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Financial Sector (Collection of Data) (reporting standard) determination No. 24 of 2007 - LRS 310.0 - Statement of Financial Performance
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Reporting Forms LRF 310.1 and LRF 310.2
Statement of Financial Performance
Instruction Guide
Introduction
Forms LRF 310.1 Statement of Financial Performance (SF and SF Eliminations) (LRF 310.1) and LRF 310.2 Statement of Financial Performance (SF Total, SHF, SH Elim, Entity) (LRF 310.2) provides APRA with the necessary information on revenue, expenses and tax to undertake an assessment of a life insurance company’s financial performance, 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 310.1 and LRF 310.2. The Instruction Guide provides:
LRF 310.1 and LRF 310.2 must be completed by all life insurance companies, including friendly societies.
Report each statutory fund (approved benefit fund) return separately, and (if applicable) complete ‘Statutory Fund Eliminations’ under LRF 310.1.
Report shareholders’ fund (management fund) return and (if applicable) complete ‘Shareholder Eliminations’ under LRF 310.2. ‘Total Statutory Funds’ (allowing for eliminations) and ‘Total Entity’ results will then be calculated automatically by derivations contained within LRF 310.2.
LRF 310.1 and LRF 310.2 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 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.
Life companies are required to report the information in the reporting forms on a quarterly and annual basis.
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:
Actuarial valuations and calculations included in, or used in the preparation of, the form must be in accordance with prudential standards. APRA recognises that for some periods life insurance companies may not carry out full accounting, actuarial 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.
If additional clarification is required for specific revenue or expense items in these forms, reference should be made to the section “Instructions for specific items”, which is provided as a guide.
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).
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.
This refers to the territory where the life insurance business is carried on, as defined in the Life Insurance Act 1995. All ‘Total Business’ values are derived items.
All assets of a statutory fund are to be measured at Fair Value, with movements in Fair Values recognised in Profit or Loss and reported as revenue or expense in these forms.
Only premiums received from life insurance policies are accounted for as Insurance Policy Revenue. Premiums for life investment business are recognised as Deposits, and adjusted for as changes in policy liabilities.
The revenue components of amounts contractually received or receivable for insurance policies should be shown gross of reinsurance, with outwards reinsurance components to be shown separately.
Direct insurance premiums, policy conversions (inwards) and inwards life reinsurance premiums should be shown separately.
1.1 Life Insurance Direct Premiums
Report regular and single premiums received or receivable for life insurance business written directly. Show amounts gross of outwards reinsurance, but exclude amounts for inwards reinsurance (see item 1.3, below).
Include only revenue components of life insurance contracts, and exclude any deposit components. Include premiums in respect of deferred and immediate annuities that are life insurance business.
1.2 Policy Conversions – inwards
Report the premium elements of Conversions between statutory funds. The inward (premium) side of the conversion is shown here, while the outward (claim) side is shown at item 6.5 (Policy Conversions – outwards); any deposit components are to be taken into account in items 9.2 and/or 10.5.
Premium and Claim elements of policy conversions are not expected to apply for Life Investment Contracts, due to section 5 of AASB 1038 Life Insurance Contracts (AASB 1038). In those cases, only deposit components are expected to apply.
1.3 Inwards Life Reinsurance Premium Revenue
Report premiums for life insurance business written as inwards reinsurance. Show amounts gross of outwards (retrocession) reinsurance.
Include only revenue components, and exclude any deposit components. Include premiums in respect of deferred and immediate annuities that are life insurance business written as inwards reinsurance.
1.4 Total Premiums from Non-Life Insurance Business
Is generally only expected to apply, if permitted to write general insurance business under section 234 of the Life Insurance Act 1995.
1.5 Outward Reinsurance Premiums Expense
Outwards Reinsurance Premiums Expense is to be entered as expense amounts (i.e. as negative amounts).
Include only revenue components, and exclude any deposit components. Include premiums in respect of deferred and immediate annuities that are life insurance business.
1.6 Total insurance policy revenue, net of reinsurance [derived item]
This item represents total insurance premium revenue net of outwards reinsurance, and is the sum of the reporting items 1.1 to 1.5.
Fees for Management Services Rendered include Premium Related Fees received for Life Investment Contracts, Non-Premium Related Fees (e.g. those related to funds under management), and Net Movement in liability for deferred fee revenue.
It should be entered gross of any reinsurance.
2.1 Premium-Related Fees Revenue
Include fees received or receivable that are directly related to premiums received or receivable.
2.2 Non-Premium Related Fees
Include fees received or receivable that are unrelated to premiums received or receivable, such as policy fees and those related to funds under management.
2.3 Fees reported as movement in Policy Liability (Net Movement in liability for Defd Fee Rev)
Include amortisation of liability for deferred fee revenue in respect of Life Investment Contracts, less additional deferral of fees during the reporting period.
Adjustments for Items 2.2 and 2.3 are automatically made by the form when calculating Item 11 Effective Movement in Net Policy Liabilities.
2.4 Total fees for management services rendered [derived item]
This item represents total fee revenue for life investment contracts, and is the sum of the reporting items above (i.e. Items 2.1 to 2.3).
Include interest, dividends, net rents, net realised gains and net unrealised gains. Amounts should be gross of investment management expenses.
3.1.3 Equity securities
Includes unit trust distributions.
3.1.4 Debt securities
Debt securities comprise interest bearing securities (both indexed IBS and non-indexed IBS) and loans.
3.1.5 Other investment assets
All other securities that are not cash, property, equity, or debt securities as categorised above.
3.1.6 Total Investment Income (excluding capital gains or losses) [derived item]
This item is calculated automatically by the form, as sum of items 3.1.1 to 3.1.5.
3.2.3. Debt securities
See note under Item 3.1.4.
3.2.4. Other investment assets
See note under Item 3.1.5.
3.2.5. Total Realised and Unrealised Capital Gains (or losses) [derived item]
This item is calculated automatically by the form, as sum of items 3.2.1 to 3.2.4.
3.3. Total investment revenue [derived item]
This item represents total investment revenue, and is the sum of the reporting items 3.1.6 and 3.2.5).
Include all other revenue items not specifically categorised above.
This item is the sum of reporting items 1.6, 2.4, 3.3 and 4.
6.1. Death and Disability Claims
Report benefits paid or payable for death and/or disability claims on life insurance business, including current period bonus and any interim or terminal bonuses included in claims amounts.
6.5 Policy Conversions – outwards
Report the claim elements of Conversions between statutory funds. The outward (claim) side of the conversion is shown here, while the inward (premium) side is shown at item 1.2 (Policy Conversions – inwards); any deposit components are to be taken into account in items 9.2 and/or 10.5.
Premium and Claim elements of policy conversions are not expected to apply for Life Investment Contracts, due to section 5 of AASB 1038. In those cases, only deposit components are expected to apply.
6.6 Other Claims
Include all other claims expense items not specifically categorised above.
6.7 Inwards Reinsurance Claims Expense (including current year bonus)
Inwards reinsurance claims expense should be gross of retrocession recoveries.
Include bonuses paid as a distribution of current year profit.
6.8 Total Non-Life Policy Expense
Is generally only expected to apply if permitted to write general insurance business under section 234 of the Life Insurance Act 1995.
6.9 Outward Reinsurance Claims Revenue
Outward reinsurance claims revenue should be entered as revenue amounts, i.e. enter as negative amounts.
6.10 Total insurance policy expense, net of reinsurance [derived item]
This item represents total insurance policy expenses net of outwards reinsurance, and is the sum of the reporting items above (i.e. Items 6.1 to 6.9).
Abnormal operating expenses are not to be excluded or shown separately, but included in the relevant category. In total, all expenses are to be included.
Policy acquisition items are prior to any component deferred to either policy liabilities or a deferred acquisition cost asset.
7.1 Policy Acquisition – Commission and Other Incremental Expenses
Include variable costs of acquiring new insurance business.
7.2 Policy Acquisition – Other Expenses
Include all other fixed and variable costs incurred when acquiring new business.
7.3 Policy Maintenance – Commission and Other Incremental Expenses
Variable costs of:
Include all normal operating costs and expenses other than acquisition and investment management expenses.
7.5 Investment Management Expenses
These are the fixed and variable costs of managing the investment portfolio.
7.6 Acquisition Expenses reported as movement in Policy Liability (Net Movement in DAC)
Include amortization and impairment of existing deferred acquisition costs (DAC) less additional deferrals of acquisition expenses during the reporting period.
Note that amounts are as per AASB 1038, and not offset by any initial fee revenue.
An adjustment for this amount is automatically made by the form when calculating Item 11 Effective Movement in Net Policy Liabilities.
7.7 Other Administration Expenses
Including all other general administration expenses not specifically categorised above.
7.10 Total Non-Life Operating Expenses
Is generally only expected to apply if permitted to write general insurance business under section 234 of the Life Insurance Act 1995.
7.11 Total operating expenses [derived item]
This item represents total operating expenses, and is the sum of the reporting items above (i.e. Items 7.1 to 7.10).
8.1 Increase/(Decrease) in Net Policy Liabilities
This item is to be reported as the numerical result: Net Policy Liabilities at end of reporting period, less Net Policy Liabilities at beginning of reporting period; thus if net policy liabilities increased the result is an expense, while if they decreased the result is a negative expense. It is to be reported inclusive of inwards reinsurance and net of outwards reinsurance at beginning and end of reporting period.
A number of adjustments to Movement in Net Policy Liabilities are required in order to obtain the relevant measure of profit or loss for the reporting period. The adjustments involve deposits/withdrawals, non-premium related fees for management services, and movements in the liabilities for deferred fee revenue and deferred acquisition cost. The end result of these adjustments is Effective Movement in Net Policy Liabilities (Item 11).
Items 9 and 10 are two of these adjustments and represent the deposit/withdrawal components of both life insurance and life investment contracts (which are recorded directly to policy liabilities).
9.1 Contractual Direct Premiums
Report the deposit components of regular and single premiums received or receivable for life investment and life insurance investment account business written directly – i.e. exclude any revenue components. Show amounts gross of outwards reinsurance, but exclude amounts for inwards reinsurance (see item 9.3, below). Include the deposit component of premiums in respect of deferred or immediate annuities that are life investment business.
9.2 Policy Conversion – inwards
Report the deposit elements of Conversions between statutory funds. The inward side of the conversion is shown here, while the outward side is shown at item 10.5 (Policy Conversions – outwards); any revenue or expense components are to be taken into account in items 1.2 and/or 6.5.
As revenue and expense elements of policy conversions are not expected to apply for Life Investment Contracts due to section 5 of AASB 1038, the full conversion is expected to be treated as a deposit.
9.3 Inwards Reinsurance Premium Revenue
Report deposit elements for life investment and life insurance investment account business written as inwards reinsurance – i.e. exclude any revenue components. Show amounts gross of outwards (retrocession) reinsurance. Include the deposit component of premiums in respect of deferred or immediate annuities that are life investment business written as inwards reinsurance.
9.4 Total Non-Life Insurance Premiums
Report any deposit elements corresponding to Item 1.4.
9.5 Outward Reinsurance Premiums Expense
Report any deposit elements corresponding to Item 1.5.
10.1 Death and Disability Claims
Report benefits paid or payable as withdrawal of any deposit elements for death and/or disability claims on life investment business.
10.2 Maturities
Report benefits paid or payable as withdrawal of any deposit elements for maturity claims on life investment business.
10.3 Annuities
Report benefits paid or payable as withdrawal of any deposit elements for annuity benefits on life investment business.
10.4 Surrender and Terminations
Report benefits paid or payable as withdrawal of any deposit elements for surrender and/or termination benefits on life investment business.
10.5 Policy Conversions – outwards
Report the withdrawal of deposit elements on Conversions between statutory funds. The outward side of the conversion is shown here, while the inward side is shown at item 9.2 (Policy Conversions – inwards); any revenue or expense components are to be taken into account in items 1.2 and/or 6.5.
As revenue and expense elements of policy conversions are not expected to apply for Life Investment Contracts due to section 5 of AASB 1038, the full conversion is expected to be treated as a withdrawal.
10.6 Other Claims
Report benefits paid or payable as withdrawal of any deposit elements for other claims on life investment business.
10.7 Inwards Reinsurance Claims Expense (including current year bonus)
Report benefits paid or payable as withdrawal of any deposit elements for inwards reinsurance claims, gross of any retrocession recoveries. (While field names for Items 10.1 to 10.9 correspond exactly to those for Items 6.1 to 6.9, it is not expected that reference to “current year bonus” would be applicable.)
10.8 Total Non-Life Policy Expense
Report any withdrawal of deposit elements corresponding to Item 6.8.
10.9 Outward Reinsurance Claims Revenue
Outward reinsurance claims revenue as withdrawal of any deposit elements should be entered as negative amounts.
The effective movement in net policy liabilities is calculated as:
12.1 Increase/(Decrease) in Policy Owner Retained Profits
Policy Owner Retained Profits represent the value of statutory fund profits allocated to participating policy owners generally, but not yet vested as specific amounts to particular policies. This item is included under Expenses in these forms for the purpose of ultimately deriving the profit that is attributable to shareholders.
Include all other expense items not specifically categorised above.
This item is the sum of reporting items 6.10, 7.11, 11, 12.1 and 13.
Total Revenue (item 5) less Total Expenses (item 14).
As a life insurance company is liable for tax partly on behalf of its policy owners and partly on behalf of its shareholders, this item has two components. -
16.1 Income Tax Attributable to Profit/( Loss) – Shareholders
This component relates to that part of the total tax liability arising in the reporting period that is incurred on behalf of shareholders.
16.2 Income Tax Attributable to Profit/(Loss) – Policy Owners
This component relates to that part of the total tax liability arising in the reporting period that is incurred on behalf of policy owners.
16.3 Total Tax [derived item]
This item represents total tax liability arising in the reporting period, and is the sum of the reporting items above (i.e. Items 16.1 and 16.2).
Profit/(Loss) (item 15) less Total Tax (item 16.3).
This item represents the profit (or loss) result, after tax. Where there is no further data applicable to enter on these forms (i.e. Item 18 does not apply), the result will represent the “profit (or loss) after tax” that is attributable to shareholders.
Unallocated Benefit Fund reserves represent the 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. This item is included in this section for the purpose of deriving the profit that is attributable to shareholders.
For life companies other than friendly societies, enter zero under this item.
A derived item that equals Profit/(loss) after Income Tax (item 17) less Increase/(Decrease) in Unallocated Benefit Fund reserves (item 18).
Reconciliation to Operating Profit/(Loss) after Tax at the end of the period in the general purpose financial statements is only required to be completed as part of the annual returns.
This is the adjustment necessary to reconcile the Profit/(Loss) after Income Tax attributable to Shareholders (item 19) to the Operating Profit/(Loss) after Tax, per general purpose accounts – Profit & Loss Account (item 21). 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.
This is the corresponding figure to the Profit/(Loss) after Income Tax attributable to Shareholders (item 19), except that it is taken from the general purpose accounts of the entity.