Division Reporting Form GRF 120.0 - Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2010 - GRS 120.0 (2010) - Determination of Capital Base - Reporting Form GRF 120.0 | Zoe
Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2010 - GRS 120.0 (2010) - Determination of Capital Base
Reporting Form GRF 120.0Reporting Form GRF 120.0
Start here
Get a plain-English read of Reporting Form GRF 120.0
Turn the raw legal text into a practical explanation grounded in Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2010 - GRS 120.0 (2010) - Determination of Capital Base.
GRF 120.0 Determination of Capital Base collects information for the calculation of the capital base of licensed insurers for the purposes of deriving a capital adequacy measure and to gauge compliance with the Minimum Capital Requirement (MCR) in accordance with the Capital standards[2].
Prudential Standard GPS 112 Capital Adequacy: Measurement of Capital (GPS 112) specifies the methodology for the measurement of an insurer’s capital base. The range of instruments that are eligible for inclusion in the capital base of an insurer are also outlined in GPS 112.
Audit requirements
The form relating to authorised insurance entities and reinsurance entities is required to be subject to audit review and testing.
The scope and nature of audit testing required is outlined in the applicable Auditing and Assurance Standards Board Guidance Statement issued by the Auditing and Assurance Standards Board.
Information provided in the form in respect of a financial year of an insurer forms part of the insurer’s ‘yearly statutory accounts’ within the meaning of section 3 of the Insurance Act 1973 (the Act). This means that:
the completed form for the financial year must be audited by the Appointed Auditor of the insurer (see paragraph 49J(1)(a) of the Act);
the insurer must make such arrangements as to enable the auditor to do this (subsection 49J(2));
the auditor must give the insurer a certificate relating to the completed form (and other completed forms that are part of the insurer’s yearly statutory accounts), which must contain statements of the auditor’s opinion on the matters required by the prudential standards to be dealt with in the certificate (subsection 49J(3));
the certificate must be lodged with APRA as provided for in the prudential standards (paragraph 49L(1)(a)), namely by the due date for lodging the form in respect of the financial year for the insurer.
Reporting entity
This form is not applicable to licensed branch (Category C) insurers.
Forms are to be completed for the following reporting entities where appropriate:
Authorised insurance entities including a mutual (refer to form ‘Licensed Insurer’); and
Authorised reinsurance entities (refer to form ‘Licensed Insurer’).
Definitions
Definitions for data reporting items required by this form have been provided where possible in the instructions under the section headed ‘Specific Instructions’.
Unit of measurement
Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ (AASB 121).
The general requirements of AASB 121 Rates’ for translation are:
Foreign currency monetary items[3] outstanding at the reporting date must be translated at the spot rate[4] at the reporting date.
Foreign currency non-monetary items[5] that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction.
Foreign currency non-monetary items that are measured at fair value will be translated at the exchange rate at the date when fair value was determined.
Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with AASB 139 ‘Financial Instruments: Recognition and Measurement’ (AASB 139). However, those foreign currency derivatives that are not within the scope of AASB 139 (e.g. some foreign currency derivatives that are embedded in other contracts) remain within the scope of AASB 121.
For APRA purposes equity items must be translated using the foreign currency exchange rate at the date of investment or acquisition. Post acquisition changes in equity are required to be translated on the date of the movement.
As foreign currency derivatives are measured at fair value, the currency derivative contracts are translated at the spot rate at the reporting date.
Exchange differences should be recognised in profit and loss in the period which they arise. For foreign currency derivatives, the exchange differences would be recognised immediately in profit and loss if the hedging instrument is a fair value hedge. For derivatives used in a cash flow hedge, the exchange differences should be recognised directly in equity.
The ineffective portion of the exchange differences in all hedges would be recognised in profit and loss.
Translation of financial reports of foreign operations.
A foreign operation is defined in AASB 121 as meaning an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.
Exchange differences relating to foreign currency monetary items that form part of the net investment of an entity in a foreign operation, must be recognised as a separate component of equity.
Translation of financial reports should otherwise follow the requirements in AASB 121.
Reporting period
Insurers are required to report the information in the reporting form on a quarterly and annual basis.
The quarterly information is to be completed in respect of each quarter based on the financial year of the insurer, not the calendar year.
The annual information is to be completed in respect of the financial year of the insurer.
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 insurer.
Reporting lag
This form must be lodged for each of the reporting units within the number of business days after the end of the quarter as set out in Reporting Standard GRS 120.0 Determination of Capital Base.
Specific instructions
To calculate the eligible capital base, enter a value in the column headed ‘Value’ for each line item applicable to the insurer. The form will calculate the amount eligible for inclusion in the column headed ‘Eligible Capital’. Total Tier 1, Tier 2 and Total capital is also calculated.
Refer to GPS 112 for further information on the method of calculation and definitions.
Note: An insurer must ensure that any ‘component of capital’[6] included in the insurer’s capital satisfies, in both form and substance, all applicable requirements of GPS 112 for the particular category of capital in which it is included. An insurer must not incorporate a component of capital as part of its capital base where that component does not meet, or is inconsistent with the requirements of GPS 112.
An insurer must not include a component of capital in a particular category[7] of its capital base if that component, when considered in conjunction with other related transactions that affect its overall economic substance, could be reasonably considered not to satisfy fully the requirements of GPS 112 for components of that category of capital.
Tier 1 capital
Tier 1 capital comprises the highest quality capital elements, including the proceeds of instruments that are both permanent and non-cumulative in nature. Tier 1 capital (net of required deductions) must constitute at least 50% of an insurer’s capital base.
1.1. Fundamental Tier 1 capital
1.1.1. Paid-up ordinary shares
This item must correspond to paid-up ordinary share capital on issue reported in GRF 300.0 Statement of Financial Position.
1.1.2. Reserves
This item must correspond to the difference between item 27.8 titled ‘Total Reserves’ and item 27.7.8 ‘Total Asset revaluation reserve’ reported in GRF 300.0 Statement of Financial Position.
1.1.3. Retained profits / losses at the end of the Reporting Period
This item must equal retained profits or accumulated losses at end of the Reporting Period as disclosed in GRF 310.0 Statement of Financial Performance.
This includes the current year’s earnings net of dividends paid and declared and tax expenses as reported in GRF 310.0 Statement of Financial Performance.
Include in this item the value calculated in Part 3: Total corresponding to the ‘TOTAL’ for item 13 ‘OCP Surplus / (Deficit)’ reported on GRF 210.0 Outstanding Claims Provision – Insurance Risk Charge.
1.1.5. Total premium liabilities excess / deficit per form GRF 210.1 Premium Liabilities – Insurance Risk Charge
The figure for this data item must agree with the value calculated for the item titled ‘Total Premiums liabilities Surplus / Deficit’ in Part 3C: Total Premiums liabilities Surplus / Deficit reported on GRF 210.1 Premium Liabilities – Insurance Risk Charge.
1.1.6. Tax effect of net OCP and PL surplus / deficit (do not deduct tax effect if a Deferred tax asset has been recognised in relation to the net surplus / deficit)
Any surplus / deficit of technical insurance provisions (items 1.1.4 and 1.1.5) added (subtracted) back to Tier 1 capital must be adjusted for the tax effect (i.e. the corporate tax rate multiplied by the amount added (subtracted) back).
Note: this requirement is not mandating the recognition of a deferred tax asset in GRF 300.0 Statement of Financial Position.
The adjustment for the tax effect is not required where the surplus / deficit of technical provisions have been included in the recognition of a deferred tax asset associated with the recognition of insurance Liabilities in GRF 300.0 Statement of Financial Position. Deducting the tax effect in this case would constitute double counting, as deferred tax assets is deducted from Tier 1 capital (net of any deferred tax liabilities).
1.1.7. Net surplus / deficit relating to insurance liabilities
This item is automatically calculated by the form and represents item 1.1.4, plus item 1.1.5 less item 1.1.6.
1.1.8. Total Fundamental Tier 1 capital
This represents the sum of items1.1.1, 1.1.2, 1.1.3 and 1.1.7.
1.2. Residual Tier 1 capital
1.2.1. Non-innovative residual Tier 1 capital instruments
This item includes the perpetual non-cumulative preference shares that satisfy the relevant criteria set out in GPS 112.
1.2.2. Innovative Tier 1 capital instruments
This item includes all other residual Tier 1 capital instruments that satisfy the relevant criteria set out in GPS 112.
1.2.3. Total Residual Tier 1 capital
This represents the total of items 1.2.1 and 1.2.2 and will be automatically calculated by the form.
Limitations – in accordance with GPS 112
The amount of Tier 1 capital included in an insurer’s capital base is subject to the following limits:
(a) Fundamental Tier 1 capital must constitute at least 75 percent of net Tier 1 capital, defined as the sum of Fundamental Tier 1 and Residual Tier 1 capital less Tier 1 deductions.
(b) Residual Tier 1 capital is limited to 25 per cent of net Tier 1 capital. Any excess amount is counted as Upper Tier 2 capital.
Innovative Tier 1 capital is limited to 15 percent of net Tier 1 capital, except for insurers that are subject to APRA-approved transition arrangements. Any excess amount is counted as Upper Tier 2 capital.
1.3. Tier 1 capital (before deductions)
This figure is automatically calculated by the form and represents the total Tier 1 capital before deductions (i.e. total of items 1.1.8 and 1.2.3). Item 1.2.3 will automatically adjust for the 25% limit on Residual Tier 1 capital that is included in Tier 1 capital.
1.4. Deductions from Tier 1 capital
The amount of Tier 1 capital to be included in an insurer’s capital base will be net of the following deductions:
Goodwill;
Other intangible assets;
Deferred tax assets (net of any deferred tax liabilities);
Surplus in defined benefit superannuation fund;
Deficit in defined benefit superannuation fund;
Holdings of own Tier 1 capital instruments;
Net unrealised fair value gains (losses) from changes in the GI's own credit worthiness;
Net unrealised gains (losses) on effective cash flow hedges;
Reinsurance assets and expected reinsurance recoveries related to reinsurance contracts that do not meet the reinsurance document test as set out in Prudential Standard GPS 230 Reinsurance Management (GPS 230) and GPS 112;
Reinsurance assets receivable under reinsurance contracts that do not meet governing law requirements as set out in GPS 230 and GPS 112;
Expected dividends;
Other deductions;
Variation in deduction by other adjustments approved by APRA.
These are explained further below:
1.4.1. Goodwill
The value of goodwill that is to be disclosed in this line item is the sum of the following:
The total amortised value of goodwill (unidentifiable intangible asset) as recognised in item 12.1 ‘Goodwill’ minus item 12.2 ‘Accumulated impairment – Goodwill’ in GRF 300.0 Statement of Financial Position; plus
The component of the value of ‘Total other investments’ (i.e. investments in controlled entities) which represents purchased goodwill and other intangible assets (i.e. current value less value of identifiable net tangible assets). This is reported in line items 10.5.1.1 and 10.5.2.1 of GRF 300.0 Statement of Financial Position; plus
The component of the value of ‘Unlisted equities – direct holdings’ which represents purchased goodwill and other intangible assets (i.e. current value less value of identifiable net tangible assets) in relation to the acquisition of controlled entities. This is reported in item 5.1 of GRF 140.1 Investments – Direct Equity Holdings and Risk Charge.
1.4.2. Other intangible assets
Disclose the value of identifiable intangible assets after amortisation and impairment calculated as item 12.3.3 ‘Total identifiable intangible assets’ minus item 12.4.3 ‘Total accumulated amortisation and impairment - Identifiable intangible assets’ in GRF 300.0 Statement of Financial Position.
1.4.3. Deferred tax assets (net of any deferred tax liabilities)
Disclose the value of deferred tax assets recognised in item 5.4 ‘Total deferred tax assets’ of GRF 300.0 Statement of Financial Position, net of any deferred tax liabilities recognised in item 20.2 ‘Deferred tax liability’ of GRF 300.0 Statement of Financial Position. The value disclosed must not be negative (i.e. a net deferred tax liability balance after deducting deferred tax assets). Accordingly if the balance of deferred tax liabilities exceeds deferred tax assets, zero must be disclosed.
1.4.4. Surplus in defined benefit superannuation fund
Disclose the value of any surplus, net of deferred tax liabilities, in any defined benefit superannuation fund of which the insurer is an employer-sponsor, unless otherwise approved, in writing, by APRA. Any excluded surplus must reverse any associated deferred tax liability from Tier 1 capital. The amount reported in GRF 120.0 Determination of Capital Base must not be greater than the amount reported in item 6.2 ‘Surplus in defined benefit superannuation fund’ of GRF 300.0 Statement of Financial Position.
Deferred tax liabilities should not be counted twice in items 1.4.3 and 1.4.4.
1.4.5. Deficit in defined benefit superannuation fund
Report the value of any deficit in a defined benefit superannuation fund of which the insurer is an employer-sponsor and that is not already reflected in Tier 1 capital.
The amount reported in GRF 120.0 Determination of Capital Base must only include deficits not already disclosed in item 22.2 ‘Deficit in defined benefit superannuation fund’ of GRF 300.0 Statement of Financial Position.
1.4.6. Holdings of own Tier 1 capital instruments
Disclose the value of holdings of own Tier 1 capital instruments of the insurer.
1.4.7. Net unrealised fair value gains (losses) from changes in the GI's own credit worthiness
This item only applies to general insurers that have designated their own debt instruments at fair value under the fair value option in AASB 139.
Deduct/(add back) any unrealised fair value gains/(losses) included in Tier 1 capital (before deductions) arising from changes in the reporting of GI’s own credit worthiness (e.g. reduction in fair value of the GI’s outstanding debt due to change in credit rating).
1.4.8. Net unrealised gains (losses) on effective cash flow hedges
Disclose the value of cumulative fair value gains and losses on effective cash flow hedges reflected in retained earnings or reserves included in Tier 1 capital which do not offset gains or losses on revaluations in reserves included in Tier 1 capital. Deduct the gains on hedges and add back the losses.
1.4.9. Reinsurance assets related to reinsurance contracts that do not meet the reinsurance documentation test
Reinsurance assets under each reinsurance arrangement that do not meet the reinsurance documentation test will be deducted from the Tier 1 capital of the insurer
A reinsurance arrangement meets the reinsurance documentation test if the arrangement:
(a) complies with the two month rule and six month rule under GPS 230;
(b) fails to comply with those rules as at the date of the relevant deadline but:
(i) subsequent to the deadline specified under the two month rule, the reinsurance arrangement is documented in accordance with the other requirements of the two month rule (in which case the reinsurance arrangement is treated as meeting the reinsurance documentation test until the reinsurance arrangements fail the six month rule); or
(ii) subsequent to the deadline specified under the six month rule, the reinsurance arrangement is documented in accordance with the other requirements of the six month rule; or
(c) is otherwise treated by APRA under GPS 230 as complying with the two month rule and six month rule.
The figure for reinsurance assets related to reinsurance contracts that do not meet the reinsurance documentation test represents the value of item 1.8 plus item 2.4 plus item 3.6 recognised in GRF 301.0 Reinsurance Assets and Risk Charge.
This figure needs to be manually entered into this data field in GRF 120.0 Determination of Capital Base.
1.4.10. Reinsurance assets receivable under reinsurance contracts that do not meet governing law requirements
Report all reinsurance assets receivable under each reinsurance contract entered into by the insurer incepting on or after 31 December 2008 that do not meet the requirements of paragraph 31 of GPS 230.
This figure needs to be manually entered into this data field in GRF 120.0 Determination of Capital Base. The amount should represent the value of item 1.9 plus item 2.5 plus item 3.7 recognised in GRF 301.0 Reinsurance Assets and Risk Charge.
1.4.11. Expected dividends
Report the amount of dividends which are expected, but not declared or paid.
1.4.12. Other deductions
Disclose any other Tier 1 capital deductions (refer GPS 112) including:
Undistributed profit or loss in an associate.
Disclose any portion of current year earnings or retained earnings which represents any amounts deriving from the insurer’s share of undistributed profits or loss in an associate, under equity accounting. This amount must be included in Upper Tier 2 capital.
Negative movement over the amount available in the revaluation reserve
Disclose any deficit after taking into account adjustments in the amount available in the respective revaluation reserves for the following items, to the extent not already accounted for in current year earnings or retained earnings:
Property not held at fair value;
Investments in subsidiaries not held at fair value; or
Investment in associates, including any excess of the share of losses in associates under equity accounting.
Identified impairment of certain assets.
Disclose any identified impairment of an asset where the impairment has not already been taken into account in profit or loss or the impairment has been incorporated in fair value changes captured in an asset revaluation reserve included in Upper Tier 2 capital. This will include the value of any deficit in asset revaluation reserves included in Upper Tier 2 capital after taking into account all adjustments.
Revaluation reserves included in Upper Tier 2 capital
Disclose any amounts included in revaluation reserves in Upper Tier 2 capital which would otherwise have been included in Tier 1 capital.
Shortfalls in Tier 2 capital
Disclose an amount equivalent to the shortfall in the insurer’s Tier 2 capital, where the insurer does not hold sufficient capital to absorb required deductions from Tier 2 capital in accordance with GPS 112.
1.4.13. Variation in deductions by other adjustments approved by APRA
Include any additions to Tier 1 capital or reduction in deductions that have been approved by APRA, including transition amounts affecting Tier 1 capital.
1.4.14. Total deductions from Tier 1 capital
This item represents the total of items 1.4.1 to 1.4.13 and is automatically calculated by the form.
1.5. Tier 1 capital (net of deductions)
This figure is automatically calculated by the form and represents item 1.3 ‘Tier 1 capital (before deductions)’ less item 1.4.14 ‘Total Deductions from Tier 1 capital’.
Tier 1 capital (net of deductions) must constitute at least 50% of an insurer’s required capital base.
Tier 2 capital
Limitations – in accordance with GPS 112
Tier 2 capital is divided into Upper Tier 2 and Lower Tier 2 capital. Total Tier 2 capital, net of all specified deductions and amortisation, is limited to a maximum of 100 per cent of an insurer’s net Tier 1 capital.
Total Lower Tier 2 capital, net of all specified deductions and amortisation, is limited to a maximum of 50 per cent of an insurer’s net Tier 1 capital.
An insurer that does not hold sufficient capital to absorb required deductions from Tier 2 capital must deduct an amount equivalent to the shortfall in its Tier 2 capital from its Tier 1 capital.
2.1. Upper Tier 2 capital
2.1.1. Ineligible Tier 1 capital
This item includes any capital amounts otherwise meeting APRA’s requirements for Tier 1 capital instruments (specified in GPS 112) that are ineligible for inclusion as Tier 1 capital due to the limits specified in GPS 112. This amount is calculated automatically by the form.
2.1.2. Asset revaluation reserve
Upper Tier 2 capital includes:
(a) 45 per cent of pre-tax revaluation reserves of:
2.1.2.1 Property - Property not held at fair value;
2.1.2.2 Investments in controlled entities - Investments in subsidiaries not held at fair value, other than subsidiaries that APRA deems part of an Extended Licensed Entity (refer to Prudential Standard GPS 114 Capital Adequacy: Investment Risk Capital Charge)[8];
The amount of these reserves to be included in Upper Tier 2 is limited to 45 per cent of pre-tax revaluation reserves.
The pre-tax revaluation reserve as described above includes cumulative unrealised gains or losses on effective cash flow hedges. Where a revaluation is calculated net of hedges, the amount of hedges concerned must be excluded from reported Tier 1 capital, that is, the gains or losses on hedges must be deducted from or added back to Tier 1 capital.
The amount recognised in Upper Tier 2 capital must be net of fair value gains and losses and any gains or losses on hedges offsetting revaluation of investment in associates included in reserves.
(a) Investments in associates / share of associates ARR – 45 percent of the post-acquisition reserves of associates as defined in the Australian Accounting Standards.
This includes, under equity accounting, an insurer’s share of undistributed profits, plus any share of asset revaluations in associates or any other revaluation of investments in associates. The amount recognised must be net of fair value gains and losses and any gains or losses on hedges offsetting revaluation of investment in associates included in reserves.
2.1.3. Other Tier 2 capital approved by APRA
Include any other item specified in GPS 112 eligible for inclusion in Upper Tier 2 capital.
2.1.4. Perpetual cumulative preference shares
Perpetual cumulative preference shares must satisfy the relevant criteria set out in GPS 112 for inclusion as Upper Tier 2 capital.
2.1.5. Perpetual cumulative mandatory convertible notes and similar capital instruments
Perpetual cumulative mandatory convertible notes must satisfy the relevant criteria set out in GPS 112 for inclusion as Upper Tier 2 capital.
2.1.6. Perpetual cumulative subordinated debt
Perpetual cumulative subordinated debt must satisfy the relevant criteria set out in GPS 112 for inclusion as Upper Tier 2 capital.
2.1.7. Other approved instruments of a permanent nature
Disclose the value of any other hybrid capital instruments of a permanent nature approved by APRA.
2.1.8. Upper Tier 2 Deductions
2.1.8.1 Holdings of own Upper Tier 2 capital instruments
Disclose the value of own holdings of Upper Tier 2 capital instruments.
2.1.9. Total Upper Tier 2 capital
This item represents the total of items 2.1.1 – 2.1.7 less deductions reported in 2.1.8, and is automatically calculated by the form.
2.2. Lower Tier 2 capital
Limitations – in accordance with GPS 112
Total Lower Tier 2 capital, net of all specified deductions and amortisation, is limited to a maximum of 50 per cent of an insurer’s net Tier 1 capital. This limit is automatically calculated by the form.
2.2.1. Term subordinated debt
Term subordinated debt must satisfy the relevant criteria set out in GPS 112 for inclusion as Lower Tier 2 capital.
2.2.2. Limited life redeemable preference shares
Limited life redeemable preference shares must satisfy the relevant criteria set out in GPS 112 for inclusion as Lower Tier 2 capital.
2.2.3 Any other similar limited life capital instrument
These instruments must satisfy the relevant criteria set out in GPS 112 for inclusion as Lower Tier 2 capital.
The amount of the instruments included in items 2.2.1 to 2.2.3 eligible for inclusion in Lower Tier 2 capital are to be amortised on a straight line basis at a rate of 20 per cent per annum over the last four years to maturity as follows:
Years to maturity
Amount eligible for inclusion in Lower Tier 2 capital
More than 4
100%
Less than and including 4 but more than 3
80%
Less than and including 3 but more than 2
60%
Less than and including 2 but more than 1
40%
Less than and including 1
20%
2.2.4. Lower Tier 2 Deductions
2.2.4.1 Holdings of own Lower Tier 2 capital instruments
Disclose the value of own holdings of Lower Tier 2 capital instruments.
2.2.5. Total Lower Tier 2 capital
Represents the total of items 2.2.1 – 2.2.3 less deductions reported in 2.2.4. This limit is automatically calculated by the form.
2.3 Total Tier 2 capital
Represents the total of item 2.1.9 ‘Total Upper Tier 2 capital’ and item 2.2.5 ‘Total Lower Tier 2 capital’.
Total Capital Base
Represents the total of items 1.5 ‘Tier 1 capital (net of deductions)’ and 2.3 ‘Total Tier 2 capital’.