Part Current assets are to be interpreted in - Financial Sector (Collection of Data) (reporting standard) determination No. 78 of 2008 - GRS 301.0 (2008) - Reinsurance Assets and Risk Charge - Current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide AASB 101 provides that a current asset is an asset that is expected to mature or be realised within a 12 month period. | Zoe
Financial Sector (Collection of Data) (reporting standard) determination No. 78 of 2008 - GRS 301.0 (2008) - Reinsurance Assets and Risk Charge
Current assets are to be interpreted in Current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide AASB 101 provides that a current asset is an asset that is expected to mature or be realised within a 12 month period.
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Current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide AASB 101 provides that a current asset is an asset that is expected to mature or be realised within a 12 month period.
1.3.2 Of which: Non Current Assets
Non current assets are to be interpreted in accordance with the meaning provided in AASB 101 ‘Presentation of Financial Statements’. As a guide, AASB 101 provides that a non current asset is an asset that is expected to be held, mature or not to be released for a period greater than 12 months.
1.3.3 Total net reinsurance recoverables receivable from related parties
Include the amount of reinsurance recoverables on reinsurance contracts and outstanding claims that are recoverable from entities deemed to be related entities of the insurer. For the purposes of this form, related entity has the meaning as set out earlier in this instruction guide.
1.3.4 Total net amounts recoverable on reinsurance contracts reported in item 1.3, that relate to claims recognised in the calculation of the Outstanding Claims Provision (i.e. other than reinsurance recoveries relating to claims that have been paid).
Of the total value reported in item 1.3, report the value of reinsurance recoveries that relates to claims that are recognised in the value reported for the Outstanding Claims Provision reported in item 18 and item 27 of GRF 300 Statement of Financial Position. Exclude reinsurance recoveries that relate to claims that have been paid.
1.4 Net amount recoverable on reinsurance contracts and outstanding claims from APRA-authorised reinsurers
Record the net amount recoverable on reinsurance contracts from APRA-authorised reinsurers according to their counterparty rating as follows.
Note: Until 1 January 2009, also include the net amount recoverable on reinsurance contracts from non-APRA-authorised reinsurers.
1.4.1 Grade 1 or 2
1.4.2 Grade 3
1.4.3 Grade 4 or unrated
1.4.4 Grade 5
1.5 Net amount recoverable on reinsurance contracts and outstanding claims from non-APRA-authorised reinsurers except for amounts outstanding on and from second balance date after the financial year in which the event occurred
Record the net amount recoverable on reinsurance contracts and outstanding claims from non-APRA-authorised reinsurers except for amounts outstanding on and from second balance date after the financial year in which the event occurred.
From 1 January 2009, include the net amounts recoverable from non-APRA-authorised reinsurance recoverables due on all reinsurance contracts.
Disclose the amounts according to the reinsurer’s counterparty rating:
1.5.1 Grade 1 or 2
1.5.2 Grade 3
1.5.3 Grade 4 or unrated
1.5.4 Grade 5
1.6 In relation to reinsurance arrangements entered into on or after 31 December 2008, net amount recoverable on reinsurance contracts and outstanding claims from non-APRA-authorised reinsurers that are amounts outstanding on and from second balance date after the event occurred
From 1 January 2009, record the net amount recoverable on reinsurance contracts incepting on or after 31 December 2008 from non-APRA-authorised reinsurers that are amounts outstanding on and from the second balance date after the end of the financial year in which the event giving rise to the recoverables occurred regardless of whether the reinsurance recoverables are supported by collateral, guarantee or a letter of credit.
Where there is collateral, guarantee or a letter of credit supporting the reinsurance recoverable, the adjustment to the risk charge will be reflected in GRF 130.3 Off Balance Sheet Business – Credit Support Received.
Note: The disclosure relating to amounts which are supported by security arrangements in Australia requests disclosure of the net amounts to the extent that the reinsurance recoverables are supported by collateral, guarantee or a letter of credit.
Disclose the amounts according to the reinsurer’s counterparty rating:
1.6.1 Grade 1
1.6.1.1 Of which supported by security arrangements in Australia
1.6.2 Grade 2
1.6.2.1 Of which supported by security arrangements in Australia
1.6.3 Grade 3
1.6.3.1 Of which supported by security arrangements in Australia
1.6.4 Grade 4 or unrated
1.6.4.1 Of which supported by security arrangements in Australia
1.6.5 Grade 5
1.6.5.1 Of which supported by security arrangements in Australia
1.7 Net amount receivable from non-APRA-authorised reinsurers which are overdue for more than 6 months
From 1 January 2009, record the net amount recoverable on reinsurance contracts due from non-APRA-authorised reinsurers, if:
(a) the recoverable has become a receivable (i.e. it is due and payable); and
(b) the receivable is overdue for more than six months since a request for payment has been made to the reinsurer; and
(c) there is no formal dispute between the insurer and reinsurer in relation to that receivable.
1.8 Net amount related to reinsurance contracts that do not meet the reinsurance documentation test
If the insurer has not complied with the threshold levels of reinsurance documentation set out in GPS 112, during the first and second transition periods, then all reinsurance recoveries receivable will be deducted from the Tier 1 capital of an insurer.
Compliance with the thresholds is assessed by calculating the percentage of reinsurance recoveries that are derived from reinsurance arrangements meeting the reinsurance documentation test compared with total reinsurance recoveries.
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 the 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.
After the second transition period, reinsurance recoveries receivable under each reinsurance arrangement that does not meet the reinsurance documentation test will be deducted from the Tier 1 capital of the insurer.
The key dates in the transition periods, in relation to an insurer, are as follows:
Table 1
Balance Dates
30 June
30 September
30 November
1 December
31 December
31 March
First day of first transition period
30 June 2007
30 September 2007
30 November 2007
1 December 2007
31 December 2007
31 March 2008
Last day of first transition period
29 June 2008
29 September 2008
29 November 2008
30 November 2008
30 December 2008
30 March 2009
First day of second transition period
30 June 2008
30 September 2008
30 November 2008
1 December 2008
31 December 2008
31 March 2009
Last day of second transition period
29 June 2009
29 September 2009
29 November 2009
30 November 2009
30 December 2009
30 March 2010
The threshold levels of reinsurance documentation are as follows:
Table 2
Threshold level of reinsurance documentation
Application period
60 per cent of reinsurance recoveries receivable by value must be derived from reinsurance arrangements that meet the reinsurance documentation test
First transition period
80 per cent of the reinsurance recoveries receivable by value must be derived from reinsurance arrangements that meet the reinsurance documentation test
Second transition period
Report the net amount related to reinsurance contracts that do not meet the reinsurance documentation test. This amount is deducted from capital, as such it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
1.9 Net amount recoverable under reinsurance contracts that do not meet governing law requirements
Report the net amounts due from reinsurers under reinsurance contracts entered into by the insurer incepting on or after 31 December 2008 that do not meet the ‘governing law requirements’[18], specified in Prudential Standard GPS 230 Reinsurance Management (GPS 230). GPS 230 specifies that (except for Category E insurers[19]):
The governing law of the reinsurance contract is Australian law; and
Any disputes that fall to be determined by a court are to be heard in an Australian court.
This amount is deducted from capital, as such it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Expected reinsurance recoveries on premium liabilities
“Expected reinsurance recoveries” has the same meaning as in GPS 001. It means any amounts due to an insurer from a reinsurer that arise from the recognition of Premium Liabilities referred to in the capital standards[20] and GPS 310. This is distinguished from reinsurance recoverables and forms part of reinsurance assets.
Where advice of an Appointed Actuary is required in regard to the valuation of the premium liabilities, the Appointed Actuary should also consider the estimation of the expected reinsurance recoveries on the premium liabilities recognised. Actuarial judgement should be used in the application of the principles of GPS 310 in those circumstances.
Expected reinsurance recoveries do not include other forms of reinsurance assets or other form of non-reinsurance recoveries. Non reinsurance recoveries are amounts that may be recovered under arrangements other than reinsurance arrangements. These include salvage and subrogation.
Recognition of expected reinsurance recoveries on premiums liabilities will vary according to the type of reinsurance contract:
- Proportional reinsurance and all facultative
Expected reinsurance recoveries on premiums liabilities are to be recognised, by the direct insurer, from the date the underlying risk is accepted and the outwards reinsurance expense is recognised.
- Excess of loss
Where excess of loss reinsurance is used, the recognition depends on the basis of the cover being either on a ‘risks attaching during the period of reinsurance’ basis or ‘losses occurring during the period of insurance’ basis.
‘Losses occurring during the period of reinsurance’:
Where the risk profile is evenly distributed throughout the year, insurers must recognise 50 per cent of the reinsurance expense and expected reinsurance recoveries in the current period. The reinsurance expense and expected reinsurance recoveries for the remaining 50 per cent of the period are to be recognised at the midpoint of the period for the reinsurance cover. Where the risk profile of the insurer is not evenly distributed throughout the year, the insurer will need to recognise the apportionment of reinsurance expense and expected reinsurance recoveries on the same business pattern as their risk profile. For seasonal insurers, with all policies incepting on the one date, all reinsurance expense and expected reinsurance recoveries will need to be recognised from the date of acceptance by the reinsurer(s) of the reinsurance contract.
‘Risks attaching during the period of reinsurance’:
For these contracts the reinsurance expense and the expected reinsurance recoveries are to be recognised on the date of acceptance by the reinsurer.
“Expected reinsurance recoveries” is to be allocated according to the counterparty grades set out below and in the form, which are detailed in GPS 114. The investment risk charge will be calculated based on the capital factor applicable to the rating grades.
Note: the amounts recorded in item 2.4 and 2.5 should not include expected recoveries from reinsurance contracts that do not fully meet the reinsurance documentation tests in GPS 112. Instead this should be reported under item 2.6. This amount is deducted from capital, as such it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Also do not include expected recoveries from reinsurance contracts that do not meet the governing law requirements in item 2.4 to 2.5. Instead report the amount under item 2.7.
Reinsurance Assets from non-APRA-authorised reinsurer
As mentioned above, different investment risk charge is applicable to certain reinsurance assets[21] due from non-APRA-authorised reinsurers calculated in accordance with GPS 114. The applicable investment risk charge is calculated in accordance with GPS 114 based on whether the amount is recoverable from APRA-authorised reinsurers or non-APRA-authorised reinsurers.
Reinsurance assets due from non-APRA-authorised reinsurers arising from reinsurance contracts incepting prior to 31 December 2008 are treated as if they were reinsurance assets from APRA-authorised reinsurers for the purposes of calculating the investment risk capital charges until 1 January 2009.
2.1 Amount of expected reinsurance recoveries on premium liabilities
Report the total of expected reinsurance recoveries on premium liabilities.
2.2 Provision for doubtful debts
Include the value of any recoveries where it is determined that collection is considered doubtful (full or partial).
2.3 Net amounts of recoveries
This is automatically calculated by the form and represents the value of the reinsurance recoveries after deducting any associated provision for doubtful debts disclosed. The net balance is used in the calculation of the applicable investment risk charge.