Financial Sector (Collection of Data) (reporting standard) determination No. 65 of 2006 - Reporting Standard GRS 130.0 (2007) Off-Balance Sheet Business – Credit Substitutes Provided and Risk Charge
1. Direct Credit Substitutes1. Direct Credit Substitutes
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This includes any irrevocable off-balance sheet obligations, which carry the same credit risk as a direct extension of credit. The following are examples constituting a direct credit substitute (i.e. the risk of loss depends on the creditworthiness of the counterparty, or the party on which a potential claim is acquired):
An undertaking to make a payment to a third party in the event that a counterparty fails to meet a financial obligation; or
An undertaking to a counterparty to acquire a potential claim on another party in the event of default by that party.
This includes potential credit exposures arising from the issue/provision of following:
standby letters of credit serving as financial guarantees for loans, securities and any other financial liabilities; and
Bill endorsements
Trade-related contingencies
Contingent liabilities arising from trade-related obligations which are secured against an underlying shipment of goods. This includes documentary letters of credit issued, acceptances on trade bills, shipping guarantees issued and any other trade-related contingencies.
Sale & Repurchase Agreements (“Repos”)
This relates to arrangements whereby an insurer sells a loan, security or other asset to another party with a commitment to repurchase the asset at an agreed price on an agreed future date.[5] Any assets acquired by an insurer under reverse repos (i.e. purchase and resale agreements) are to be treated as collateralized loans to the counterparty.[6]
Assets Sold With Recourse
This includes any asset sales (to the extent that such assets are not included in on-balance sheet) by an insurer where the holder of the asset is entitled to “put” the asset back to the insurer within an agreed period or under certain prescribed circumstances, e.g. deterioration in the value or credit quality of the asset concerned.
Forward Asset Purchases
This includes commitments to purchase at a specified future date and on pre-arranged terms, an asset from another party, including written put options on specified assets with the character of a credit enhancement.
Written put options expressed in terms of market rates for currencies or financial instruments bearing no credit risk are excluded from risk assets.
For the purposes the APRA forms do not include market related securities that are recorded on a trade date basis and transacted in accordance with accepted financial market settlements periods. Such securities are to be included in the respective investments forms. These do not constitute forward asset purchases for the purposes of GRF 130.0 Off Balance Sheet Business – Credit Substitutes Provided and Risk Charge.
Partly Paid Shares and Securities
This includes any amounts owing on the uncalled portion of partly paid shares and securities held by an insurer, which represent commitments with certain drawdown by the issuer at a future date.
Placements of Forward Deposits
This relates to any agreement between an insurer and another party whereby the insurer will place a deposit at an agreed rate of interest with that party at a predetermined future date.
Surety Bonds
Record the total value of surety bonds which are treated as a type of direct credit substitute by the insurer. The risk charge will be automatically applied to 25 per cent of the value of the surety bond business as specified in GPS 110 Capital Adequacy.
All Other Non-Market-Related Off-Balance Sheet Items
Record all other off balance sheet non-market related items that are not specifically covered in the form
Total Non-Market-Related Off-Balance Sheet Business
This is the total of all values disclosed for items listed in the form. This figure will be automatically calculated by the form.
Of Which Total Business that is Deemed as Inside Australia
Of the value recorded for “Total Non-Market-Related Off Balance Sheet Business”, report the value that relates to business that is deemed to be recorded as Inside Australia. Refer to GPS 120 Assets in Australia for further information.
Investment Capital Factors
These are the applicable investment capital factors (percentages) that are to be applied to the exposures. The investment capital factors are based on counterparty/asset rating grades and are set out in GPS 110 Capital Adequacy.
Required Risk Charge
Represents the required risk charge for each counterparty/asset rating grade specified (i.e. columns). This is calculated based on the total non-market-related off balance sheet business per counterparty/asset rating grade and the appropriate investment capital factor. This figure will be automatically calculated by the form.
Total Off-Balance Sheet Required Risk Charge
Represents the aggregate required risk charge for all exposures to each counterparty/asset rating grade specified (i.e. columns). This amount is automatically calculated by the form and will be included in the calculation of the insurer’s minimum capital requirement.
Total Non-Market-Related Off-Balance Sheet Business (total of item 10) which are provided to related parties:
Of the total non-market off balance sheet business/exposure disclosed in the table (i.e. total of items disclosed in number 10), report that amount which has been provided to related parties or in relation to related parties as listed in the form.
Parent entity
Of the total off-balance sheet business that is reported in this form, disclose amounts that are with/from the parent entity of the licensed insurer.
Controlled entities/Controlled entities of the parent entity
For branches, the line item “Controlled entities/Controlled entities of the parent entity” is to be interpreted as amounts in relation to “Controlled entities of the parent entity”, and for licensed insurance entities amounts are in relation to “Controlled entities” of the reporting insurer.
Of the total off-balance sheet business that is reported in this form, disclose amounts that are with/from these entities.
Associates/Joint Ventures
Of the total off-balance sheet business that is reported in this form, disclose amounts that are with/from Associates or Joint Ventures of the licensed insurer. Associates and Joint Ventures are defined in accordance with AASB 131 ‘Interests in Joint Ventures’ and AASB 128 ‘Investments in Associates’.
Other related parties
Of the total premium revenue and reinsurance expense that is reported as required by this form, disclose amounts that are with/from any other related entity of the licensed Insurer that is not specifically identified above. Refer to the definition of related parties as defined in the general section of this instruction guide.