Reporting Standard GRS 310.0 (2008)

Statement of Financial Performance

Objective of this reporting standard

This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001 (the Collection of Data Act). It requires general insurers (insurers), including foreign general insurers (foreign insurers) operating in Australia through branch operations, to report to APRA, generally on a quarterly and annual basis, information on their financial and operational performance.

This reporting standard outlines the overall requirements for the provision of this information to APRA. It should be read in conjunction with the versions of Form GRF 310.0 Statement of Financial Performance (Form GRF 310.0) designated for a ‘Licensed Insurer’ and ‘Branch Total Operations’ and the instructions to those versions of the form (which are attached and all form part of this reporting standard).

Purpose

1. Data collected in Form GRF 310.0 is used by APRA for the purpose of prudential supervision of insurers.

Application and commencement

2. This reporting standard applies to all insurers for reporting periods commencing on or after 1 July 2008.

Information required

3. An insurer must provide APRA with the information required by the version of Form GRF 310.0 designated for a ‘Licensed Insurer’ for each reporting period.

4. A foreign insurer must provide APRA with the information required by the version of Form GRF 310.0 designated for ‘Branch Total Operations’ for each reporting period.

Forms and method of submission

5. The information required by this reporting standard must be given to APRA either:

(a) in electronic form using the ‘Direct to APRA’ application, applying one of the electronic submission mechanisms under that application; or

(b) by manually completing Form GRF 310.0 on paper and mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales.

Where the information is submitted by means of an agent to whom the insurer has outsourced the function of providing the information on the insurer’s behalf, the agent may only provide the information in accordance with subparagraph 5(b) if the agent has contacted APRA and advised that the agent cannot submit the information in electronic form under subparagraph 5(a).

Note: the Direct to APRA application software and paper forms may be obtained from APRA.

Reporting periods and due dates

6. Subject to paragraph 7, an insurer must provide the information required by this reporting standard:

(a) in respect of each quarter based on the financial year (within the meaning of the Corporations Act 2001) of the insurer; and

(b) in respect of each financial year (within the meaning of the Corporations Act 2001) of the insurer.

Note: The annual information required by paragraphs 3 and 4 read with subparagraph 6(b), together with certain annual information required by other reporting standards, will form part of the insurer’s yearly statutory accounts within the meaning of section 3 of the Insurance Act 1973 (the Insurance Act). This means that the information must be audited in accordance with paragraph 49J(1)(a) of the Insurance Act. Under subsection 49J(3), the auditor must give the insurer a certificate relating to the yearly statutory accounts, and that certificate must specify the matters provided for in the prudential standards.

7. APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular insurer to require it to provide the information:

(a) more frequently (if, having regard to the particular circumstances of the insurer, APRA considers it necessary or desirable to obtain information more frequently for the purposes of the prudential supervision of the insurer); or

(b) less frequently (if, having regard to the particular circumstances of the insurer and the extent to which it requires prudential supervision, APRA considers it unnecessary to require the insurer to provide the information as frequently as provided by subparagraph 6(a) or (b)).

8. The information required by paragraphs 3 and 4 of this reporting standard from a locally-incorporated insurer or a foreign insurer must be provided to APRA by the following times:

(a) in the case of the quarterly information required by subparagraph 6(a) – 20 business days after the end of the reporting period to which the information relates; and

(b) in the case of the annual information required by subparagraph 6(b) – 4 months after the end of the reporting period to which the information relates.

Note: Paragraph 49L(1)(a) of the Insurance Act provides that the auditor’s certificate required under subsection 49J(3) of that Act must be lodged with APRA in accordance with the prudential standards. The prudential standards provide that the certificate must be submitted to APRA together with the yearly statutory accounts. Accordingly, the auditor’s certificate relating to the annual information required by paragraphs 3 and 4 read with subparagraph 6(b) must be provided to APRA by the time specified in subparagraph 8(b) of this reporting standard (unless an extension is granted under paragraph 9).

9. APRA may grant an insurer an extension of a due date in writing, in which case the new due date for the provision of the information will be the date on the notice of extension.

Quality control

10. The information provided by an insurer under this reporting standard must be the product of processes and controls that have been reviewed and tested by the appointed auditor of the insurer. This will require the auditor to review and test the systems, processes and controls supporting the reporting of the information to ensure that they produce accurate data and are otherwise reliable. This review and testing must be done on an annual basis or more frequently if necessary to enable the appointed auditor to form an opinion on the accuracy and reliability of the data.

11. The information provided by an insurer under this reporting standard must be subject to processes and controls developed by the insurer for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the insurer to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.

Authorisation

12. If the officer of an insurer provides the information required by this reporting standard:

(a) under subparagraph 5(a), the officer must digitally sign, authorise and encrypt the information (for which purpose APRA’s certificate authority will issue digital certificates, for use with the ‘Direct to APRA’ application, to officers of the insurer who have authority from the insurer to transmit data to APRA); or

(b) under subparagraph 5(b), the completed form must be signed in accordance with paragraph 13.

13. If an insurer provides the information required by this reporting standard through an agent under either subparagraphs 5(a) or (b), the agent will not be required to sign or authorise the information. However, the insurer must:

(a) obtain from the agent a paper copy of the completed form as provided to APRA (whether it was provided under subparagraph 5(a) or (b)); and

(b) cause the paper copy to be signed in accordance with paragraph 14; and

(c) lodge the signed paper copy with APRA by mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales, by the relevant due date (unless APRA, in writing, waives the requirement to lodge the signed paper copy with APRA by varying this reporting standard in relation to the insurer).

Note: APRA may, for example, determine to waive the requirement under subparagraph 13(c) where an insurer has undertaken to retain the signed copy of the completed form for an agreed period of time.

14. If information under this reporting standard is provided in paper form, it must be signed on the front page of the relevant completed form by either:

(a) the Principal Executive Officer of the insurer; or

(b) the Chief Financial Officer of the insurer (whatever his or her official title may be).

Minor alterations to forms and instructions

15. APRA may make minor variations to the instructions to a form, to clarify their application to the form without changing any substantive requirement in the form or instructions.

16. If APRA makes such a variation it must notify insurers in writing.

Transition

17. An insurer must report in relation to a reporting period ending prior to 1 July 2008 in accordance with the reporting standard that this reporting standard replaced.

Interpretation

18. In this reporting standard:

appointed auditor means an auditor appointed under paragraph 39(1)(a) of the Insurance Act;

business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays;

capital standards means the prudential standards which relate to capital adequacy as defined in Prudential Standard GPS 001 Definitions;

foreign insurer means a foreign general insurer within the meaning of the Insurance Act;

Note: A reference to a ‘branch’ or ‘branch operation’ is a reference to the Australian operations of a foreign insurer.

Insurance Act means the Insurance Act 1973;

insurer means a general insurer within the meaning of the Insurance Act;

Note: In the forms and instructions, a reference to an ‘authorised insurer’, ‘authorised insurance entity’ or ‘licensed insurer’ is a reference to an insurer, and a reference to an ‘authorised reinsurance entity’ is a reference to an insurer whose business consists only of undertaking liability by way of reinsurance.

Principal Executive Officer means the principal executive officer of the insurer for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the insurer;

reporting period means a period mentioned in subparagraph 6(a) or (b) or, if applicable, paragraph 7.

19. A reference to a prudential standard means the prudential standard, made under section 32 of the Insurance Act, mentioned in the reference, as amended from time to time. If the prudential standard has been revoked and replaced, the reference shall be taken to be to the prudential standard that has replaced it.

Objective of this reporting standard

This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001 (the Collection of Data Act). It requires general insurers (insurers), including foreign general insurers (foreign insurers) operating in Australia through branch operations, to report to APRA, generally on a quarterly and annual basis, information on their financial and operational performance.

This reporting standard outlines the overall requirements for the provision of this information to APRA. It should be read in conjunction with the versions of Form GRF 310.0 Statement of Financial Performance (Form GRF 310.0) designated for a ‘Licensed Insurer’ and ‘Branch Total Operations’ and the instructions to those versions of the form (which are attached and all form part of this reporting standard).

Purpose

1. Data collected in Form GRF 310.0 is used by APRA for the purpose of prudential supervision of insurers.

Application and commencement

2. This reporting standard applies to all insurers for reporting periods commencing on or after 1 July 2008.

Information required

3. An insurer must provide APRA with the information required by the version of Form GRF 310.0 designated for a ‘Licensed Insurer’ for each reporting period.

4. A foreign insurer must provide APRA with the information required by the version of Form GRF 310.0 designated for ‘Branch Total Operations’ for each reporting period.

Forms and method of submission

5. The information required by this reporting standard must be given to APRA either:

(a) in electronic form using the ‘Direct to APRA’ application, applying one of the electronic submission mechanisms under that application; or

(b) by manually completing Form GRF 310.0 on paper and mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales.

Where the information is submitted by means of an agent to whom the insurer has outsourced the function of providing the information on the insurer’s behalf, the agent may only provide the information in accordance with subparagraph 5(b) if the agent has contacted APRA and advised that the agent cannot submit the information in electronic form under subparagraph 5(a).

Note: the Direct to APRA application software and paper forms may be obtained from APRA.

Reporting periods and due dates

6. Subject to paragraph 7, an insurer must provide the information required by this reporting standard:

(a) in respect of each quarter based on the financial year (within the meaning of the Corporations Act 2001) of the insurer; and

(b) in respect of each financial year (within the meaning of the Corporations Act 2001) of the insurer.

Note: The annual information required by paragraphs 3 and 4 read with subparagraph 6(b), together with certain annual information required by other reporting standards, will form part of the insurer’s yearly statutory accounts within the meaning of section 3 of the Insurance Act 1973 (the Insurance Act). This means that the information must be audited in accordance with paragraph 49J(1)(a) of the Insurance Act. Under subsection 49J(3), the auditor must give the insurer a certificate relating to the yearly statutory accounts, and that certificate must specify the matters provided for in the prudential standards.

7. APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular insurer to require it to provide the information:

(a) more frequently (if, having regard to the particular circumstances of the insurer, APRA considers it necessary or desirable to obtain information more frequently for the purposes of the prudential supervision of the insurer); or

(b) less frequently (if, having regard to the particular circumstances of the insurer and the extent to which it requires prudential supervision, APRA considers it unnecessary to require the insurer to provide the information as frequently as provided by subparagraph 6(a) or (b)).

8. The information required by paragraphs 3 and 4 of this reporting standard from a locally-incorporated insurer or a foreign insurer must be provided to APRA by the following times:

(a) in the case of the quarterly information required by subparagraph 6(a) – 20 business days after the end of the reporting period to which the information relates; and

(b) in the case of the annual information required by subparagraph 6(b) – 4 months after the end of the reporting period to which the information relates.

Note: Paragraph 49L(1)(a) of the Insurance Act provides that the auditor’s certificate required under subsection 49J(3) of that Act must be lodged with APRA in accordance with the prudential standards. The prudential standards provide that the certificate must be submitted to APRA together with the yearly statutory accounts. Accordingly, the auditor’s certificate relating to the annual information required by paragraphs 3 and 4 read with subparagraph 6(b) must be provided to APRA by the time specified in subparagraph 8(b) of this reporting standard (unless an extension is granted under paragraph 9).

9. APRA may grant an insurer an extension of a due date in writing, in which case the new due date for the provision of the information will be the date on the notice of extension.

Quality control

10. The information provided by an insurer under this reporting standard must be the product of processes and controls that have been reviewed and tested by the appointed auditor of the insurer. This will require the auditor to review and test the systems, processes and controls supporting the reporting of the information to ensure that they produce accurate data and are otherwise reliable. This review and testing must be done on an annual basis or more frequently if necessary to enable the appointed auditor to form an opinion on the accuracy and reliability of the data.

11. The information provided by an insurer under this reporting standard must be subject to processes and controls developed by the insurer for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the insurer to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.

Authorisation

12. If the officer of an insurer provides the information required by this reporting standard:

(a) under subparagraph 5(a), the officer must digitally sign, authorise and encrypt the information (for which purpose APRA’s certificate authority will issue digital certificates, for use with the ‘Direct to APRA’ application, to officers of the insurer who have authority from the insurer to transmit data to APRA); or

(b) under subparagraph 5(b), the completed form must be signed in accordance with paragraph 13.

13. If an insurer provides the information required by this reporting standard through an agent under either subparagraphs 5(a) or (b), the agent will not be required to sign or authorise the information. However, the insurer must:

(a) obtain from the agent a paper copy of the completed form as provided to APRA (whether it was provided under subparagraph 5(a) or (b)); and

(b) cause the paper copy to be signed in accordance with paragraph 14; and

(c) lodge the signed paper copy with APRA by mailing the completed form to APRA’s head office at Level 26, 400 George Street, Sydney, New South Wales, by the relevant due date (unless APRA, in writing, waives the requirement to lodge the signed paper copy with APRA by varying this reporting standard in relation to the insurer).

Note: APRA may, for example, determine to waive the requirement under subparagraph 13(c) where an insurer has undertaken to retain the signed copy of the completed form for an agreed period of time.

14. If information under this reporting standard is provided in paper form, it must be signed on the front page of the relevant completed form by either:

(a) the Principal Executive Officer of the insurer; or

(b) the Chief Financial Officer of the insurer (whatever his or her official title may be).

Minor alterations to forms and instructions

15. APRA may make minor variations to the instructions to a form, to clarify their application to the form without changing any substantive requirement in the form or instructions.

16. If APRA makes such a variation it must notify insurers in writing.

Transition

17. An insurer must report in relation to a reporting period ending prior to 1 July 2008 in accordance with the reporting standard that this reporting standard replaced.

Interpretation

18. In this reporting standard:

appointed auditor means an auditor appointed under paragraph 39(1)(a) of the Insurance Act;

business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays;

capital standards means the prudential standards which relate to capital adequacy as defined in Prudential Standard GPS 001 Definitions;

foreign insurer means a foreign general insurer within the meaning of the Insurance Act;

Note: A reference to a ‘branch’ or ‘branch operation’ is a reference to the Australian operations of a foreign insurer.

Insurance Act means the Insurance Act 1973;

insurer means a general insurer within the meaning of the Insurance Act;

Note: In the forms and instructions, a reference to an ‘authorised insurer’, ‘authorised insurance entity’ or ‘licensed insurer’ is a reference to an insurer, and a reference to an ‘authorised reinsurance entity’ is a reference to an insurer whose business consists only of undertaking liability by way of reinsurance.

Principal Executive Officer means the principal executive officer of the insurer for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the insurer;

reporting period means a period mentioned in subparagraph 6(a) or (b) or, if applicable, paragraph 7.

19. A reference to a prudential standard means the prudential standard, made under section 32 of the Insurance Act, mentioned in the reference, as amended from time to time. If the prudential standard has been revoked and replaced, the reference shall be taken to be to the prudential standard that has replaced it.

Audit requirements

The form relating to authorised insurance entities and reinsurance entities is required to be subject to audit review and testing.

The scope and nature of audit testing required is outlined in the applicable Auditing and Assurance Guidance Statement issued by the Auditing and Assurance Standards Board.

Information provided in the form in respect of a financial year of an insurer forms part of the insurer’s ‘yearly statutory accounts’ within the meaning of section 3 of the Insurance Act 1973. This means that:

• the completed form for the financial year must be audited by the Appointed Auditor of the insurer (see paragraph 49J(1)(a) of the Act);

• the insurer must make such arrangements as to enable the auditor to do this (subsection 49J(2));

• the auditor must give the insurer a certificate relating to the completed form (and other completed forms that are part of the insurer’s yearly statutory accounts), which must contain statements of the auditor’s opinion on the matters required by the prudential standards to be dealt with in the certificate (subsection 49J(3));

• the certificate must be lodged with APRA as provided for in the prudential standards (paragraph 49L(1)(a)), namely by the due date for lodging the form in respect of the financial year for the insurer.

Reporting entity

Forms are to be completed for the following reporting entities where appropriate:

1. Authorised insurance entities including a mutual (refer to form ‘Licensed Insurer’; a reference to licensed insurer in the form means total operations of the licensed entity); and
2. Authorised reinsurance entities (refer to form ‘Licensed Insurer’; a reference to licensed insurer in the form means total operations of the licensed entity).

Definitions

Definitions for data reporting items required by this form have been provided where possible in the instructions under the section headed ‘Specific Instructions’.

Unit of measurement

This form is to be presented in Australian currency, rounded to thousands of dollars, with no decimal place. Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.

The general requirements of AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ for translation are:

1. Foreign currency monetary items[1] outstanding at the reporting date must be translated at the spot rate[2] at the reporting date.
2. Foreign currency non-monetary items[3] that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction.
3. Foreign currency non-monetary items that are measured at fair value will be translated at the exchange rate at the date when fair value was determined.

Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with AASB 139 ‘Financial Instruments: Recognition and Measurement’. However, those foreign currency derivatives that are not within the scope of AASB 139 ‘Financial Instruments: Recognition and Measurement’ (eg some foreign currency derivatives that are embedded in other contracts) remain within the scope of AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.

For APRA purposes equity items must be translated using the foreign currency exchange rate at the date of investment or acquisition. Post acquisition changes in equity are required to be translated on the date of the movement.

As foreign currency derivatives are measured at fair value, the currency derivative contracts are translated at the spot rate at the reporting date.

Exchange differences should be recognised in profit and loss in the period which they arise. For foreign currency derivatives, the exchange differences would be recognised immediately in profit and loss if the hedging instrument is a fair value hedge. For derivatives used in a cash flow hedge, the exchange differences should be recognised directly in equity.

The ineffective portion of the exchange differences in all hedges would be recognised in profit and loss.

4. Translation of financial reports of foreign operations.

A foreign operation is defined in AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ as meaning an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.

• Exchange differences relating to foreign currency monetary items that form part of the net investment of an entity in a foreign operation, must be recognised as a separate component of equity.
• Translation of financial reports should otherwise follow the requirements in AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.

Reporting period

Insurers are required to report the information in the reporting form on a quarterly and annual basis.

• The quarterly information is to be completed in respect of each quarter based on the financial year of the insurer, not the calendar year.
• The annual information is to be completed in respect of the financial year of the insurer.
• The financial information requested in this form is to be reported as at the last day of the reporting period on a financial year to date basis of the insurer.

Reporting lag

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 the Reporting Standard GRS 310.0 Statement of Financial Performance.

Basis of preparation

With the exception of the recognition and measurement requirements of the items listed below, general insurers are requested to follow the Australian accounting standards regarding the recognition and measurement of items of income and expense (profit or loss) in completing this form, notably AASB 1023 ‘General Insurance Contracts’:

• Premium revenue;

• Claims expense (Claim payments made in the current year plus the movement in Outstanding Claims Provision (OCP) and Premium Liabilities (PL));

• Reinsurance recoveries revenue (Reinsurance recoveries received in the current year plus the movement in the reinsurance recoverables associated with OCP and PL);

• Expected reinsurance recoveries;

• Non-reinsurance recoveries;

• Reinsurance expense (i.e. no deferral of reinsurance expense under prudential reporting);

• Acquisition costs (i.e. no deferral of acquisition costs under prudential reporting); and

• Commission revenue.

The interpretation and required measurement and recognition basis for these items listed are specified in these instructions below and under the appropriate item heading and also outlined in the introduction to the reporting package.

(1) Regulatory reporting items with different measurement basis to AASB 1023:

• Premium revenue

For regulatory reporting recognise fully from date of acceptance of policy. Do not defer and amortise in accordance with AASB 1023.

• Reinsurance expense

For regulatory reporting recognise fully as an expense. Do not defer and amortise in accordance with AASB 1023.

• Deferred acquisition costs

For regulatory reporting recognised fully as an expense. Do not defer and amortise in accordance with AASB 1023.

• Commission revenue

For regulatory reporting recognise fully from date of acceptance of risk. Do not defer and amortise in accordance with AASB 1023.

(2) Recognition of items for regulatory reporting purposes not recognised under AASB 1023:

• Premium Liabilities

For regulatory reporting, this is a new liability item and is measured on a prospective basis.

• Expected reinsurance and non-reinsurance recoveries (associated with Premium Liabilities).

For regulatory reporting these are new asset items and are measured on a prospective basis similar to Premium Liabilities.

(3) The non-recognition of items for regulatory reporting purposes that are recognised under AASB 1023:

• Unearned premiums provision.

This item is not recognised for prudential reporting as premium revenue is recognised fully from date of acceptance of risk.

• Deferred reinsurance expense.

This item is not recognised for prudential reporting purposes as reinsurance premiums paid are recognised as an expense fully from date of acceptance.

• Deferred acquisition costs are expensed fully when paid/payable as a component of underwriting expenses for the purposes of prudential reporting.

The reasons for the changes to the accounting treatment for the items outlined above are provided below:

Premium Liabilities and Expected Reinsurance and Non Reinsurance Recoveries

• AASB 1023 requirements

AASB 1023 does not have a requirement for the recognition and measurement of Premium Liabilities and Expected Reinsurance Recoveries.

• APRA requirements

GPS 310 Audit and Actuarial Reporting and Valuation requires a prospective basis to the recognition and measurement of premiums liabilities. For the purposes of the APRA prudential forms, Premium Liabilities are to be recognised as a liability in GRF 300.0 Statement of Financial Position. In addition the creation of (and movement in) Premium Liabilities is to be recognised and disclosed as a component of claims expense in GRF 310.0 Statement of Financial Performance (i.e. “claims expense attributable to future years”). Under this approach claims expense will have two separately identifiable components, one relating to the Outstanding Claims Provision (OCP - current year and prior year claims) and the other relating to the Premiums Liabilities (PL - relating to future years).

APRA considers that the concept of Premium Liabilities is a more effective means of recognising potential risk over the term of the policy written, compared to the accounting concept of premium ‘earned/unearned’.

Given the prospective basis required by GPS 310 Audit and Actuarial Reporting and Valuation to measure and recognise Premium Liabilities, it is appropriate to recognise expected reinsurance recoveries and non-reinsurance recoveries as assets that reflect the level of reinsurance cover and the availability of non-reinsurance recoveries associated with the Premium Liabilities recognised. The expected reinsurance and non-reinsurance recoveries are deducted from the Premium Liabilities for the purposes of calculating the insurance capital charge and will be addressed in the actuary’s report.

For the APRA prudential forms, this introduces new asset items in GRF 300.0 Statement of Financial Position and GRF 310.0 Statement of Financial Performance. Under this approach reinsurance and non-reinsurance recoveries will have two separately identifiable components, one relating to the OCP (current year and prior year claims) and the other relating to the PL (i.e. relating to future years).

Premium Revenue and Unearned Premium Provision

• AASB 1023 requirements

Under AASB 1023 premium written is recognised as premium revenue on an earned/unearned basis. That component that is unearned is recognised as a liability – “Unearned Premium Provision”.

• APRA requirements

It is important to consider the accounting treatment underlying the recognition of Premium Liabilities comparative to that for unearned premium provision, specifically the profit and loss treatment. The earned/unearned basis for recognition of premium revenue prescribed by AASB 1023 is not appropriate for the APRA prudential forms as it is not consistent with the APRA framework for measuring insurance liabilities under GPS 310 Audit and Actuarial Reporting and Valuation. The objective of the measurement of Premium Liabilities is to recognise potential future claim liabilities arising out of new insurance business written (on a prospective basis). Accordingly to be consistent, it is more appropriate to recognise premiums written up front as premium revenue.

Deferred Acquisition Costs (DAC) and Acquisition Costs

• AASB 1023 requirements

DAC is recognised as an asset under AASB 1023 and is amortised as an underwriting expense to the profit and loss in accordance with the expected pattern of the incidence of risk under the related general insurance contracts.

• APRA requirements

DAC is not permitted to be recognised as an asset under the APRA prudential capital framework. From a prudential accounting perspective it is more appropriate to require DAC to be fully written off as an acquisition expense in GRF 310.0 Statement of Financial Performance. This treatment of DAC is consistent with the proposed treatment for the recognition of premium revenue.

GPS 310 Audit and Actuarial Reporting and Valuation provides that an insurer may use its unearned premium provision (UPP) less its DAC as approximate method for determining the central estimate of its total Premiums Liabilities after adjusting for the profit margin in the UPP. This is allowed where this is a reasonable approximation of its Premiums Liabilities and does not in itself replace the role of the Appointed Actuary to value Premium Liabilities.

Reinsurance Expense and Deferred Reinsurance Expense

• AASB 1023 requirements

Under AASB 1023, expenses/premiums paid for reinsurance cover is required to be recognised as an expense on a basis that is consistent with the pattern of reinsurance. As a result under AASB 1023 this gives rise to the recognition of an asset – “Deferred Reinsurance Expense”, which is amortised (over a specified term/basis) to the Statement of Financial Performance as a reinsurance expense. Under AASB 1023 reinsurance expense is disclosed as an offset from premium revenue in the Statement of Financial Performance.

• APRA requirements

Due to the change in the recognition of premium income for prudential reporting purposes (refer above), it is appropriate to recognise reinsurance expense on a consistent basis i.e. recognised fully upfront in the Statement of Financial Performance. As a result, for APRA prudential reporting (and Investment risk charge calculation), there will be no asset titled “Deferred Reinsurance Expense”.

Tax Effect Accounting/Adjustments

It is likely that the recognition of the Premium Liabilities and Outstanding Claims Provisions in accordance with GPS 310 Audit and Actuarial Reporting and Valuation will give rise to tax effect accounting considerations. The measurement and recognition in GRF 300.0 Statement of Financial Position of tax effect accounting items (e.g. deferred tax) is to be determined in accordance with the requirements of AASB 112 ‘Income Taxes’.

If the technical insurance provisions reported in GRF 300.0 Statement of Financial Position are determined to representing timing differences between recognition as an expense for accounting purposes and as a deductible expense for taxation purposes, then the associated measurement and recognition of taxation expense and deferred tax assets and liabilities is to be determined in accordance with AASB 112.

Fair value measurement of assets

APRA applies the notion of activities integral to insurance operations for its regulatory reporting.[4] APRA does not follow the classification basis in AASB 1023 ‘General Insurance Contracts’. Therefore, the value of these investments reported in this form may or may not equate to the value of investments deemed to be assets backing insurance liabilities. For APRA regulatory reporting purposes, investments integral to the entity's general insurance activities means[5] investments that are controlled by the entity in the conduct of its general insurance activities.

Investments reported in this form that are integral to the entity's general insurance activities must be measured at fair value. The investments must not be valued at cost. Fair value has the same meaning as defined in the AASB 132 ‘Financial Instruments: Presentation’, 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, and is determined as follows:

1. The quoted market price (i.e. bid or ask price) in an active and liquid market; or
2. When there is infrequent activity in a market, and the market is not well established, small volumes are traded relative to the asset or liability to be valued, or a quoted market price is not available – a realistic estimate of fair value on the basis of the results of a valuation technique that makes maximum use of market inputs, and relies as little as possible on entity-specific inputs[6].

Fair value of charged/encumbered assets

If an asset is in any way subject to a charge, covenant, encumbrance, option to purchase or any other arrangement by way of agreement or statute, that restricts the fair value of the asset, the value attached to the assets needs to reflect the existence of these arrangements. For example, if the insurer has agreed to deliver an asset to a purchaser at a price below the arms length value, the fair value cannot exceed the agreed price. This may also have relevance to this form.

Netting

Unless otherwise specifically stated, institutions are allowed to take advantage of netting agreements in relation to disclosure of data items in this form. Institutions are to comply with the prerequisite for netting outlined in Australian accounting standards AASB 7 ‘Financial Instruments: Disclosures’, AASB 139 ‘Financial Instruments: Recognition and Measurement’ and AASB 132 ‘Financial Instruments: Presentation’.

Related party disclosure

Amounts due from, loans to, debentures of, shares in, or units in a trust or body corporate that is related to the insurer are to be disclosed for items of assets and liabilities where indicated in the form. For the purposes of this form, related bodies corporate are to be interpreted consistently with the meaning as in AASB 124 ‘Related Party Disclosures’.

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

Premium revenue – Direct business and Inwards reinsurance

Premium revenue must be reported separately for:

• Direct business; and
• Inwards reinsurance business.

Premium revenue must be recognised on a basis that is consistent with the measurement of premiums liabilities as measured in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.

Premium revenue must be recognised in line with the following:

• Premium recognition for direct business: Premium revenue must be recognised fully upfront on the date the policy is accepted (bound) by insurers writing direct business.

• Premium recognition for inwards reinsurance business: Premium revenue for inwards reinsurance business is to be recognised from the date of acceptance of the reinsurance risk by the reinsurer. Reinsurers are required to recognise the premium based on the Gross Net Premium Income to be written by the direct insurer under the contract for proportional reinsurance. For excess of loss reinsurance contracts, the premium revenue is to be recognised on the basis of the agreed minimum/deposit premium, which will be subject to a final adjustment factor applied to the final declared values of the premium determinant.

• Premium revenue includes the value of future premium receipts under existing insurance contracts through to the end of the period of insurance.

• Premium revenue must be discounted where it is to be received beyond the current year of cover under an insurance/reinsurance contract. In these cases, use the discount rate as required in calculating insurance liabilities in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.

• Premium revenue excludes amounts collected on behalf of third parties i.e. government stamp duty and taxes.

• Levies charged to insured, such as fire service levies, are to be included as premium revenue.

• Premium refunds and rebates are to be deducted from premium revenue.

• For instalment premium policies, the amount of the annualised premium is to be used.

• Where premium is calculated on an adjustment basis, the estimated annual premium is to be brought to account, with the estimated premium being replaced by the actual amount as it becomes known.

• Where premium is accepted on a deposit basis, the full annual premium is to be brought into account.

• Premium revenue must be gross of reinsurance expense.

• Premium revenue includes premium receivable on unclosed business. This includes the business which has been accepted by the insurer/reinsurer prior to the balance date but there is insufficient information to fully identify the business.

• For premium revenue relating to insurance/reinsurance contracts written on a long-term basis:

  • where the insurer/reinsurer accepting the risk has the option to cancel the contract at pre-agreed dates, premium revenue is to be recognised from the date of acceptance up to the next possible cancellation date.
  • where the insurer/reinsurer accepting the risk does not have the option to cancel the contract at pre-agreed dates, the full premium for the long-term insurance/reinsurance contract is to be recognised from the date of acceptance.

Total Premium Revenue

This is automatically calculated by the form and represents the total of premium revenue for direct business and inwards reinsurance.

Outwards Reinsurance Expense

Reinsurance expenses must be recognised on a basis that is consistent with the measurement of premiums liabilities as measured in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.

Recognition of outwards reinsurance expenses will vary according to the type of reinsurance contract:

Proportional reinsurance (treaty) and all facultative

Premium ceded to the reinsurer(s) is recognised as an expense by the direct insurer on the date of acceptance (date bound) of the underlying insurance contract by the direct insurer.

Excess of loss reinsurance (treaty)

The recognition of outwards reinsurance expense depends on the basis of the cover being either on a ‘losses occurring during the period of reinsurance’ basis or ‘risks attaching during the period of reinsurance’.

Loss occurring during the period of reinsurance: The majority of excess of loss and catastrophe reinsurance is based on a ‘losses occurring during the period of reinsurance’ basis. Thus, the reinsurance will provide cover for risks that have been accepted in the prior period and to risks that are accepted and attach in the current period of the reinsurance contract. In the case where the risk profile of the insurer is evenly distributed throughout the year, an insurer must recognise 50 per cent of the excess of loss reinsurance expense in the current period. The reinsurance expense for the remaining 50 per cent is to be recognised at the mid point of the period for the reinsurance cover. Where the risk profile of the insurer is not evenly distributed throughout the year, with material peaks and troughs throughout the year, the insurer will need to recognise the apportionment of the reinsurance expense on the same business pattern as their risk portfolio. For seasonal insurers, with all policies incepting on the one date, all reinsurance expense will need to be recognised from the date of acceptance by the reinsurer of the reinsurance contract.

Risk attaching during the period of reinsurance: For these reinsurance contracts, the full amount of the excess of loss reinsurance expense is to be recognised from the date of acceptance of the reinsurance by the reinsurer. The minimum and deposit premium for the full period of the reinsurance that is payable to the reinsurer is to be recognised.

Where payments under a reinsurance contract extend beyond the current year of cover, reinsurance expense is to be discounted using similar discount rates as required in measuring insurance liabilities in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.

Reinsurance expense is not to be recognised in accordance with the pattern of reinsurance service received as required by AASB 1023 ‘General Insurance Contracts’.

Reinsurance expense is to be split into the following:

• Relating to future years cover

Disclose in this data item, the reinsurance expense that relates to cover that will be applicable for future years.

• Relating to current and prior years cover

Disclose in this data item, the reinsurance expense that relates to cover applicable for the current and past years.

Net Premium Revenue

This is automatically calculated by the form and represents the difference between Premium revenue and Outwards reinsurance expense.

Claims Expense

The claims expense for the reporting period is to be reported in relation to the following:

1. Direct business; and

2. Inwards reinsurance business.

For both of these items the following is to be further provided:

1. Relating to future years

This will reflect any movement in the value of Premium Liabilities reported in GRF 300.0 Statement of Financial Position. The value of Premium Liabilities reported in GRF 300.0 Statement of Financial Position does not have to be equal to, but must not be less than the respective amounts required by GPS 310 Audit and Actuarial Reporting and Valuation and hence the amounts reported in the form GRF 210.1 -Premium Liabilities - Insurance Risk Charge.

Note: Claims expense relating to future years reported in this form must correspond with Premium Liabilities at the end of period less Premium Liabilities at the beginning of the financial year from GRF 310.2 Claims Expense and Reinsurance Recoveries for both direct business and inwards reinsurance.

2. Relating to current and prior years

This will reflect the claim payments made in the current year plus any movement in the value of the Outstanding Claims Provision reported in GRF 300.0 Statement of Financial Position. The OCP reported in GRF 300.0 Statement of Financial Position does not have to be equal to, but must not be less than the amounts required by GPS 310 Audit and Actuarial Reporting and Valuation and hence the amounts reported in the form GRF 210.0 Outstanding Claims Provision - Insurance Risk Charge.

Note: Claims expense relating to current and prior years reported in this form must correspond with Claim payments made in the current year plus OCP at the end of period less OCP at the beginning of the financial year from GRF 310.2 Claims Expense and Reinsurance Recoveries for both direct business and inwards reinsurance.

Further, where the insurer only has insurance liabilities and claims within Australia, the claims expense reported in this form will correspond to the total claims expense reported in GRF 430.0 Claims Expense by State and Territory of Australia.

Gross Claims Expense which is Attributable to Changes in Valuation Assumptions/model

Disclose in this field that component of gross claims expense which is due to changes in modeling assumptions applied to outstanding claims provision. This is a memo item of total gross claims expense and is not added into the calculation of Net Incurred Claims or Underwriting Result.

Reinsurance Recoveries Revenue

Reinsurance recoveries revenue for the reporting period is to be reported in relation to the following:

1. Relating to future years

This will reflect any movement in the value of Expected Reinsurance Recoveries that are associated with insurance liabilities recognised in the measurement of Premium Liabilities. This is in relation to:

• direct business; and

• inwards reinsurance business.

Note: Reinsurance recoveries revenue relating to future years reported in this form must correspond with Reinsurance recoveries revenue relating to future years from GRF 310.2 Claims Expense and Reinsurance Recoveries for the total of direct business and inwards reinsurance.

2. Relating to current and prior years

This will reflect recoveries received or receivable associated with claims expense recognised for the following:

• direct business; and

• inwards reinsurance business.

Include amounts that the insurer has recovered or is entitled to recover from reinsurers on claim expense during the reporting period. Some estimates previously made in the context of reinsurance recoverables will have been revised in the course of the year’s business. Such adjustments are to be reflected in the next reporting period as appropriate

Note: Reinsurance recoveries revenue relating to current and prior years reported in this form must correspond with Reinsurance recoveries revenue relating to current and prior years from GRF 310.2 Claims Expense and Reinsurance Recoveries for the total of direct business and inwards reinsurance.

Total Reinsurance Recoveries Revenue

This is automatically calculated by the form and represents the sum of reinsurance recoveries revenue disclosed for:

• Relating to future years
• Relating to current and prior years.

Other Recoveries Revenue

This is the revenue from recoveries other than reinsurance recoveries, in respect of claims. Where appropriate it is to be reported after deducting the reinsurer’s share of the ‘other recoveries revenue’.

Total Recoveries

This is automatically calculated by the form and represents the sum of the values reported for “Total reinsurance recoveries revenue” and “Other recoveries revenue”.

Net Incurred Claims

This is automatically calculated by the form and represents the difference between “Gross claims expense” and “Total recoveries”.

Acquisition Costs

Report the fully expensed component of the Acquisition Costs as recognised under AASB 1023 i.e. these should not be deferred and recognised as assets. Acquisition costs are incurred in obtaining and recording general insurance contracts. They include commission or brokerage paid to agent or brokers for obtaining business for the insurer, selling and underwriting costs such as advertising and risk assessment, the administrative costs of recording policy information and premium collection costs.

Other Underwriting Expenses

This item will include all other underwriting expenses which are not included in Acquisition Costs.

Levies and charges

This item will include levies and charges payable by the insurer. It excludes the amounts collected on behalf of third parties.

Commission Revenue

This item should be recognised upfront and includes commission revenue related to the insurance business. Do not include ‘premium rebates’ received from reinsurers in this line item.

Total Underwriting Expenses

Underwriting expenses are calculated automatically and are derived from:

• Acquisition costs

Plus:

• Other underwriting expenses

• Levies and charges

Less:

Commission revenue received

Underwriting Result

The underwriting result is calculated automatically and is derived from:

• Net Premium Revenue

Less:

• Net Incurred Claims

Less:

• Total underwriting expenses

Investment Income

Report the investment income in this item. This item must correspond to the ‘Total Investment Income’ reported in GRF 310.3 Investment and Operating Income and Expense.

Other Operating Income

Report all other income not reported above in this item. This item must correspond to the ‘Total Other Operating Income’ reported in GRF 310.3 Investment and Operating Income and Expense.

Other Operating Expenses

Report the operating expenses in this item. This item must correspond to the ‘Total Operating Expenses’ reported in GRF 310.3 Investment and Operating Income and Expense.

Negative goodwill immediately recognised in profit or loss

This item represents the excess of the interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over cost in a business acquisition. This item must be completed in accordance with the requirements of AASB 3 ‘Business Combinations’.

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

Report any gain or loss on the measurement of a non-current asset (or disposal group) classified as held for sale that does not meet the definition of a discontinued operation.

This item must be completed in accordance with the requirements of AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’.

Profit (loss) from continuing operations before income tax expense (benefit)

The profit (loss) from continuing operations is calculated automatically and is derived from:

• Underwriting result

Plus:

• Investment income

• Other operating income

Less:

• Other operating expenses

Plus:

• Negative goodwill immediately recognised in profit or loss
• Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

Income tax expense (benefit) from continuing operations

Represents the income tax expense or benefit attributable to the profit or loss from continuing operations.

This item must be completed in accordance with the requirements of AASB 112 ‘Income Taxes’.

Profit (loss) from continuing operations after income tax

This item is calculated automatically and is derived from:

• Profit or loss from continuing operations before income tax expense (benefit)

Less:

• Income tax expense (benefit) from continuing operations

Profit (loss) from discontinued operations after income tax

Profit (loss) after income tax from discontinued operations are to be classified and recorded in accordance with the Australian accounting standards.

Net profit (loss) after income tax attributable to members of the company

This is calculated automatically and is derived from:

• Profit (loss) from continuing operations after income tax

Less:

• Profit (loss) from discontinued operations after income tax

Retained profits at beginning of the financial year

Report here the relevant retained profit (loss) amount at the beginning of the current financial year. For the first year of reporting the APRA forms, use the retained profits figure as per the insurers statutory accounts prepared in accordance with Australian accounting standards.

Adjustments to retained profits due to change in accounting policies/standards

Include the value of aggregate adjustments to retained earnings due to changes in accounting treatment required by an accounting standard.

Note:

All financial adjustments stemming from the changes in accounting treatment from AASB 1023 that are required for prudential purposes, are to be effected against current year profits in the line items provided in this form. Adjustments are not to be aggregated and posted against this line item or against the opening balance of retained earnings.

Reduction in retained profits on share buy back

Disclose that portion of the consideration used for share buy backs during the reporting period that is allocated to retained earnings.

Amounts transferred from reserves

Disclose the amount of funds transferred from other reserves to Retained Earnings during the reporting period.

Total available for appropriation

This amount is calculated automatically and is derived from:

• Net profit (loss) after income tax attributable to members of the company

Plus:

• Retained profits at the beginning of the financial year

Plus/less:

• Adjustments to retained profits due to change in accounting policies/standards

Plus:

• Reduction in retained profits on share buy back
• Amounts transferred from reserves

Dividends expected, declared or paid

A dividend is the amount paid out of a company’s profits to its shareholders (interim and final dividend). The annual dividend equals the final dividend plus the interim dividend if declared. Accordingly, report dividends which are expected to be declared, declared or paid by the insurer.

Aggregate amounts transferred to reserves

Disclose the amount of funds transferred to other reserves from Retained Earnings during the reporting period.

Retained profits at the end of the Reporting Period

This is calculated automatically and is derived from:

• Total available for appropriation

Less:

• Dividends expected, declared or paid
• Aggregate amounts transferred to reserves

Instruction Guide

Introduction

This form collects information on the operating performance of the Category C (also known as branch) general insurer as outlined in the instructions below.

Definitions

Definitions for data reporting items required by this form have been provided where possible in the instructions under the section headed ‘Specific Instructions’

Unit of measurement

The form is to be completed in Australian currency, rounded to thousands of dollars with no decimal place. Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.

The general requirements of AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ for translation are:

1. Foreign currency monetary items[7] outstanding at the reporting date must be translated at the spot rate[8] at the reporting date;
2. Foreign currency non-monetary items[9] that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction;
3. Foreign currency non-monetary items that are measured at fair value will be translated at the exchange rate at the date when fair value was determined;

Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with AASB 139 ‘Financial Instruments: Recognition and Measurement’. However, those foreign currency derivatives that are not within the scope of AASB 139 ‘Financial Instruments: Recognition and Measurement’ (e.g. some foreign currency derivatives that are embedded in other contracts) remain within the scope of AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.

For APRA purposes equity items must be translated using the foreign currency exchange rate at the date of investment or acquisition. Post acquisition changes in equity are required to be translated on the date of the movement.

As foreign currency derivatives are measured at fair value, the currency derivative contracts are translated at the spot rate at the reporting date.

Exchange differences should be recognised in profit and loss in the period which they arise. For foreign currency derivatives, the exchange differences would be recognised immediately in profit and loss if the hedging instrument is a fair value hedge. For derivatives used in a cash flow hedge, the exchange differences should be recognised directly in equity.

The ineffective portion of the exchange differences in all hedges would be recognised in profit and loss.

4. Translation of financial reports of foreign operations.

A foreign operation is defined in AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ as meaning an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.

• Exchange differences relating to foreign currency monetary items that form part of the net investment of an entity in a foreign operation, must be recognised as a separate component of equity.
• Translation of financial reports should otherwise follow the requirements in AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.

Reporting period

Insurers are required to report the information in the reporting form on a quarterly and annual basis.

• The quarterly information is to be completed in respect of each quarter based on the financial year of the insurer, not the calendar year.
• The annual information is to be completed in respect of the financial year of the insurer.
• The financial information requested in this form is to be reported as at the last day of the reporting period on a financial year to date basis of the insurer.

Reporting lag

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 310.0 Statement of Financial Performance.

Basis of preparation

With the exception of the recognition and measurement requirements of the items listed below, general insurers are requested to follow the Australian accounting standards regarding the recognition and measurement of items of income and expense (profit or loss) in completing this form, notably AASB 1023 ‘General Insurance Contracts’.

• Premium revenue;

• Claims expense (Claim payments made in the current year plus the movement in Outstanding Claims Provision (OCP) and Premium Liabilities (PL));

• Reinsurance recoveries revenue (Reinsurance recoveries received in the current year plus the movement in the reinsurance recoverables associated with OCP and PL);

• Expected reinsurance recoveries;

• Non-reinsurance recoveries;

• Reinsurance expense (i.e. no deferral of reinsurance expense under prudential reporting);

• Acquisition costs (i.e. no deferral of acquisition costs under prudential reporting); and

• Commission revenue.

The interpretation and required measurement and recognition basis for these items listed are specified in these instructions below and under the appropriate item heading and also outlined in the introduction to the reporting package.

(1) Regulatory reporting items with different measurement basis to AASB 1023:

• Premium revenue

For regulatory reporting recognise fully from date of acceptance of policy. Do not defer and amortise in accordance with AASB 1023.

• Reinsurance expense

For regulatory reporting recognise fully as an expense. Do not defer and amortise in accordance with AASB 1023.

• Deferred acquisition costs

For regulatory reporting recognised fully as an expense. Do not defer and amortise in accordance with AASB 1023.

• Commission revenue

For regulatory reporting recognise fully from date of acceptance of risk. Do not defer and amortise in accordance with AASB 1023.

(2) Recognition of items for regulatory reporting purposes not recognised under AASB 1023:

• Premium Liabilities

For regulatory reporting, this is a new liability item and is measured on a prospective basis.

• Expected reinsurance and non-reinsurance recoveries (associated with Premium Liabilities).

For regulatory reporting these are new asset items and are measured on a prospective basis similar to Premium Liabilities.

(3) The non-recognition of items for regulatory reporting purposes that are recognised under AASB 1023:

• Unearned premiums provision.

This item is not recognised for prudential reporting as premium revenue is recognised fully from date of acceptance of risk.

• Deferred reinsurance expense.

This item is not recognised for prudential reporting purposes as reinsurance premiums paid are recognised as an expense fully from date of acceptance.

• Deferred acquisition costs are expensed fully when paid/payable as a component of underwriting expenses for the purposes of prudential reporting.

The reasons for the changes to the accounting treatment for the items outlined above are provided below:

Premium Liabilities and Expected Reinsurance and Non Reinsurance Recoveries

• AASB 1023 requirements

AASB 1023 does not have a requirement for the recognition and measurement of Premium Liabilities and Expected Reinsurance Recoveries.

• APRA requirements

GPS 310 Audit and Actuarial Reporting and Valuation requires a prospective basis to the recognition and measurement of premiums liabilities. For the purposes of the APRA prudential forms, Premium Liabilities are to be recognised as a liability in GRF 300.0 Statement of Financial Position. In addition the creation of (and movement in) Premium Liabilities is to be recognised and disclosed as a component of claims expense in GRF 310.0 Statement of Financial Performance (i.e. “claims expense attributable to future years”). Under this approach claims expense will have two separately identifiable components, one relating to the Outstanding Claims Provision (OCP - current year and prior year claims) and the other relating to the Premium Liabilities (PL - relating to future years).

APRA considers that the concept of Premium Liabilities is a more effective means of recognising potential risk over the term of the policy written, compared to the accounting concept of premium ‘earned/unearned’.

Given the prospective basis required by GPS 310 Audit and Actuarial Reporting and Valuation to measure and recognise Premium Liabilities, it is appropriate to recognise expected reinsurance recoveries and non-reinsurance recoveries as assets that reflect the level of reinsurance cover and the availability of non-reinsurance recoveries associated with the Premium Liabilities recognised. The expected reinsurance and non-reinsurance recoveries are deducted from the Premium Liabilities for the purposes of calculating the insurance capital charge and will be addressed in the actuary’s report.

For the APRA prudential forms, this introduces new asset items in GRF 300.0 Statement of Financial Position and new revenue items in GRF 310.0 Statement of Financial Performance. Under this approach reinsurance recoveries will have two separately identifiable components, one relating to the OCP (current year and prior year claims) and the other relating to the PL (i.e. relating to future years).

Premium Revenue and Unearned Premium Provision

• AASB 1023 requirements

Under AASB 1023 premium written is recognised as premium revenue on an earned/unearned basis. That component that is unearned is recognised as a liability – “Unearned Premium Provision”.

• APRA requirements

It is important to consider the accounting treatment underlying the recognition of Premium Liabilities comparative to that for unearned premium provision, specifically the profit and loss treatment. The earned/unearned basis for recognition of premium revenue prescribed by AASB 1023 is not appropriate for the APRA prudential forms as it is not consistent with the APRA framework for measuring insurance liabilities under GPS 310 Audit and Actuarial Reporting and Valuation. The objective of the measurement of Premium Liabilities is to recognise potential future claim liabilities arising out of new insurance business written (on a prospective basis). Accordingly to be consistent, it is more appropriate to recognise premiums written up front as premium revenue.

Deferred Acquisition Costs (DAC) and Acquisition Costs

• AASB 1023 requirements

DAC is recognised as an asset under AASB 1023 and is amortised as an underwriting expense to the profit and loss in accordance with the expected pattern of the incidence of risk under the related general insurance contracts.

• APRA requirements

DAC is not permitted to be recognised as an asset under the APRA prudential capital framework. From a prudential accounting perspective it is more appropriate to require DAC to be fully written off as an acquisition expense in GRF 310.0 Statement of Financial Performance. This treatment of DAC is consistent with the proposed treatment for the recognition of premium revenue.

GPS 310 Audit and Actuarial Reporting and Valuation provides that an insurer may use its unearned premium provision (UPP) less its DAC as approximate method for determining the central estimate of its total Premiums Liabilities after adjusting for the profit margin in the UPP. This is allowed where this is a reasonable approximation of its Premiums Liabilities and does not in itself replace the role of the Appointed Actuary to value Premium Liabilities.

Reinsurance Expense and Deferred Reinsurance Expense

• AASB 1023 requirements

Under AASB 1023, expenses/premiums paid for reinsurance cover is required to be recognised as an expense on a basis that is consistent with the pattern of reinsurance. As a result under AASB 1023 this gives rise to the recognition of an asset – “Deferred Reinsurance Expense”, which is amortised (over a specified term/basis) to the Statement of Financial Performance as a reinsurance expense. Under AASB 1023 reinsurance expense is disclosed as an offset from premium revenue in the Statement of Financial Performance.

• APRA requirements

Due to the change in the recognition of premium income for prudential reporting purposes (refer above), it is appropriate to recognise reinsurance expense on a consistent basis i.e. recognised fully upfront in the Statement of Financial Performance. As a result, for APRA prudential reporting (and Investment risk charge calculation), there will be no asset titled “Deferred Reinsurance Expense”.

Tax Effect Accounting/Adjustments

It is likely that the recognition of the Premium Liabilities and Outstanding Claims Provisions in accordance with GPS 310 Audit and Actuarial Reporting and Valuation will give rise to tax effect accounting considerations. The measurement and recognition in GRF 300.0 Statement of Financial Position of tax effect accounting items (e.g. deferred tax) is to be determined in accordance with the requirements of AASB 112 ‘Income Taxes’.

If the technical insurance provisions reported in GRF 300.0 Statement of Financial Position are determined to representing timing differences between recognition as an expense for accounting purposes and as a deductible expense for taxation purposes, then the associated measurement and recognition of taxation expense and deferred tax assets and liabilities is to be determined in accordance with AASB 112.

Fair value measurement of assets

APRA applies the notion of activities integral to insurance operations for its regulatory reporting[10]. APRA does not follow the classification basis in AASB 1023 ‘General Insurance Contracts’. Therefore, the value of these investments reported in this form may or may not equate to the value of investments deemed to be assets backing insurance liabilities. For APRA regulatory reporting purposes, investments integral to the entity's general insurance activities means[11] investments that are controlled by the entity in the conduct of its general insurance activities.

Investments reported in this form that are integral to the entity's general insurance activities must be measured at fair value. The investments must not be valued at cost. Fair value has the same meaning as defined in the AASB 132 ‘Financial Instruments: Presentation’, 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, and is determined as follows:

1. the quoted market price (i.e. bid or ask price) in an active and liquid market; or
2. When there is infrequent activity in a market, and the market is not well established, small volumes are traded relative to the asset or liability to be valued, or a quoted market price is not available – a realistic estimate of fair value on the basis of the results of a valuation technique that makes maximum use of market inputs, and relies as little as possible on entity-specific inputs[12].

Fair value of charged/encumbered assets

If an asset is in any way subject to a charge, covenant, encumbrance, option to purchase or any other arrangement by way of agreement or statute, that restricts the fair value of the asset, the value attached to the assets needs to reflect the existence of these arrangements. For example, if the insurer has agreed to deliver an asset to a purchaser at a price below the arms length value, the fair value cannot exceed the agreed price. This may also have relevance to this form.

Netting

Unless otherwise specifically stated, institutions are allowed to take advantage of netting agreements in relation to disclosure of data items in this form. Institutions are to comply with the prerequisite for netting outlined in Australian accounting standards AASB 7 ‘Financial Instruments: Disclosures’, AASB 139 ‘Financial Instruments: Recognition and Measurement’ and AASB 132 ‘Financial Instruments: Presentation’.

Related party disclosure

Amounts due from, loans to, debentures of, shares in, or units in a trust or body corporate that is related to the insurer are to be disclosed for items of assets and liabilities where indicated in the form. For the purposes of this form, related bodies corporate are to be interpreted consistently with the meaning as in AASB 124 ‘Related Party Disclosures’.

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

Premium revenue – Direct business and Inwards reinsurance

Premium revenue must be reported separately for:

• Direct business; and
• Inwards reinsurance business.

Premium revenue must be recognised on a basis that is consistent with the measurement of premiums liabilities as measured in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.

Premium revenue must be recognised in line with the following:

• Premium recognition for direct business: Premium revenue must be recognised fully upfront on the date the policy is accepted (bound) by insurers writing direct business.
• Premium recognition for inwards reinsurance business: Premium revenue for inwards reinsurance business is to be recognised from the date of acceptance of the reinsurance risk by the reinsurer. Reinsurers are required to recognise the premium based on the Gross Net Premium Income to be written by the direct insurer under the contract for proportional reinsurance. For excess of loss reinsurance contracts, the premium revenue is to be recognised on the basis of the agreed minimum/deposit premium, which will be subject to a final adjustment factor applied to the final declared values of the premium determinant.
• Premium revenue includes the value of future premium receipts under existing insurance contracts through to the end of the period of insurance.
• Premium revenue must be discounted where it is to be received beyond the current year of cover under an insurance/reinsurance contract. In these cases, use the discount rate as required in calculating insurance liabilities in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.
• Premium revenue excludes amounts collected on behalf of third parties i.e. government stamp duty and taxes.
• Levies charged to insured, such as fire service levies, are to be included as premium revenue.
• Premium refunds and rebates are to be deducted from premium revenue.
• For installment premium policies, the amount of the annualised premium is to be used.
• Where premium is calculated on an adjustment basis, the estimated annual premium is to be brought to account, with the estimated premium being replaced by the actual amount as it becomes known.
• Where premium is accepted on a deposit basis, the full annual premium is to be brought into account.
• Premium revenue must be gross of reinsurance expense.
• Premium revenue includes premium receivable on unclosed business. This includes the business which has been accepted by the insurer/reinsurer prior to the balance date but there is insufficient information to fully identify the business.
• Premium revenue relating to insurance/reinsurance contracts written on a long-term basis:
  • where the insurer/reinsurer accepting the risk has the option to cancel the contract at pre-agreed dates, premium revenue is to be recognised from the date of acceptance up to the next possible cancellation date.
  • where the insurer/reinsurer accepting the risk does not have the option to cancel the contract at pre-agreed dates, the full premium for the long-term insurance/reinsurance contract is to be recognised from the date of acceptance.

Total Premium Revenue

This is automatically calculated by the form and represents the total of premium revenue for direct business and inwards reinsurance.

Outwards Reinsurance Expense

Reinsurance expenses must be recognised on a basis that is consistent with the measurement of premiums liabilities as measured in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.

Recognition of outwards reinsurance expenses will vary according to the type of reinsurance contract:

Proportional reinsurance (treaty) and all facultative

Premium ceded to the reinsurer(s) is recognised as an expense by the direct insurer on the date of acceptance (date bound) of the underlying insurance contract by the direct insurer.

Excess of loss reinsurance (treaty)

The recognition of outwards reinsurance expense depends on the basis of the cover being either on a ‘losses occurring during the period of reinsurance’ basis or ‘risks attaching during the period of reinsurance’.

Loss occurring during the period of reinsurance: The majority of excess of loss and catastrophe reinsurance is based on a ‘losses occurring during the period of reinsurance’ basis. Thus, the reinsurance will provide cover for risks that have been accepted in the prior period and to risks that are accepted and attach in the current period of the reinsurance contract. In the case where the risk profile of the insurer is evenly distributed throughout the year, an insurer must recognise 50 per cent of the excess of loss reinsurance expense in the current period. The reinsurance expense for the remaining 50 per cent is to be recognised at the mid point of the period for the reinsurance cover. Where the risk profile of the insurer is not evenly distributed throughout the year, with material peaks and troughs throughout the year, the insurer will need to recognise the apportionment of the reinsurance expense on the same business pattern as their risk portfolio. For seasonal insurers, with all policies incepting on the one date, all reinsurance expense will need to be recognised from the date of acceptance by the reinsurer of the reinsurance contract.

Risk attaching during the period of reinsurance: For these reinsurance contracts, the full amount of the excess of loss reinsurance expense is to be recognised from the date of acceptance of the reinsurance by the reinsurer. The minimum and deposit premium for the full period of the reinsurance that is payable to the reinsurer is to be recognised.

Where payments under a reinsurance contract extend beyond the current year of cover, reinsurance expense is to be discounted using similar discount rates as required in measuring insurance liabilities in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.

Reinsurance expense is not to be recognised in accordance with the pattern of reinsurance service received as required by AASB 1023 ‘General Insurance Contracts’.

Reinsurance expense is to be split into the following:

• Relating to future years cover

Disclose in this data item, the reinsurance expense that relates to cover that will be applicable for future years.

• Relating to current and prior years

Disclose in this data item, the reinsurance expense that relates to cover applicable for the current and past years.

Net Premium Revenue

This is automatically calculated by the form and represents the difference between Premium revenue and Outwards reinsurance expense.

Claims Expense

The claims expense for the reporting period is to be reported in relation to the following:

1. Direct business; and

2. Inwards reinsurance business.

For both of these items the following is to be further provided:

Relating to future years

This will reflect any movement in the value of Premium Liabilities reported in GRF 300.0 Statement of Financial Position. The value of Premium Liabilities reported in GRF 300.0 Statement of Financial Position does not have to be equal to, but must not be less than the respective amounts required by GPS 310 Audit and Actuarial Reporting and Valuation and hence amounts reported in the form GRF 210.1 Premium Liabilities - Insurance Risk Charge.

Note: Claims expense relating to future years reported in this form must correspond with Premium Liabilities at the end of period less Premium Liabilities at the beginning of the financial year from GRF 310.2 Claims Expense and Reinsurance Recoveries for both direct business and inwards reinsurance.

Relating to current and prior years

This will reflect the claim payments made in the current year plus any movement in the value of the Outstanding Claims Provision reported in GRF 300.0 Statement of Financial Position. The OCP reported in GRF 300.0 Statement of Financial Position does not have to be equal to, but must not be less than the amounts required by GPS 310 Audit and Actuarial Reporting and Valuation and hence the amounts reported in the form GRF 210.0 Outstanding Claims Provision - Insurance Risk Charge.

Note: Claims expense relating to current and prior years reported in this form must correspond with Claim payments made in the current year plus OCP at the end of period less OCP at the beginning of the financial year from GRF 310.2 Claims Expense and Reinsurance Recoveries for both direct business and inwards reinsurance.

Further, where the insurer only has insurance liabilities and claims within Australia, the claims expense reported in this form will correspond to the total claims expense reported in GRF 430.0 Claims Expense by State and Territory of Australia.

Gross Claims Expense which is Attributable to Changes in Valuation Assumptions/model

Disclose in this field that component of gross claims expense which is due to changes in modeling assumptions applied to outstanding claims provision. This is a memo item of total gross claims expense and is not added into the calculation of Net Incurred Claims or Underwriting Result.

Reinsurance Recoveries Revenue

Reinsurance recoveries revenue for the reporting period is to be reported in relation to the following:

Relating to future years

This will reflect any movement in the value of Expected Reinsurance Recoveries that are associated with insurance liabilities recognised in the measurement of Premium Liabilities. This is in relation to:

• direct business; and

• inward reinsurance business.

Note: Reinsurance recoveries revenue relating to future years reported in this form must correspond with Reinsurance recoveries revenue relating to future years from GRF 310.2 Claims Expense and Reinsurance Recoveries for the total of direct business and inwards reinsurance.

Relating to current and prior years

This will reflect recoveries received or receivable associated with claims expense recognised for the following:

• direct business; and

• inwards reinsurance business.

Include amounts that the insurer has recovered or is entitled to recover from reinsurers on claim expense during the reporting period. Some estimates previously made in the context of reinsurance recoverables will have been revised in the course of the year’s business. Such adjustments are to be reflected in the next reporting period as appropriate.

Note: Reinsurance recoveries revenue relating to current and prior years reported in this form must correspond with Reinsurance recoveries revenue relating to current and prior years from GRF 310.2 Claims Expense and Reinsurance Recoveries for the total of direct business and inwards reinsurance.

Total Reinsurance Recoveries Revenue

This represents the sum of reinsurance recoveries revenue disclosed for:

• Relating to future years

• Relating to current and prior years.

Other Recoveries Revenue

This is the revenue from recoveries other than reinsurance recoveries, in respect of claims. Where appropriate it is to be reported after deducting the reinsurer’s share of the ‘other recoveries revenue’.

Total Recoveries

This is automatically calculated by the form and represents the sum of the values reported for “Total reinsurance recoveries revenue” and “Other recoveries revenue”.

Net Incurred Claims

This is automatically calculated by the form and represents the difference between “Gross claims expense” and “Total recoveries”.

Acquisition Costs

Report the fully expensed component of the Acquisition Costs as recognised under AASB 1023 i.e. these should not be deferred and recognised as assets. Acquisition costs are incurred in obtaining and recording general insurance contracts. They include commission or brokerage paid to agent or brokers for obtaining business for the insurer, selling and underwriting costs such as advertising and risk assessment, the administrative costs of recording policy information and premium collection costs.

Other Underwriting Expenses

This will include all other underwriting expenses which are not included in Acquisition Costs.

Levies and charges

This item will include levies and charges payable by the insurer. It excludes the amounts collected on behalf of third parties.

Commission Revenue

This item should be recognised upfront and includes commission revenue related to the insurance business. Do not include ‘premium rebates’ received from reinsurers in this line item.

Total Underwriting Expenses

Underwriting expenses are calculated automatically and are derived from:

• Acquisition costs

Plus:

• Other underwriting expenses

• Levies and charges

Less:

• Commission revenue received

Underwriting Result

The underwriting result is calculated automatically and is derived from:

• Net Premium Revenue

Less:

• Net Incurred Claims

Less:

• Total underwriting expenses

Investment Income

Report the investment income in this item. This item must correspond to the ‘Total Investment Income’ reported in GRF 310.3 Investment and Operating Income and Expense.

Other Operating Income

Report all other income not reported above in this item. This item must correspond to the ‘Total Other Operating Income’ reported in GRF 310.3 Investment and Operating Income and Expense.

Other Operating Expenses

Report the operating expenses in this item. This item must correspond to the ‘Total Operating Expenses’ reported in GRF 310.3 Investment and Operating Income and Expense.

Negative goodwill immediately recognised in profit or loss

This item represents the excess of the interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over cost in a business acquisition. This item must be completed in accordance with the requirements of AASB 3 ‘Business Combinations’.

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations.

Report any gain or loss on the measurement of a non-current asset (or disposal group) classified as held for sale that does not meet the definition of a discontinued operation.

This item must be completed in accordance with the requirements of AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’.

Profit (loss) from continuing operations before income tax expense (benefit)

The profit (loss) from continuing operations calculated automatically and is derived from:

• Underwriting result

Plus:

• Investment income

• Other operating income

Less:

• Other operating expenses

Plus:

• Negative goodwill immediately recognised in profit or loss.
• Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

Income tax expense (benefit) from continuing operations

Represents the income tax expense or benefit attributable to the profit or loss from continuing operations.

This item must be completed in accordance with the requirements of AASB 112 ‘Income Taxes’.

Profit (loss) from continuing operations after income tax

This item is calculated automatically and is derived from:

• Profit (loss) from continuing operations before income tax expense (benefit)

Less:

• Income tax expense (benefit) from continuing operations

Profit (loss) from discontinued operations after income tax

Profit (loss) from after income tax from discontinued operations are to be classified and recorded in accordance with the Australian accounting standards.

Net profit (loss) after income tax

This is calculated automatically and is derived from:

• Profit (loss) from continuing operations after income tax

Less:

• Profit (loss) from discontinued operations after income tax

Retained profits at the beginning of the financial year

Report here the relevant retained profit (loss) amount at the beginning of the current financial year. For the first year of reporting the APRA forms, use the retained profits figure as per the insurers statutory accounts prepared in accordance with Australian accounting standards.

Adjustments to retained profits due to change in accounting policies/standards

Include the value of aggregate adjustments to retained earnings due to changes in accounting treatment required by an accounting standard.

Note: All financial adjustments stemming from the changes in accounting treatment from AASB 1023 that are required for prudential purposes, are to be effected against current year profits in the line items provided in this form. Adjustments are not to be aggregated and posted against this line item or against the opening balance of retained earnings.

Amounts transferred from/to reserves

Disclose the amount of funds transferred from other reserves to Retained Earnings or to other reserves from Retained Earnings during the reporting period.

Amounts Transferred from/to parent entity

Disclose the amount of dividends or funds transferred from/to the parent entity during the reporting period.

Retained profits at the end of the reporting period

This is calculated automatically and is derived from:

• Net Profit (loss) after income tax

Adjusted for the following:

• Retained profits at the beginning of the financial year;

• Adjustment (positive or negative) to retained profits due to change in accounting policies/standards;

• Aggregate of amounts transferred from/to reserves;

• Aggregate of amounts transferred from the parent entity;

• Aggregate of amounts transferred to the parent entity; and

• Aggregate of other amounts (positive or negative).

Note: If capital is provided by the parent entity, which is not required to be repaid by the branch, this contribution of capital is to be disclosed in this form as funds transferred from the parent entity.

If the capital provided by the parent is in the form of debt and must be repaid, the amount should be disclosed in the liability section of GRF 300.0 Statement of Financial Position under “Loan Capital”.