Get a plain-English read of Part B: Premiums liabilities — AASB Basi
Turn the raw legal text into a practical explanation grounded in Financial Sector (Collection of Data) (reporting standard) determination No. 6 of 2011 - GRS 210.1_G (2011) - Premiums Liabilities - Insurance Risk Charge (Level 2 Insurance Group).
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 (5)
Report the value, as at the reporting date, of deferred reinsurance expense, as determined in accordance with the relevant prudential standard. For further details on deferred reinsurance expense, refer to item 3.5 ‘Deferred reinsurance expense’ in Reporting Form GRF 300.0_G Statement of Financial Position (Level 2 Insurance Group).
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. 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 is identical to that required under GPS 311, there will be no recognition of a deduction of excess technical provisions as set out below.
Other (7)
Include in this column the net value of any other items which form the total of AASB 1023 net premiums liabilities. This would include:
Deferred reinsurance exchange commission (to be entered as a positive value);
Unearned commission revenue (to be entered as a positive value); and
Deferred levies and charges (to be entered as a negative value).
Section Part B: Premiums liabilities — AASB Basi - Financial Sector (Collection of Data) (reporting standard) determination No. 6 of 2011 - GRS 210.1_G (2011) - Premiums Liabilities - Insurance Risk Charge (Level 2 Insurance Group) - Part B: Premiums liabilities — AASB Basis | Zoe
AASB Net premiums liabilities (8)
The net premiums liabilities are calculated as:
Item 4 ‘AASB Gross Premium Liabilities (UPP – DAC)’; less
Item 5 ‘Deferred Reinsurance Expenses’; add
Item 6 ‘Unexpired risk liability’; add
Item 7 ‘Other’.
Do not enter a value as this is automatically calculated by the form.
Technical provision deficiency (9)
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 plus unexpired risk liability) at a 75% level of sufficiency. This treatment is different to the requirements of AASB 1023. 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. If the Level 2 insurance group chooses to apply a liability adequacy test for the purposes of AASB 1023 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 (10)
Adjusted net premiums liabilities are calculated as:
Item 8 ‘AASB Net Premiums Liabilities’; plus
Item 9 ‘Technical Provision Deficiency’.
Do not enter a value as this is automatically calculated by the form.
PL capital factor % (11)
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 as defined in GPS 001 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 (12)
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 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).
Part C: Additional policies risk charge
With respect to direct business and reinsurance business where policies incept in the following reporting period and where these policies would have a material impact on capital adequacy, net written premium for exposure that has not been included in the calculation of the premiums liabilities is to be subject to the premiums liabilities risk charge.[11] The materiality of the business that incepts in the next reporting period should be determined in accordance with the Australian accounting and auditing standards subject to APRA’s discretion.
The risk charge must reflect the full premium revenue for inwards proportional reinsurance for the full term of the current reinsurance contract.[12] To the extent that the risk charge is based on reported premium for inwards proportional reinsurance that does not reflect the full term of the current insurance contract, an adjustment must be made to the risk charge. The adjustment is determined by applying the premiums liabilities risk charge factor to any inwards proportional reinsurance premium revenue not recognised.
For Tables 9 and 11, Australian business is to be reported by class in:
table 9: Direct business; and
table 11: Reinsurance business.
For tables 10 and 12, class of business data is not reported. Level 2 insurance groups, however, will be required to map their international business to the Australian classes of business as defined in GPS 001 in order to assign an additional policies risk charge and provide a reporting supplement to APRA.
The sum of the classes of business for each international country and region is to be entered into the form separated according to whether the data relate to:
direct business; or
reinsurance business.
Net written premium (2)
Report in this column the net written premium by class of business for the following:
Material business that incepts in the next reporting period. Materiality should be as applied in Australian accounting and auditing standards subject to APRA’s discretion.
Any revenue from inwards proportional reinsurance contracts where the treaty extends beyond the end of the current reporting period but revenue has not yet been recognised in Reporting Form GRF 310.0_G Income Statement (Level 2 Insurance Group).
Note that insurers are not required to report premium revenue that has been included in the calculation of the premiums liability.
PL Capital Factor % (3)
This column states the insurance risk capital factor applicable to each line of Australian business. The capital factors are specified in GPS 115.
A different treatment applies to international business in this column. As part of the supplementary information provided to APRA, Level 2 insurance groups are required to have mapped their international business to the Australian classes of business as defined in GPS 001 in order to assign an insurance risk capital charge. For international business this column requires Level 2 insurance groups to report a weighted average capital factor which applies to the total of all the classes for each region.
Additional Policies Risk Charge (4)
This column represents the insurance risk capital charge applicable to each line of business or international region.
The PL insurance risk charge is automatically calculated by the form; do not enter values. 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.