 Audit and Actuarial Reporting and Valuation: Level 2 Insurance Groups;

Insurance Act means the Insurance Act 1973;

insurer means a general insurer within the meaning of the Insurance Act;

Note: In the forms and instructions, a reference to an ‘authorised insurer’, ‘authorised insurance entity’ or ‘licensed insurer’ is a reference to an insurer, and a reference to an ‘authorised reinsurance entity’ is a reference to an insurer whose business consists only of undertaking liability by way of reinsurance.

Non-APRA authorised reinsurer means any reinsurer that is not an APRA-authorised reinsurer;

Principal Executive Officer means the current principal executive officer of the entity, regardless of title, and whether or not he or she is a member of the governing board of the entity;

reporting period means a period mentioned in subparagraph 5(a) or (b) or, if applicable, paragraph 6.

20 A reference to a prudential standard is a reference to the applicable prudential standard made under section 32 of the Insurance Act, as amended from time to time. If the prudential standard has been revoked and replaced, the reference shall be taken to be to the prudential standard that has replaced it.

Instruction Guide

Introduction

This form collects information on large exposures and concentrations of the Level 2 insurance group and calculates the investment concentration risk charge applicable to these asset exposures and concentrations. The calculation is done in accordance with the Prescribed Method outlined in Prudential Standard GPS 111 Capital Adequacy: Level 2 Insurance Group (GPS 111) and Prudential Standard GPS 114 Capital Adequacy: Investment Risk Capital Charge (GPS 114).

Audit requirements

The annual return of GRF 150.0_G Asset Exposure Concentrations and Risk Charge (Level 2 Insurance Group) required under paragraphs 3 and 5(c) of Reporting Standard GRS 150.0_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 150.0_G Asset Exposure Concentrations Risk Charge (Level 2 Insurance Group) is to be completed by the parent entity of a Level 2 insurance group as defined under Prudential Standard GPS 001 Definitions (GPS 001).

Consolidation at Level 2 should cover the Level 2 insurance group as defined under GPS 001.

Unit of measurement

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 150.0_G Asset Exposure Concentrations and 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 150.0_G Asset Exposure Concentrations and 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.

Acquisitions

In accordance with GPS 001, a Level 2 insurance group may apply to APRA for transition arrangements in respect of recently acquired entities from being consolidated in the Level 2 insurance group. Entities under these transition arrangements may be excluded when calculating the aggregate exposure to a counterparty or group of related counterparties.

Calculation of Concentration risk charge

The investment concentration risk capital charge is based on the credit rating of the counterparty[3] and only applies to exposures of a counterparty or a group of related counterparties that exceed the maximum concentration thresholds as a percentage of capital as specified in GPS 114. These thresholds are:

A Level 2 insurance group must apply the relevant Investment Capital Factor to an asset or assets up to the value of the threshold, and apply a 100% Investment Capital Factor for the value in excess of this level to calculate the Investment Concentration Charge. In the case of exposures to a group of related counterparties, exposures are aggregated both against counterparties of the same grade and upwards through the rating grades, with the threshold for each grade applying to aggregate exposures summed for that grade and all lower quality grades, excluding any exposures which are already subject to a 100% capital factor. Only the tangible component of an exposure is compared to the threshold as the intangible component is deducted from the Capital Base under GRF 120.0_Determinatino of Capital Base (Level 2 Insurance Group).

This method is described as:

Exposures to a group of related counterparties at the Grade 5 level are aggregated to determine the amount in excess of the Grade 5 threshold to which the 100% Investment Capital Factor is applied. Those exposures to a group of related counterparties at the Grade 5 level (up to the Grade 5 threshold) are then aggregated with all the exposures to that group of related counterparties at the Grade 4 level to determine the amount in excess of the Grade 4 threshold to which the 100% Investment Capital Factor is applied.

Other issues that must be noted for the purposes of completing this form are set out below:

1. The ‘Capital Base’ of the Level 2 insurance group must be determined in accordance with GPS 111.
2. Report all exposures in the appropriate counterparty/asset rating band columns and select the appropriate investment capital factor. Report the fair value of the asset, net of provision for doubtful debts, as per GRF 300.0_G Statement of Financial Position (Level 2 Insurance Group) and GRF 301.0_G Reinsurance Assets and Risk Charge (Level 2 Insurance Group), except where the Level 2 insurance group has in place netting agreements that are in the form of a legally recognised right to net or set off in accordance with AASB 132 ‘Financial Instruments: Presentation’.
3. Where the counterparty rating is revised and/or investment capital factor of an asset is reduced due to credit support received (e.g. guarantee, letter of credit or eligible collateral as defined in GPS 114), the exposure must be reported taking into account the credit support received (i.e. the appropriate counterparty/asset rating should be reported).
4. Exposures include claims and commitments of the Level 2 insurance group recorded both on and off the balance sheet, that are of the following nature:

(a) Credit exposures (i.e. exposure to a counterparty or group of related counterparties); and/or

(b) Asset exposures that are not in the nature of a credit exposure (e.g. equity investments).

On-Balance Sheet exposures

Report the carrying value of exposures, net of provision for impairment/doubtful debts, recognised on-balance sheet (i.e. exposure recorded in GRF 300.0_G Statement of Financial Position (Level 2 Insurance Group) and GRF 301.0_G Reinsurance Assets and Risk Charge (Level 2 Insurance Group), except where point 2 above is satisfied in regards to netting. Fair value has the same meaning as defined in the Australian accounting standards.

Off-Balance Sheet exposures

Note: Refer to GRF 131.0_G Off-Balance Sheet Exposure Risk Charge (Level 2 Insurance Group).

Off-balance sheet transactions (i.e. exposures not recorded in GRF 300.0_G Statement of Financial Position (Level 2 Insurance Group) and GRF 301.0_G Reinsurance Assets and Risk Charge (Level 2 Insurance Group)) and exposures will include direct credit substitutes, trade and performance related contingent items, guarantees, collateral and other commitments, that are of a credit nature, whether revocable or not.

The following exposures must not be taken into account in determining the Investment Concentration Charge:

(a) Exposures to which an Investment Capital Factor of 0% is applied; and

(b) Assets to which an Investment Capital Factor of 100% is applied.

5. Group of related counterparties (counterparties related to each other whether or not they are related to the Level 2 insurance group): Two or more counterparties will form a group of related counterparties, for the calculation of concentration risk charge, if they are linked by:

(a) Cross guarantees;

(b) common ownership or management;

(c) the ability of a counterparty to exercise control (defined in accordance with Australian Accounting Standards issued by AASB) over the other(s) whether direct or indirect;

(d) financial interdependency such that the financial soundness of any of them may affect the financial soundness of the other(s); or

(e) other connections or relationships which, according to a level 2 insurance group’s assessment, identify the counterparties as constituting a single risk.

6. Counterparties related to the Level 2 insurance group: Exposures of the Level 2 insurance group to related parties (i.e. parent entity, associates and joint ventures) must be included in the analysis.

‘Related party’ or ‘Related parties’, where used in these instructions and the related form is to be taken to have the same meaning as contained in Australian accounting standards.

Exposures to the foreign parent and the related entities of the parent (where applicable) are to also be considered in the analysis. This will include the following:

Direct exposures

This incorporates direct exposures of the Level 2 insurance group to the foreign parent and to any branches, subsidiaries and other related parties of the foreign parent.

Indirect exposures

This incorporates indirect exposures of the Level 2 insurance group covered by risk transfer arrangements to the Level 2 insurance group’s foreign parent or to the subsidiaries of the foreign parent.

7. For the purposes of the Investment Concentration Charge, investments in equity or subordinated debt must be regarded as having the same rating as unsecured debt of the issuer.

The following column headings on the form are to be interpreted as set out below:

Name of counterparty

Report the name of the counterparty in this column.

Counterparty group name

Report the name of the group to which the counterparty belongs in this column.

For the purposes of the form, individual counterparties with the same counterparty group name will be assumed to be related to each other, ie the aggregation of exposures for calculating the concentration risk charge will be determined by the counterparty group name.

Type of exposure (i.e. type of investment/asset)

Detail the type of asset (e.g. holdings of listed equity instruments, debt instruments, loan, reinsurance recoveries[4], and guarantee and letters of credit).

Grade

NOTE: This column is only applicable for the Grade 4 and 5 counterparty/asset table.

Select the appropriate counterparty grade (either 4 or 5) for the type of exposure to the counterparty.

Capital factor

Select the investment capital factor used to determine the investment risk charge on the type of exposure reported. The investment capital factors are specified in GPS 114 (Table 1 of Attachment A).

Performance of asset

Select “Y” or “N” in this column for each exposure listed in terms of whether the performance of the asset is impaired. For the purposes of this form, impairment has the same meaning as per the Australian accounting standards.

Related entity

‘Related party’ or ‘Related parties’, where used in these instructions and the related form is to be taken to have the same meaning as contained in Australian accounting standards.

If the exposure of the Level 2 insurance group is to an entity related to the group, select the appropriate related party from the following list:

• Parent;
• Controlled entity;
• Associate / Joint venture; and
• Other.

Leave blank if exposure is to an unrelated entity.

On-Balance Sheet exposure

Refers to exposures that are recorded in GRF 300.0_G Statement of Financial Position (Level 2 Insurance Group). Report the carrying value of exposures, net of provision for impairment/doubtful debts (as per GRF 300.0_G Statement of Financial Position (Level 2 Insurance Group)), except where a legal right of set off exists in accordance with AASB 132 ‘Financial Instruments: Presentation’.

Off Balance Sheet exposure

Refers to assets that are not recorded in GRF 300.0_G Statement of Financial Position (Level 2 Insurance Group) and are referred to in GRF 131.0_G Off-Balance Sheet Exposure Risk Charge (Level 2 Insurance Group).

For off-balance sheet transactions and exposures, include the gross value of direct credit substitutes, trade and performance related contingent items, guarantees, collateral and other commitments, that are of a credit nature, whether revocable or not.

Total exposure

This is automatically calculated by the form. This item refers to the total of the “On Balance Sheet” and “Off Balance Sheet” amounts listed for each individual counterparty/exposure.

Intangible component

Refers to that component of the value of an investment in a controlled entity (as defined in the Australian Accounting Standards) or associated entity (as defined in the Australian Accounting Standards), that constitutes goodwill and/or other intangible assets. Though this value will be included in the value disclosed in the column “On Balance Sheet Exposure”, it still needs to be separately disclosed in this column.

Grade 4 net tangible exposure

NOTE: This column is only applicable for the Grade 4 and 5 counterparty/asset table.

This is automatically calculated by the form. This item refers to the difference between the ‘Total Exposure’ and ‘Intangible Component’ for each Grade 4 exposure.

Grade 5 net tangible exposure

NOTE: This column is only applicable for the Grade 4 and 5 counterparty/asset table.

This is automatically calculated by the form. This item refers to the difference between the ‘Total Exposure’ and ‘Intangible Component’ for each Grade 5 exposure.

Gross concentration risk charge

NOTE: This column is only applicable for the Grade 4 and 5 counterparty/asset table.

This is automatically calculated by the form in accordance with GPS 111. See note on ‘Calculation of concentration risk charge’ earlier in these instructions for details on the thresholds applied.

Investment risk charge on assets subject to concentration risk charge

NOTE: This column is only applicable for the Grade 4 and 5 counterparty/asset table.

The form automatically calculates the appropriate Investment Risk Charge attributable to the exposure in excess of the concentration exposure threshold.

Net concentration risk charge

The form automatically calculates the Net Concentration Risk Charge. It is calculated by deducting the Investment Risk Charge on assets subject to the Concentration Risk Charge from the “Gross Concentration Risk charge”. This amount is used for the calculation of the Minimum Capital Requirement.