Part B: Premiums liabilities — AASB BasiPart B: Premiums liabilities — AASB Basis

Part B: Premiums liabilities – AASB Basis

The instructions below relate to tables 5 to 8 (including the ‘Totals’ table in Part A) and are set out by column.

Under GPS 311, Level 2 insurance groups may value premiums liabilities for international business on an AASB basis using accounting entries. These are to be reported in ‘Part B: Premiums Liabilities – AASB Basis’. A Level 2 insurance group may apply to APRA, under paragraph 41 of GPS 311, for a determination to enable premiums liabilities on Australian business to be reported using accounting entries. Where APRA has made such a determination, these are to be reported in part B of this form.

Note: Diversification adjustments must not be included when reporting the value of premiums liabilities in ‘Part B: Premiums Liabilities – AASB Basis’. However, Level 2 insurance groups may allow for diversification adjustments when determining the threshold levels for any liability adequacy tests applied in part B of this form.

Unearned premium (2)

Report the unearned premium liability as at the end of the reporting period.

Deferred acquisition costs (3)

Report the value of deferred acquisition costs as at the end of the reporting period.

AASB Gross premiums liabilities (UPP – DAC) (4)

This item is automatically calculated by the form as:

• Item 2 ‘Unearned Premium’; less
• Item 3 ’Deferred acquisition costs’.

Deferred reinsurance expense (Current policies) (5)

Report the value of deferred reinsurance expense relating to current policies. This will exclude deferred reinsurance expense on future business not yet written or recognised.

Unexpired risk liability (6)

Report the value of any unexpired risk liability as a result of the application of the liability adequacy test required under AASB 1023 ‘General Insurance Contracts’. This liability adequacy test may be different from the liability adequacy test required in accordance with GPS 311. Where the test applied under AASB 1023 ‘General Insurance Contracts’ is identical to that required under GPS 311, there will be no recognition of a deduction of excess technical provisions as set out below.

AASB Net premiums liabilities (7)

The net premiums liabilities are calculated as:

• Item 4 ‘AASB Gross Premium Liabilities (UPP – DAC)’; less
• Item 5 ‘Deferred Reinsurance Expenses (Current Policies)’; add
• Item 6 ‘Unexpired risk liability’.

Do not enter a value as this is automatically calculated by the form.

Technical provision deficiency (8)

Report any deficiency recognised in premium liability valuations due to the application of the Liability Adequacy Test (LAT) as under Attachment A of GPS 311. The LAT must be applied to net premiums liabilities (unearned premium less deferred acquisition costs less deferred reinsurance expense on current policies plus unexpired risk liability) at a 75% level of sufficiency. This treatment is different to the requirements of AASB 1023 ‘General Insurance Contracts’. Where a Level 2 insurance group reports premiums liabilities on Australian business using accounting entries, the LAT must be applied at the class of business level. For international business, the LAT must be applied to each geographic region. For the purposes of ‘Part B: Premiums Liabilities – AASB Basis’, diversification adjustments may be taken into account when determining the threshold amount for the LAT. APRA is therefore specifying the probability of sufficiency and the portfolios to which this is applied. This prescription does not apply under AASB 1023 ‘General Insurance Contracts’. If the Level 2 insurance group chooses to apply a liability adequacy test for the purposes of AASB 1023 ‘General Insurance Contracts’ that meets these specifications then the LAT required for prudential reporting purposes will also be satisfied.

Any deficiency in premiums liabilities is to be reported as a positive value. Where premiums liabilities exceed the threshold amount determined under the LAT, the value reported under ‘Excess Technical Provision’ will be zero. Consequently, Level 2 insurance groups will not be able to include in their capital base the value of premiums liabilities (determined using accounting entries) that exceed the threshold amount calculated in the LAT.

Adjusted net premiums liabilities (9)

Adjusted net premiums liabilities are calculated as:

• Item 7 ‘AASB Net Premiums Liabilities’; plus
• Item 8 ‘Technical Provision Deficiency’.

Do not enter a value as this is automatically calculated by the form.

PL capital factor % (10)

For Australian business reported on a class by class basis these premiums liabilities capital factors are as specified in GPS 115.

For international business (and for Australian business reported as a single region), for each geographic region Level 2 insurance groups are to map their international business to the Australian classes of business and assign an insurance risk capital charge accordingly. A weighted average capital factor needs to be determined for premiums liabilities in each geographic region and the detail of its calculation is to be provided as supplementary information. This information is to be supplied to the Level 2 insurance group’s APRA supervisor. The average capital factor for each region needs to be manually entered into the form.

PL insurance risk charge (11)

This column represents the insurance risk capital charge applicable to premium liabilities. For Australian business, the capital charge is calculated on the basis of risk capital factors specified in GPS 115. For international business (and for Australian business reported as a single region) the insurance risk capital charge is calculated based on the weighted average capital factor reported for each region under 'Premiums Liability Capital Factor %' in this form. The premiums liabilities insurance risk charge is automatically calculated by the form.

The total of this column for direct business and reinsurance business is included in the calculation of the minimum capital requirement for the Level 2 insurance group (after Group adjustments).