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).
Submission times for Level 2 reporting forms are as follows (in accordance with GRS 210.1_G):
The semi-annual return is to be lodged within three months after the end of the reporting period.
The audited annual return is to be lodged within four months after the end of the reporting period.
Adjustments
The parent entity of a Level 2 insurance group may apply in writing to APRA to vary the reporting requirements of GRF 210.1A_G in relation to that Level 2 insurance group. APRA may, at its discretion, approve such an application in writing.
Basis of preparation
Level 2 insurance groups are to complete this form in accordance with GPS 311. The form may be completed in three possible ways. The method is to be determined in consultation with APRA. The possible methods are:
Report premiums liabilities in accordance with the requirements of Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation (GPS 310).[5] In respect of Australian business, the premiums liabilities valuation should be the same as that applicable to an insurer under GPS 310 subject to identified consolidation adjustments such as intra-group transactions and diversification.
Report equivalent accounting entries subject to a liability adequacy test (applied at the class of business level for Australian business and at the geographic region level for international business) in accordance with GPS 311. Reporting Australian business in this manner requires APRA approval under GPS 311.
Use a combination of the methods set out in 1 and 2. Where any Australian business is to be reported using method 2, APRA’s approval is required in accordance with GPS 311.
Note that the choice of method 2 or method 3 will affect the level of excess technical provisions that can be recognised as part of Tier 1 capital on GRF 120.0_G Determination of Capital Base (Level 2 Insurance Group) (GRF 120.0_G). APRA will only allow the recognition of excess technical provisions (in respect of premiums liabilities) that represent the difference between premiums liabilities calculated in accordance with GPS 310 and the following equivalent values recorded in GRF 302.0_G Statement of Financial Position by Region (Level 2 Insurance Group) (GRF 302.0_G):
Item 13 ‘Unearned premiums liabilities’; less
Item 3.5 ‘Deferred reinsurance expense’; less
Item 3.7 ‘Deferred acquisition costs’; plus
Item 15 ‘Unexpired risk liability’.
The recognition of excess technical provisions must be as per paragraph 16(a)(v) of Prudential Standard GPS 112 Capital Adequacy: Measurement of Capital (GPS 112).
Where there is reinsurance between regions, regions are to be reported on a separate basis. That is, the region directly assuming the risks must report as direct business. The reinsuring region should treat this as direct business as well.
Where reinsurance occurs between entities in one region, the reinsurance transaction is to be eliminated on consolidation within the region reported.
Consolidation adjustments for intra-group reinsurance transactions between entities in different regions should be reported under ‘Group adjustments’ in Part D of this form.
International business
Level 2 insurance groups are required to report financial data on both Australian and international exposures. For the purposes of segment reporting, Level 2 insurance groups are not to follow the requirements under the Australian accounting standards when completing this form.
For prudential reporting purposes, ‘Australian Business’[6] means insurance business carried on by any Level 1 insurer within a Level 2 insurance group. Therefore, all insurance business written by Level 1 insurers is deemed to be Australian business. ‘International Business’[7] is insurance business carried on by an entity within the group that is not authorised under the Insurance Act 1973. This treatment is different to the requirements of Australian Accounting Standard AASB 1023 ‘General Insurance Contracts’ (AASB 1023) and other Australian accounting standards.
Level 2 insurance groups are required to report according to the regions which most appropriately reflects the business and/or operational segments of the group. International business is to be reported according to the following regions:
New Zealand;
South East Asia;
Asia Pacific;
USA
Americas;
UK/Europe; and
Other.
Level 2 insurance groups are required to report according to the regions which most appropriately reflect the business and/or operational segments of the group.
Once regions are defined, they should generally be maintained thereafter for consistency. However, this does not prevent the Level 2 insurance group from altering its reporting regions where necessary, provided APRA is notified of any changes.
Reporting supplement
This form requires the premiums liabilities of Australian business of the Level 2 insurance group to be reported by class of business written and the international business to be reported by region. For international business, while class of business is not required to be reported on the form, Level 2 insurance groups are expected to map their business to the Australian classes of business as defined in GPS 001 in order to assign an insurance risk capital charge. The details of the mapping and the calculation of the insurance risk capital charge for international business, are to be provided as supplementary information. Level 2 insurance groups will be able to choose the format for this supplementary information. The reporting supplement is to accompany the submission of this form, unless instructed otherwise by APRA. The reporting supplement is to be submitted to the Level 2 insurance group’s APRA Responsible Supervisor.
Liability adequacy test
Where a Level 2 insurance group reports premiums liabilities based on accounting entries, the adequacy of the premiums liabilities must be assessed via a Liability Adequacy Test (LAT). The LAT must be applied to net premiums liabilities (unearned premium less deferred acquisition costs less deferred reinsurance expense plus unexpired risk liabilities recognised in accordance with Australian Accounting Standards) at a 75% level of sufficiency in accordance with GPS 311 Attachment A paragraphs 6 and 7. This treatment is different to the requirements of AASB 1023. For international business, the LAT must be applied to each geographic region. Where APRA has determined that a Level 2 insurance group may report premiums liabilities for Australian business using accounting entries, the LAT for Australian business must be applied at the class of business level. This treatment is different to the requirements of AASB 1023.