Financial Sector (Collection of Data) (reporting standard) determination No. 27 of 2007 - LRS 400.0 - Statement of Policy Liabilities
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Form LRF 400.0 Statement of Policy Liabilities (LRF 400.0) provides APRA with the necessary information on policy liabilities by APRA Product Group to gain a better, more complete understanding of the development, disposition and quality of the profit results for a life insurance company across different product lines.
This Instruction Guide is designed to assist reporting entities in the completion of LRF 400.0. 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 400.0 must be completed by all life insurance companies, including friendly societies.
The form is to be completed for each statutory fund (approved benefit fund).
LRF 400.0 contains two sections:
All Statutory Fund Products; and
Totals by Class of Business and Basis.
Within section 1, reporting items are to be completed for each APRA Product Group (as defined below).
Within each APRA Product Group, some data will be collected on up to three bases, indicated as follows:
‘This Year’ – current position, based on current year’s valuation basis;
‘Last Year’ – current position, based on previous year’s valuation basis; and
‘LY/TY’ – current position, based on previous year’s valuation basis, except substituting current year’s investment and economic assumptions.
Unit of measurement
LRF 400.0 is 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 this form have been provided where appropriate in the instructions under the section headed ‘Instructions for specific items’ below.
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.
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Reporting period
All life insurance companies, including friendly societies, are required to report the information in the reporting form on an annual basis only.
The annual information is to be completed in respect of the financial year of the life insurance company, not the calendar year.
The financial information requested in this form is to be reported as at the close of business for the last day of the reporting period.
Basis of preparation
In completing this form, 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.
Actuarial valuations and calculations included in, or used in the preparation of, the form must be in accordance with APRA and other prudential standards.
If additional clarification is required for specific items in this form, reference should be made to the section ‘Instructions for specific items’ below, which is provided as a guide.
For the purposes of reporting under this form, contracts are to be classified in accordance with Prudential Standard LPS 350 Contract Classification for the Purpose of Regulatory Reporting to APRA.
APRA Product Groups
For consistency of reporting across the range of forms applicable to life insurers, APRA adopts a single set of product groupings for life insurers. The following tables list the APRA Product Groups applicable to (1) life companies other than friendly societies, and (2) friendly societies.
Note that Product Groups L11 and L12 are not applicable to this form.
Rather than requiring a Related Product Group (as defined in APRA and other prudential standards) of a Life Insurer’s business to be allocated across APRA Product Groups, APRA will permit it to be contained wholly within one APRA Product Group.
A separate set of product groupings is adopted for Friendly Societies, as follows:
The classification of participating and non-participating business does not apply to friendly societies. Note that Product Groups F7 and F8 are not applicable to this form.
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.
Section 1 All Statutory Fund Products
This section is to be completed for each class of business, as specified in the drop-down box list:
Australia – Superannuation
Australia – Ordinary
Overseas – All business
The expressions ‘ordinary business’ and ‘superannuation business’ are defined in the dictionary of the Life Insurance Act 1995.
1.1. In Force Business and movements in Gross Contractual Regular Contributions over the year
Columns 1 to 10 are required to report on ‘This Year’ basis only.
Column 1 Policy Count (actual number, not scaled)
This is the number of policies in the statutory fund at the end of the period.
Column 2 Member Count (actual number, not scaled)
This is the number of members in the statutory fund at the end of the period. A member with more than one policy is considered as one member.
Column 5 Gross Contractual Regular Contributions
Include any business that is accepted through direct debit, has a specific contractual requirement for future on-going premiums, has an expectation of renewal each year (e.g. Yearly Renewable term products) or generally causes a policy to discontinue on cessation of future payment. It should be gross of all reinsurance.
Column 7 Gross Contractual Regular Contribution increases over the year
Refer to all increases to contractual regular premiums due to new policies sold during the period, including CPI increases.
Column 8 Gross Contractual Regular Contribution decreases due to claims and/or maturities
Decreases due to claims refer to the reduction in contractual regular contributions following a claim arising from the occurrence of an insured event. Note that it is only included when an insurance claim causes alteration or cessation of the premium, e.g. premiums paid on disability income policies will sometimes remain unaffected following a claim, depending on the policy terms and conditions.
Decreases due to maturities refer to the cessation of contractual regular contributions due to the maturity of a policy, i.e. following the completion of a policy’s term. This would occur when a member retires and is paid his/her superannuation benefit, a policy owner reaches a defined age on an Endowment policy or the termination of a savings plan on or after the contractual period.
Column 9 Gross Contractual Regular Contribution decreases due to voluntary discontinuance
Include any decrease in contractual regular contributions due to lapses or surrenders of policies, i.e. the cessation of regular premiums prior to the completion of the policy’s term.
Column 10 Other movements in Gross Contractual Regular Contributions over the year
Include the increase/decrease in contractual contributions following transfers of business from one statutory fund to another or any other movements not recorded in previous columns.
1.2. Components of Gross Policy Liability
Columns 1 to 10 are required to be reported separately on the three bases defined above (‘This Year’, ‘Last Year’ & ‘LY / TY’).
In accordance with the prudential standards and the financial statements, Gross Policy Liability should be gross of all reinsurance and, for participating benefits, should exclude Bonuses in respect of the current year.
As required by the prudential standards, the gross policy liability and the reinsurance policy liability are to be separately quantified, with the net policy liability then derived as the difference.
Policy Liabilities are to be valued in accordance with Prudential Standard LPS 1.04 Valuation of Policy Liabilities (LPS 1.04).
Columns 1 to 7 are for life insurance contracts. Columns 8 and 9 are for life investment contracts.
Columns 1 to 5 Gross Best Estimate Liability –
Column 1 Gross Value of Future Policy Benefits
Where business is valued using techniques other than projection techniques, Gross Value of Future policy Benefits includes the total liability, before deducting the value of unrecouped acquisition expenses.
For participating benefits, the best estimate liability includes past declared bonuses only. Current year bonuses are excluded (see LPS 1.04, section 5, Overview).
For non-participating benefits with an entitlement to Discretionary additions, the cost of the current year Discretionary Additions should be included as part of the best estimate liability.
Column 2 Gross Value of Future Expenses
Column 3 Gross Value of (Balance of) Future Premiums
Column 4 Gross Reduction in Respect of Unrecouped Acquisition Expenses
Only for business valued using techniques other than a projection technique.
Column 5 Total Gross Best Estimate Liability [derived item]
This column will be calculated automatically by derivations contained within the form and represents the sum of columns 1 to 4.
Column 6 Gross Value of Future Profits: Policy Owner Bonuses
For participating benefits, the value of future profits includes future bonuses only. Current year bonuses are excluded.
Column 7 Gross Value of Future Profits: Shareholder Profit Margins
Refer to section 6 of LPS 1.04 for definition and calculation of profit margins.
Column 8 Gross Investment Contract Liability
The net contractual obligation under a life investment contract which arises under the financial instrument element is referred to as the Life Investment Contract liability, this is consistent with the terminology adopted under AASB 1038.
The Investment Contract Liability is a component of the policy liability under the financial instrument element. It is to be determined according to the fair value through profit and loss provisions of the relevant accounting standards. (Refer to LPS 1.04, sections 2.1 and 2.2).
Column 9 Gross Management Services Asset or Liability
This is the liability in respect of the Management Services Element, determined as the difference between the Policy Liability and the Life Investment Contract liability (Column 8).
Include liabilities for deferred acquisition cost and deferred fee revenues.
Column 10 Gross Policy Liability [derived item]
This column will be calculated automatically by derivations contained within the form and represents the total amount of gross policy liability.
1.3. Components of Reinsured Policy Liability and Net Policy Liability
Paragraph 12.1 of LPS 1.04 states that the reinsured policy liability consists of a reinsured best estimate liability and the value of the reinsured profit margins. Reinsurance must meet the definition of an insurance contract and involve the transfer of insurance risk.
Columns 1 to 11 are required to report on the three bases defined above.
Columns 1 to 7 are for life insurance contracts. Columns 8 and 9 are for life investment contracts.
Columns 1 to 5 Reinsured Best Estimate Liability –
For participating benefits, the best estimate liability includes past declared bonuses only. Current year bonuses are excluded.
For non-participating benefits with an entitlement to Discretionary additions, the cost of the current year Discretionary Additions should be included as part of the best estimate liability.
This column is derived by the form as the sum of columns 5 to 9, and represents total amount of reinsurance policy liability.
Column 11 Net Policy Liability
This column represents the net amount of policy liability and the number entered should equal gross policy liability minus reinsured policy liability.
1.4. Sundry Items
All figures in this section are to be reported on the ‘This Year’ basis.
Columns 1 and 2 capture the cost of previous year and current period best estimate bonus. Refer to Prudential Standard LPS 7.02 General Standard for definition of best estimate bonus.
Column 10 Profit Carrier or Acquisition Expense Recovery Carrier
As defined in section 6 of LPS 1.04.
Column 11 Percentage of Profit Carrier or Acquisition Expense Recovery Carrier [derived item]
This column will be calculated automatically by the form and equals ‘Shareholder profit margins on cost of current period best estimate bonus’ (Column 3) divided by ‘Profit Carrier or Acquisition Expense Recovery Carrier’ (Column 10).
Section 2 Totals by Class of Business and Basis
No value is required to be entered in this section. Items in this section are derived fields that sum up policy liabilities by class of business and basis.