Part Reporting lag - Financial Sector (Collection of Data) (reporting standard) determination No. 65 of 2008 - GRS 130.3 (2008) - Off Balance Sheet Business - Credit Support Received - Reporting lag | Zoe
Financial Sector (Collection of Data) (reporting standard) determination No. 65 of 2008 - GRS 130.3 (2008) - Off Balance Sheet Business - Credit Support Received
Reporting lagReporting lag
Start here
Get a plain-English read of Reporting lag
Turn the raw legal text into a practical explanation grounded in Financial Sector (Collection of Data) (reporting standard) determination No. 65 of 2008 - GRS 130.3 (2008) - Off Balance Sheet Business - Credit Support Received.
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 130.3 Off Balance Sheet Business – Credit Support Received.
Related party disclosure
Related party has the same meaning as defined in AASB 124 ‘Related Party Disclosure’ which defines related party to include the parent entity of the Insurer, controlled entities, associates, joint ventures and directors of the licensed insurance entity and other entities that are deemed to be related in accordance with AASB 124.
In accordance with AASB 124, related party means a party that directly or indirectly through one or more intermediaries:
(a) controls, is controlled by or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);
(b) has significant influence over the entity or has joint control over the entity; or
(c) is an associate (as defined in AASB 128 ‘Investments in Associates’) of the entity; or
(d) is a joint venture in which the entity is a venturer (see AASB 131 ‘Interests in Joint Ventures’); or
(e) is a member of the key management personnel of the entity or its parent; or
(f) is a close member of the family of any individual referred to in (a), (b) or (e); or
(g) is an entity that its controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (e) or in (f); or
(h) is a post-employment benefit plan for the benefit of the employees of the entity, or of any entity that is a related party of the entity.
Specific instructions
GPS 114 outlines the treatment of eligible collateral and guarantees as risk mitigants.
The capital charge for Investment Risk may be reduced where the insurer holds certain types of collateral against an asset, or where the asset has been guaranteed, as a means of reducing risk.
The form is broken into two parts:
Part A - Eligible Collateral Provided to Reporting Insurer; and
Part B – Guarantees or Letter of Credit Provided to Reporting Insurer.
Part A - Eligible Collateral Provided to Reporting Insurer
Relating to reinsurance recoverables from non-APRA-authorised reinsurer[4]
Where an insurer possesses recognised collateral in Australia against reinsurance recoverables due from a non-APRA-authorised reinsurer, it may apply the Investment Capital Factor relevant to the collateral to the value of the reinsurance recoverables (instead of applying the capital factor that would otherwise apply to the reinsurance recoverables).
For the purposes of this paragraph, collateral is recognised only:
(a) to the extent that it takes the form of:
(i) assets held in Australia which form part of a trust fund maintained by a trustee resident in Australia;
(ii) deposits held by the insurer in Australia made by the non-APRA-authorised reinsurer;
(iii) a combination of the two forms of collateral specified in paragraphs (a) and (b); or
(iv) any other form of collateral as may be approved by APRA in writing in a particular case;
(b) if it provides effective security against liabilities arising under the reinsurance contract; and
(c) if it is not available for distribution to creditors of the reinsurer other than the insurer in the event of insolvency of the reinsurer.
Where the fair value of the collateral does not cover the full value of the reinsurance recoverables, only that part of the value of the reinsurance recoverables that is covered by collateral may be assigned the Investment Capital Factor applicable to the collateral.
The collateral must be effective for the expected period for payment of claims under the reinsurance contract under which the reinsurance recoverables arise. If this is impractical, the collateral must be effective for at least 2 years but be renegotiable each year to allow at least a year to identify alternative arrangements if the collateral cannot be renegotiated.
Collateral provided to the insurer other than for reinsurance recoverables from non-APRA-authorised reinsurer
Where an insurer possesses recognised collateral against an asset, it may apply the Investment Risk Capital Factor relevant to the collateral to the value of the asset (instead of applying the capital factor that would otherwise apply to the asset). Collateral will be recognised only to the extent that it takes the form of a charge, mortgage or other security interest in, or over, an Eligible Collateral Item.
Where the collateral relates to an asset other than for reinsurance recoverables from non-APRA-authorised reinsurer, the eligible collateral items are cash, Government securities, or debt obligations where the obligor has a counterparty rating in Grade 1, 2 or 3. The ‘Eligible Collateral Item’ must also be held for the period for which the asset is held. Where the fair value of the collateral does not cover the full value of the asset, only that part of an asset that is covered by collateral may be assigned the Investment Capital Factor applicable to the collateral. Fair value has the same meaning as defined in the Australian accounting standards, that is, the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction.
This form facilitates the calculation of whether the insurer is able to claim a reduction in the investment capital charge which is calculated in other forms. Accordingly the fair value of an insurer’s investments is to be entered in other forms for the calculation of investment risk charge without adjusting for any guarantee or eligible collateral.
A brief outline of the required data for each column in the form is provided to assist in completion of the form:
Name of entity providing the collateral to the reporting insurer
Disclose the name of the entity that is providing the eligible collateral to the reporting insurer.
Relating to reinsurance recoverable due from non-APRA-authorised reinsurer?
Disclose whether the collateral is related to reinsurance recoverable due from non-APRA-authorised reinsurer. Select “Yes” or “No”.
Fair value of the eligible collateral items provided as credit support for assets of the Insurer
Where there are various eligible collateral items (i.e. mix of collateral items satisfying columns (3) – (11)), supporting one asset, allocate each eligible collateral item separately in the appropriate columns.
Where collateral items support more than one asset, rows must be completed for each supported asset with eligible collateral items pro rated among those supported assets.
To be ‘Eligible Collateral’, items must be held for the period for which the asset is held. These items should be recorded as the fair value of the outstanding balance where appropriate.
The column numbers in the following table corresponds with the column numbers in this form.
Column
Eligible Collateral Item
Investment Capital Factor
3.
Cash (notes and coins)Debt obligations of:the Commonwealth Government;an Australian State or Territory government; orthe national government of a foreign country where: the security has a Grade 1 counterparty rating; or, if not rated, the long-term, foreign currency counterparty rating of that country is Grade 1Assets in respect of anticipated recoveries from the Commonwealth Government or from an Australian State or Territory government
0.5%
4.
Any debt obligation that matures or is redeemable in less than one year with a counterparty rating of Grade 1 or 2 (excluding subordinated debt[5] and debt obligations of government dealt with specifically in this Table)Cash management trusts with a counterparty rating of Grade 1 or 2
1%
5.
Any other debt obligation (that matures or is redeemable in one year or more) with a counterparty rating of Grade 1 or 2 (excluding subordinated debt and debt obligations of government dealt with specifically in this Table)
2%
6.
Any other debt obligation with a counterparty rating of Grade 3 (excluding subordinated debt)Cash management trusts with a counterparty rating of Grade 3
4%
7.
Any other debt obligation with a counterparty rating of Grade 4 (excluding subordinated debt)Cash management trusts with a counterparty rating of Grade 4
6%
8.
Any other debt obligation with a counterparty rating of Grade 5 (excluding unlisted subordinated debt)Cash management trusts with a counterparty rating of Grade 5Listed subordinated debt
8%
9.
Unlisted subordinated debt
10%
10.
Listed equity instrumentsListed trusts except where otherwise provided for in this Table
16%
11.
Direct holdings of real estateUnlisted equity instrumentsUnlisted trusts except where otherwise provided for in this TableOther assets not assigned an Investment Capital Factor elsewhere in this Table (other than hybrid instruments with both equity and debt features)
20%
Total Eligible Collateral Provided
This field is automatically calculated by the form and represents the sum of columns (3) to (11).
Assets of the insurer that are subject of the credit support.
Under these columns report only the value of assets that are subject to the credit support.
Investment Capital Factor of Assets Being Supported
Report the investment capital factor applicable for the type of asset being supported by the eligible collateral. GPS 114 outlines the investment capital factors that are applicable for each type of asset.
If the eligible collateral supports more than one asset type having different investment capital factors, the insurer will be required to separately record each type of asset to correctly calculate the reduction in the investment capital charge. In this case record each different type of asset (that has a different investment capital factor) on separate lines and allocate the eligible collateral provided between these different assets (e.g. could be prorated based on the proportion of each type of supported asset to the total value of supported assets).
Fair value of assets subject to credit support
Record the fair value of the assets that are subject to the credit support.
Related party
For each eligible collateral, disclose the nature of the counterparty providing the collateral. If it is a related party, select ‘P’ for parent entity, ‘S’ for subsidiary, or ‘O’ for other related party. Refer to earlier pages in the instruction guide for the definition of related entity.
Adjustment to Investment Capital Charge
This field automatically calculates the required reduction in the investment capital charge due to the support of the ‘Eligible Collateral Items’.
Part B - Guarantees or Letter of Credit Provided to Reporting Insurer
Relating to reinsurance recoverables from non-APRA-authorised reinsurer
Where an insurer possesses a guarantee or a letter of credit in respect of the reinsurance recoverables due from a non-APRA-authorised reinsurer, the Investment Capital Factor to be used is that applicable to the guarantor or the issuer of the letter of credit, as the case may be. This applies only if:
The guarantor or the issuer of the letter of credit is an authorised deposit-taking institution or in the case of a Category E insurer[6], its parent entity or other related entity provided the entity has a counterparty rating of Grade 1, 2 or 3;
The guarantee or letter of credit is explicit, unconditional and irrevocable;
The guarantor or issuer of the letter of credit is obliged to pay the insurer in Australia; and
The obligation of the guarantor or issuer of the letter of credit to pay the insurer is specifically linked to performance of the reinsurance contract or contracts under which the reinsurance recoverables arise.
Except in the case of a Category E insurer, a guarantee or letter of credit provided to an insurer by its parent entity or a related entity is not eligible for this treatment provided for in this paragraph.
The guarantee or letter of credit must be effective for the expected period for payment of claims under the reinsurance contract under which the reinsurance recoverables arise. If this is impractical, the guarantee or letter of credit must be effective for at least 2 years but be renegotiable each year to allow at least a year to identify alternative arrangements if the guarantee or letter of credit cannot be renegotiated.
Guarantees provided to the insurer other than for reinsurance recoverables from non-APRA-authorised reinsurer
Where the guarantees provided to the insurer relates to an asset other than for reinsurance recoverables from a non-APRA-authorised reinsurer, the assets of the reporting insurer that have been explicitly, unconditionally and irrevocably guaranteed for their remaining term to maturity by a guarantor with a counterparty rating (or for governments, the long-term foreign currency credit rating) of Grades 1, 2 or 3 may be assigned the Investment Capital Factor that would be applicable to the guarantor.
Guarantees provided to an insurer by its own parent or a related party are not eligible for this treatment. Refer to earlier pages in the instruction guide for the definition of related entity.
Where the value of the guarantee does not cover the full fair value of the asset, only that part of an asset that is covered by the guarantee may be assigned the Investment Capital Factor applicable to the guarantor. Fair value has the same meaning as defined in the Australian accounting standards, that is, the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction.
Name of entity providing the guarantee or letter of credit to the reporting insurer
Disclose the name of the entity that is providing the guarantee or direct credit support to the reporting insurer.
Relating to reinsurance recoverable due from non-APRA-authorised reinsurer?
Disclose whether the collateral is related to reinsurance recoverable due from a non-APRA-authorised reinsurer. Select “Yes” or “No”.
Value of the Guarantee or Credit Received in Relation to Assets of the Insurer
Disclose the value of the guarantee or credit received by the reporting insurer that is supporting specific assets of the insurer.
Counterparty rating Grade of Guarantor or Issuer
Input the counterparty rating grade applicable for the counterparty giving the guarantee (i.e. ratings 1 – 5). Refer to GPS 114 for details of counterparty grades.
Assets of the Insurer that are subject of the credit support
This form facilitates the calculation of the reduction in the investment capital charge as calculated in the GRF 140 series or GRF 301.0 Reinsurance Assets and Risk Charge. Accordingly the insurer’s investments are to be entered into the GRF 140 series or GRF 301 without adjustment for the guarantee or letter of credit.
Investment Capital Factor of Assets Being Supported
Input the investment capital factor that is applicable for the type of asset being supported by the guarantee. GPS 114 outlines the investment capital factors that are applicable for each type of asset.
If the guarantee supports more than one asset type having different investment capital factors, the insurer will be required to separately record each type of asset to correctly calculate the reduction in the investment capital charge. In this case record each different type of asset (that has a different investment capital factor) on separate lines and allocate the eligible guarantee provided between these different assets (e.g. could be prorated based on the proportion of each type of supported asset to the total value of supported assets).
Fair Value of the assets subject to credit support
Report the fair value of the assets that are subject to the credit support.
Related party
For each guarantee or letter of credit to the Insurer, disclose the nature of the counterparty providing the support. If it is a related party, select ‘P’ for parent entity, ‘S’ for subsidiary, or ‘O’ for other related party. Refer to earlier pages in the instruction guide for the definition of related entity.
Adjustment to Investment Capital Charge
This field automatically calculates the required reduction in the investment capital charge due to the support of the guarantee or letter of credit.