Financial Sector (Collection of Data) (reporting standard) determination No. 23 of 2007 - LRS 300.0 - Statement of Financial Position
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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) provides APRA with the necessary information on assets, liabilities and capital to undertake an assessment of a life insurance company’s financial position, and to assist 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 300.1 and LRF 300.2. 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 300.1 and LRF 300.2 must be completed by all life insurance companies, including friendly societies. The forms are to be completed for each statutory fund (approved benefit fund) and shareholders’ fund (management fund), including eliminations between these funds.
Report each statutory fund (approved benefit fund) return separately, and (if applicable) complete ‘Statutory Fund Eliminations’ under LRF 300.1.
Report shareholders’ fund (management fund) return and (if applicable) complete ‘Shareholder Eliminations’ under LRF 300.2. ‘Total Statutory Funds’ (allowing for eliminations) and ‘Total Entity’ results will then be calculated automatically by derivations contained within LRF 300.2.
Unit of measurement
LRF 300.1 and LRF 300.2 are 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 these forms 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 forms 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 required in these forms is to be reported as at the close of business for the last day of the reporting period.
Basis of preparation
In completing these forms, 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, specifically in regard to the:
interpretation/definition of specific asset, liability and equity items;
appropriate measurement basis for asset, liability and equity items; and
netting of financial assets and financial liabilities.
Actuarial valuations and calculations included in, or used in the preparation of, the forms must be in accordance with prudential standards. APRA recognises that for some periods life insurance companies may not carry out full accounting, actuarial and other 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 companies will utilise their best endeavours to ensure that any estimations are a good and reasonable basis of approximation. 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.
If additional clarification is required for specific asset, liability or equity items in these forms, reference should be made to the section “Instructions for specific items”, which is provided as a guide.
The look-through adjustment item under an asset or liability category in these forms represents the adjustment required to convert effective holdings in investments via trusts from the “Equities/unit trusts” category to the appropriate categories on a look-through basis. In the case of owner-occupied property, this item also converts the effective holding from the Non-investment assets class to the Property class. The total of all look-through adjustment items listed in these forms (both for trusts and property) should therefore sum to zero.
The level to which look through is taken should be consistent with LRF 100.0 Solvency, LRF 110.0 Capital Adequacy and LRF 120.0 Management Capital.
The hedging adjustment item under an asset or liability category in these forms represents the adjustment required to translate the effective exposure associated with hedging instruments. The total of all hedging adjustment items listed in these forms should therefore sum to zero.
For the purposes of reporting under these forms, contracts are to be classified in accordance with Prudential Standard LPS 350 Contract Classification for the Purpose of Regulatory Reporting to APRA (LPS 350).
Instructions for specific items
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.
Column headings – Australian/Overseas business:
This refers to the territory where the life insurance business is carried on, as defined in the Life Insurance Act 1995 (Life Act). All “Total Business” values are derived items.
Assets
Asset values are to include income accrued but not received. Note that this treatment differs from the Australian Accounting Standards.
All assets of a statutory fund are to be reported in these forms at Fair Value, with movements in Fair Values recognised in Profit or Loss.
1. Cash:
Include cash at call (up to 30 days). Include cash held with non bank financial institutions. Do not include negotiable certificates of deposit (shown with interest bearing securities).
1.2 Held directly – outside Australia
This differentiation refers to the territory where the asset is held, as opposed to the territory where the life insurance business is carried on (see Column headings).
1.4 Look-through adjustment for assets held indirectly via unit trusts
Include look-through adjustment for Cash held indirectly via Listed Unit Trusts, Unlisted Unit Trusts or Controlled Unit Trusts.
1.5 Sub-total cash held effectively (unhedged positions) [derived item]
This represents the effective holding in Cash after adjustment for look-through of trusts and prior to adjustment for hedging.
This is calculated automatically by derivations contained within the forms.
1.6 Hedging adjustments to or from cash
The hedging adjustment item is intended to translate the aggregate Cash balance to the effective post-derivatives position.
1.7 Total cash held effectively (hedged positions) [derived item]
This represents the effective exposure to Cash after adjustment for look-through of trusts and also after adjustment for hedging.
2. Investment Property:
Property acquired or held which is available for sale, excluding owner-occupied property. Report the value after deducting accumulated depreciation.
Investment property should be consistent with the classification and measurement basis used in AASB140 Investment Property.
2.2. Held directly – outside Australia
This differentiation refers to the territory where the asset is held, as opposed to the territory where the life insurance business is carried on (see Column headings).
2.4 Look-through adjustment for assets held indirectly via unit trusts or by owner
Include look-through adjustment for Investment Property held indirectly via Listed Unit Trusts, Unlisted Unit Trusts or Controlled Unit Trusts, or for owner-occupied property initially entered as part of Item 11.
2.5 Sub-total investment property held effectively (unhedged positions) [derived item]
This represents the effective holding in Property after adjustment for look-through of trusts/owner-occupied and prior to adjustment for hedging.
2.6 Hedging adjustment to or from investment property
The hedging adjustment item is intended to translate the aggregate Investment Property balance to the effective post-derivatives position.
2.7 Total investment property held effectively (hedged positions) [derived item]
This represents the effective exposure to Property after adjustment for look-through of trusts/owner-occupied and also after adjustment for hedging.
This is calculated automatically by derivations contained within the forms.
3. Equities/unit trusts:
All holdings in unit trusts are initially included in this section, before applying the look-through adjustments.
3.1 Held in Australia – directly as listed or unlisted equities
Include both listed (ownership interest in a company listed on the ASX or an overseas exchange) and unlisted equities that are held directly.
3.2 Held in Australia - directly in associated, subsidiary or controlled entities
Ownership interest in any associated, subsidiary and controlled entities, excluding preference shares.
Refer to the Life Insurance Act 1995 for definitions of associated, subsidiary or controlled entities.
3.3 Held in Australia - directly as convertible notes (Equity exposure)
All equities-related items such as convertible notes and other hybrid securities which, taking into account market conditions, have attributes that demonstrate exposure to equities markets.
3.7. Held directly – outside Australia
This differentiation refers to the territory where the asset is held, as opposed to the territory where the life insurance business is carried on (see Column headings).
3.9 Look-through adjustment for assets held indirectly via unit trusts etc.
Include look-through adjustment for Equities held indirectly via Listed Unit Trusts, Unlisted Unit Trusts or Controlled Unit Trusts.
3.10 Sub-total equities held effectively (unhedged positions) [derived item]
This represents the effective holding in Equity after adjustment for look-through of trusts and prior to adjustment for hedging.
3.11 Hedging adjustments to or from equities
The hedging adjustment item is intended to translate the aggregate Equities balance to the effective post-derivatives position.
3.12 Total equities held effectively (hedged positions) [derived item]
This represents the effective exposure to Equity after adjustment for look-through of trusts and also after adjustment for hedging.
4. Non-indexed interest bearing securities (IBS):
Non-indexed IBS are interest bearing securities that are not indexed (see item 5 below).
4.2 Held in Australia - directly as convertible notes (IBS exposure)
All IBS-related items such as convertible notes and other hybrid securities which, taking into account market conditions, have attributes that demonstrate exposure to IBS markets.
4.3 Held directly – outside Australia
This differentiation refers to the territory where the asset is held, as opposed to the territory where the life insurance business is carried on (see Column headings).
4.5 Look-through adjustment for assets held indirectly via unit trusts
Include look-through adjustment for Non-indexed IBS held indirectly via Listed Unit Trusts, Unlisted Unit Trusts or Controlled Unit Trusts.
4.6 Sub-total non-indexed IBS held effectively (unhedged positions) [derived item
This represents the effective holding in Non-indexed IBS after adjustment for look-through of trusts and prior to adjustment for hedging.
4.7 Hedging adjustments to or from non-indexed IBS
The hedging adjustment item is intended to translate the aggregate Non-indexed IBS balance to the effective post-derivatives position.
4.8 Total non-indexed IBS held effectively (hedged positions) [derived item]
This represents the effective exposure to Non-indexed IBS after adjustment for look-through of trusts and also after adjustment for hedging.
5 Indexed interest bearing securities (IBS):
Indexed IBS are interest bearing securities with a payment stream that increases by an indexation factor; the most common being the rate of inflation.
5.2 Held directly – outside Australia
This differentiation refers to the territory where the asset is held, as opposed to the territory where the life insurance business is carried on (see Column headings).
5.4 Look-through adjustment for assets held indirectly via unit trusts
Include look-through adjustment for Indexed IBS held indirectly via Listed Unit Trusts, Unlisted Unit Trusts or Controlled Unit Trusts.
5.5 Sub-total indexed IBS held effectively (unhedged positions) [derived item]
This represents the effective holding in Indexed IBS after adjustment for look-through of trusts and prior to adjustment for hedging.
5.6 Hedging adjustments to or from indexed IBS
The hedging adjustment item is intended to translate the aggregate Indexed IBS balance to the effective post-derivatives position.
5.7 Total indexed IBS held effectively (hedged positions) [derived item]
This represents the effective exposure to Indexed IBS after adjustment for look-through of trusts and also after adjustment for hedging.
6 Sub-total of non-indexed IBS and indexed IBS [derived item]:
Aggregate IBS balance. This is the internal sub-total of Non-indexed IBS and Indexed IBS, in terms of effective exposure.
7 Loans:
Include financial leases and mortgages. Please note that loans differ from interest bearing securities as usually the asset is not negotiable (i.e. able to be traded on a secondary market).
7.1 Held in Australia - directly as loans on policies
Loans on policies are loans (usually to a policy owner) that are secured by the surrender value of the policy.
7.3 Held in Australia - directly in public sector or as secured
Include all loans to the public sector (loans to National, State or Local Governments or government enterprises) and secured loans (loans secured by a charge over assets, including debentures) to other borrowers.
7.4 Held in Australia - directly as unsecured
Include loans (to private sector entities) that are not secured by a charge over assets.
7.5 Held directly - outside Australia
This differentiation refers to the territory where the asset is held, as opposed to the territory where the life insurance business is carried on (see Column headings).
7.7 Look-through adjustment for assets held indirectly via unit trusts
Include look-through adjustment for Loans held indirectly via Listed Unit Trusts, Unlisted Unit Trusts or Controlled Unit Trusts.
7.8 Sub-total loans held effectively (unhedged positions) [derived item]
This represents the effective holding in Loans after adjustment for look-through of trusts and prior to adjustment for hedging.
7.9 Hedging adjustments to or from loans
The hedging adjustment item is intended to translate the aggregate Loans balance to the effective post-derivatives position.
7.10 Total loans held effectively (hedged positions) [derived item]
This represents the effective exposure to Loans after adjustment for look-through of trusts and also after adjustment for hedging.
8 Sub-total of Debt Securities (IBS and Loans) [derived item]:
Aggregate Debt assets balance. This is the internal sub-total of IBS and Loans, in terms of effective exposure.
9 Other investment assets:
Other investment assets, for example, direct holdings of commodities such as gold.
9.2 Held directly – outside Australia
This differentiation refers to the territory where the asset is held, as opposed to the territory where the life insurance business is carried on (see Column headings).
9.4 Look-through adjustment for assets held indirectly via unit trusts
Include look-through adjustment for Other investment assets held indirectly via Listed Unit Trusts, Unlisted Unit Trusts or Controlled Unit Trusts.
9.5 Sub-total other investment assets held effectively (unhedged positions) [derived item]
This represents the effective holding in Other investment assets after adjustment for look-through of trusts and prior to adjustment for hedging.
9.6 Hedging adjustments to or from other investment assets
The hedging adjustment item is intended to translate the aggregate Other investment assets balance to the effective post-derivatives position.
9.7 Total other investment assets held effectively (hedged positions) [derived item]
This represents the effective exposure to Other investment assets after adjustment for look-through of trusts and also after adjustment for hedging.
Receivables:
Do not include accrued income from investment assets, which is to be included with the appropriate investment principal.
Include outstanding premiums (item 10.1), but not deferred acquisition cost arising in respect of policies, which are to be included as part of the calculation of Policy Liabilities.
Note that this treatment differs from the Australian Accounting Standards.
10.3 Held in Australia - as other receivables
Include the amount of any other receivables not categorised above.
Include sundry debtors and prepayments. Include accrued income for assets of the fund which are not traded securities, such as operating assets. Do not include accrued income from traded securities which is to be included with the principal amount.
10.4 Held outside Australia - all receivables
This differentiation refers to the territory where the asset is held, as opposed to the territory where the life insurance business is carried on (see Column headings).
Non-investment assets:
11.1 Held in Australia - as (owner-occupied) property, plant and equipment
Include owner-occupied property, furniture, equipment (excluding information technology), re-modelling costs to existing premises, and interest capitalised during the period of construction of buildings in accordance with AASB116 Property, Plant and Equipment. Report the net value after deducting accumulated depreciation from the total amount.
11.2 Held in Australia - as gross policy liabilities ceded under reinsurance
The sum of insurance liabilities, financial instrument liabilities and management services element liabilities ceded under reinsurance held in Australia. For reinsurance held outside Australia, see Item 11.5.
Outwards Reinsurance that meets the definition of an insurance contract consists of both a Reinsured Best Estimate Liability and the Value of Reinsured Profit Margins.
See comments under Item 16.
11.4 Held in Australia - as other assets
Include all other assets not specifically categorised above, including unreconciled suspense and clearing accounts with debit balances.
11.5 Held outside Australia - as gross policy liabilities ceded under reinsurance
The sum of insurance liabilities, financial instrument liabilities and management services element liabilities ceded under reinsurance held outside Australia. For reinsurance held in Australia, see Item 11.2.
Outwards Reinsurance that meets the definition of an insurance contract consists of both a Reinsured Best Estimate Liability and the Value of Reinsured Profit Margins.
See comments under Item 16.
11.6 Held outside Australia – other non-investment assets
This differentiation refers to the territory where the asset is held, as opposed to the territory where the life insurance business is carried on (see Column headings).
11.7 Look-through adjustment for owner-occupied property
This item is intended to translate the exposure to owner-occupied property from Item 11 to Item 2 (Investment Property).
Liabilities
Borrowings:
Include the outstanding balances of borrowings from financial institutions and other borrowings.
13.1 Direct - secured
Include borrowings that are secured by a charge over assets.
13.2 Direct - unsecured
Include borrowings that are not secured by a charge over assets.
13.3 Direct - seed capital
Seed Capital must be reported separately from borrowings. This reporting item only applies to Friendly Societies.
13.5. Look-through adjustment for borrowings drawn indirectly via unit trusts
Include look-through adjustment for Borrowings drawn indirectly via Listed Unit Trusts, Unlisted Unit Trusts or Controlled Unit Trusts. This is in effect adjusting for recognition of ‘geared’ positions in unit trusts.
13.7 Hedging adjustments to or from borrowings
The hedging adjustment item is intended to translate the aggregate Borrowings balance to the effective post-derivatives position.
Total creditors
Show the total of creditors, including account payables. Do not include overdrafts here, these should be disclosed as Borrowings.
Provisions:
15.1 Current tax liabilities
Includes items of income tax described as inter-company tax liability by virtue of life company being part of a tax consolidation group.
15.3 Other provisions
Include the amount of other provisions, for example, employee entitlements, etc.
Gross policy liabilities assumed directly
Gross policy liabilities are to be valued in accordance with Prudential Standard LPS 1.04 Valuation of Policy Liabilities (LPS 1.04).
Include liabilities for deferred fee revenue and deferred acquisition costs, and non-life policy liabilities.
For participating benefits, include bonuses in respect of the current year.
Gross policy liabilities assumed under reinsurance
As for reporting item 16 Gross Policy Liabilities, except that it pertains to inwards reinsurance business.
A life company whose principal business is reinsurance is expected to enter their Policy Liabilities at this item.
Policy owner retained profits
Value of statutory fund profits allocated to participating policy owners generally, but not yet vested as specific amounts to particular policies.
AASB1038 Life Insurance Contracts prevents the recognition of negative policy owner retained profits.
Negative policy owner retained profits should be disclosed in LRF 340.1 Retained Profits (SF and SF Eliminations).
Approved subordinated debt:
20.1 Eligible amounts
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.
20.2 Non-eligible amounts
The non-eligible amount is the current total value of the subordinated debt which has been issued under an ‘Instrument of Issue’ approved by APRA in accordance with Circular E.1 minus the eligible amount above (reporting item 20.1).
20.3 Total approved subordinated debt [derived item]
Total approved subordinated debt is the current total value of the subordinated debt which has been issued under an ‘Instrument of Issue’ approved by APRA in accordance with Circular E.1.
Other Liabilities:
21.1 Other liabilities
Record all other liabilities that are not specifically categorised above, including unreconciled suspense and clearing accounts with credit balances.
21.2 Hedging adjustments to or from other liabilities
The hedging adjustment item is intended to translate the aggregate Other liabilities balance to the effective post-derivatives position.
Net Assets [derived item]
Total Assets (item 12) less Total Liabilities (item 22).
Components of Net Assets
Foreign currency translations
This reporting item applies only to the shareholders’ fund. The Life Insurance Act 1995 does not provide for appropriations to reserves in the statutory funds. All operating profit (loss) of a statutory fund must be allocated to retained profits in accordance with sections 59 and 60 of the Life Insurance Act 1995.
Reserves:
25.1 Unallocated Benefit Fund reserves
Value of benefit funds which has not been allocated to either the benefit fund members or to the management fund. This item is only expected to be applicable to friendly societies.
25.2 Other reserves
Include all other reserves not specifically categorised above.
26 Share Capital
Includes all share capital, e.g. ordinary shares, preference shares etc recognised as capital for the purposes of Prudential Standards No 3 (PS 3).
27 Shareholders’ Retained Profits
This represents the sum of Shareholders’ Retained Profits (or accumulated losses) at beginning of the period and the Profit (or Loss) after Income Tax attributable to Shareholders for the reporting period, after any transfers to or from reserves.
28 Total Components = Life Insurance Act Net Assets [derived item]
This represents the sum of component items making up Net Assets, and must equal the derived item for Net Assets shown at Item 23.
Annual Return Reconciliations
Reconciliation to Net Assets at the end of the period in the general purpose financial statements is only required to be completed as part of the annual returns.
29 Reconciliation adjustments
This is the adjustment necessary to reconcile the Total Components of Life Insurance Act Net Assets (item 28) to the Net Assets per general purpose accounts (item 30). APRA does not propose to routinely collect the components of the reconciliation. Additional information may, however, be sought from the life companies where this figure is significant.
30 Net Assets, per general purpose accounts - Balance Sheet
This is the corresponding figure to the Total Components of Life Insurance Act Net Assets (item 28), except that it is taken from the general purpose accounts of the entity.