Financial Sector (Collection of Data) (reporting standard) determination No. 80 of 2008 - GRS 310.1 (2008) - Premium Revenue and Reinsurance Expense
Reporting Form GRF 310.1Reporting Form GRF 310.1
Start here
Get a plain-English read of Reporting Form GRF 310.1
Turn the raw legal text into a practical explanation grounded in Financial Sector (Collection of Data) (reporting standard) determination No. 80 of 2008 - GRS 310.1 (2008) - Premium Revenue and Reinsurance Expense.
The purpose of this form is to provide information on premium revenue and reinsurance expense by class of business, which supports the summarised underwriting result disclosed in GRF 310.0 Statement of Financial Performance. This form also provides information on the earned premium by class of business. The unearned premium provision and deferred reinsurance expense are to be reported in this form in accordance with AASB 1023 ‘General Insurance Contracts’.
The form reports the following:
data by class of business (direct business and inwards reinsurance);
total gross written premium;
premiums received (cashflow basis);
gross written premium relating to unclosed business;
gross written premium relating to bound but not incepted business;
outwards reinsurance expense;
net written premium;
gross unearned premium provision at the beginning of the financial year;
gross unearned premium provision at the end of the reporting period;
gross earned premium;
reinsurance expense on a AASB 1023 basis
deferred reinsurance expense at the beginning of the financial year; and
deferred reinsurance expense at the end of the reporting period.
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 (the Act). 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:
Branch insurers of a foreign parent insurer (reference to licensed insurer in the form means total operations of the branch, excluding the parent operations);
Authorised insurance entities, including mutual entities (reference to licensed insurer in the form means total operations of the licensed entity); and
Authorised reinsurance entities (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
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’ are:
Foreign currency monetary items outstanding at the reporting date[1] must be translated at the spot rate[2] at the reporting date.
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.
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.
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 310.1 Premium Revenue and Reinsurance Expense.
Basis of preparation
Unless specifically mentioned in these instructions, insurers should not follow the recognition and measurement requirements of the Australian accounting standards in completing this form.
The interpretation and required measurement basis for items listed in the form are specified in these instructions..
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
Classes of Insurance Business
Direct Business
The classes of business for companies that are not specialist reinsurers are as follows:
(I). Houseowners/Householders (H & H)
This class covers the common H & H policies inclusive of:
Contents;
Personal property;
Arson; and
Burglary.
Public liability normally attaching to these products are to be separated and included in Public and Product Liability class of business – item (XIII).
(II). Commercial Motor Vehicle
Motor vehicle insurance (including third party property damage) other than insurance covering vehicles defined below under Domestic Motor Vehicle. It includes long and medium haul trucks, cranes and special vehicles and policies covering fleets.
(III). Domestic Motor Vehicle
Motor vehicle insurance (including third party property damage) covering private use motor vehicles including utilities and lorries, motor cycles, private caravans, box and boat trailers and other vehicles not normally covered by business or commercial policies.
(IV). Travel
Insurance against losses associated with travel including loss of baggage and personal effects, losses on flight cancellations and overseas medical costs.
(V). Fire and Industrial Special Risks (ISR)
Fire
Includes all policies normally classified as 'Fire' and includes:
sprinkler leakage;
subsidence;
windstorm;
hailstone;
crop;
arson; and
loss of profits and any extraneous risk normally covered under fire policies, e.g. flood.
ISR
Standard policy wordings exist for this type of policy. All policies which contain such standard wordings or where the wording is substantially similar are to be classified as ISR.
(VI). Marine
Includes Marine Hull (including pleasure craft), Marine Cargo (including sea and inland transit insurance).
(VII). Aviation
Aviation (including aircraft hull and aircraft liability).
(VIII). Mortgage
Insurance against losses arising from the failure of debtors to meet financial obligations to creditors or under which payment of debts is guaranteed. It includes lease guarantee.
(IX). Consumer Credit (CCI)
Insurance to protect a consumer's ability to meet the loan repayments on personal loans and credit card finance in the event of death or loss of income due to injury, illness or unemployment.
(X). Other Accident
Includes the following types of insurance:
Miscellaneous accident (involving cash in transit, theft, loss of money);
All risks (baggage, sporting equipment, guns);
Engineering when not part of ISR or Fire policy;
Plate glass when not part of packaged policy (e.g. houseowners /householders)
Guarantee (Insurance Bonds);
Live Stock;
Pluvius; and
Sickness and Accident (which provides stated benefits where the insured is killed or suffers loss of specific parts of the body or is prevented from carrying out the insured’s normal occupation. In addition, regular benefits may be paid over a short period of time (typically less than 3 years), noting that continuous disability policies are now considered to be Life Insurance Policies and should not be provided by general insurance companies).
(XI). Other
All other insurance business not specifically mentioned elsewhere. It includes, for example:
All guarantees (e.g. fidelity Guarantee)
Trade Credit;
Extended Warranty (includes insurance by a third party for a period in excess of the manufacturer's or seller’s normal warranty;
Kidnap and Ransom; and
Contingency.
(XII). Compulsory Third Party Motor Vehicle (CTP)
This class consists only of CTP business.
(XIII). Public and Product Liability
Public Liability covers legal liability to the public in respect of bodily injury or property damage arising out of the operation of the insured's business. Product Liability includes policies that provide for compensation for loss and or injury caused by, or as a result of, the use of goods. and also environmental clean-up caused by pollution spills where not covered by Fire and ISR policies.
Also will include builders warranty insurance.
Includes public liability attaching to houseowners/householders policies.
(XIV). Professional Indemnity (PI)
Includes Directors' and Officers' liability insurance plus legal expense insurance. Cover for legal expenses is generally included in this type of policy.
(XV). Employers' Liability (EL)
Includes:
Workers' compensation;
Seamen's compensation; and
Domestic workers compensation.
2. Reinsurance Business
The classes of business for companies that provide reinsurance are as follows:
Treaty Proportional: This refers to all forms of quota share and surplus reinsurance written on a treaty reinsurance arrangement where the reinsurer is bound to accept all business ceded by the reinsured subject to the terms and conditions of the pre-agreed treaty wording, and shares in the same proportion of premium and losses of the reinsured.
Treaty Excess of Loss: This refers to all reinsurance arrangements where the reinsurer is bound to accept all business ceded by the reinsured and the reinsurer pays losses only above an agreed predetermined limit (retention) up to an agreed maximum amount.
Facultative Proportional: This refers to non-treaty arrangements where each reinsurance contract is on an individual offer and acceptance basis and the reinsurer shares in the same proportion of premium and losses of the reinsured.
Facultative Excess of Loss: This refers to non-treaty arrangements where each reinsurance contract is on an individual offer and acceptance basis. The reinsurer pays losses only above an agreed predetermined limit (retention) up to an agreed maximum amount.
Reinsurance non-split: This line item classification disclosed under Reinsurance class of business is to be used where it is not possible for the insurer to separately split out all the classes of reinsurance businesses.
Where an insurer writes inwards reinsurance which spans multiple classes and the insurer cannot readily split the contract between classes, the contract must be allocated using an appropriate method, including the following methods:
(a) allocate the contract to the category which represents the greatest exposure; or
(b) allocate the contract to the category representing the greatest premium income.
An insurer that underwrites inwards reinsurance is free to choose which of the above methods it uses, or may use another appropriate method, provided the same method is used for all contracts and all subsequent periods.
Premium revenue
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 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.
For the “Direct business” and “Inwards reinsurance” business, amounts are to be reported as follows:
Total gross written premium
Include premium revenue from business written directly by the insurer. Include inwards reinsurance premiums under the “Reinsurance” section of Type of Business column.
Also includes business sourced through insurance intermediaries such as co-insurance, underwriting pools or Joint Ventures, or portfolio transfers.
Insurance business allocated through underwriting pools and coinsurance arrangements by an entity acting as agent must be accounted for by the accepting insurer as direct insurance business (AASB 1023 ‘General Insurance Contracts’).
Joint ventures are to be interpreted as defined by the Australian Accounting standards AASB 131 ‘Interests in Joint Ventures’.
Direct insurers or reinsurers may form underwriting pools or enter coinsurance arrangements as vehicles for jointly insuring particular risks or types of risks. Premiums, claims and other expenses are usually shared in agreed ratios by insurers involved in these arrangements. Many underwriting pools and coinsurance arrangements involve the acceptance of risks by an entity acting as an agent for pool members or coinsurers. The entity receives premiums and pays claims and expenses, and allocates shares of the business to each pool member or coinsurer in agreed ratios. As the entity acting as agent is effectively not an insurer, the business allocated to pool members and coinsurers is not reinsurance business. Pool members and coinsurers will need to treat such business allocated to them as direct insurance business.[4]
Some underwriting pools and coinsurance arrangements involve members of the pool or coinsurers directly underwriting risks and then passing all of those risks into the pool or arrangement. These risks are then shared among pool members or coinsurers. For this type of underwriting pool or arrangement, an insurer treats its share of the business that other insurers place with the pool or arrangement as inwards reinsurance, and the business that it writes and passes into the pool or arrangement as direct insurance business which it reinsures to the extent of the shares in the pool or arrangement of the other pool members or coinsurers. This approach results in the insurer properly reflecting its obligations to those it has directly insured and the substance of the transactions with the pool members or coinsurers.
Portfolio transfer is a term used to describe the process by which premiums and claims on direct insurance business is transferred from one insurer to another by means of direct sale, not by reinsurance. Responsibility in relation to claims on transferred insurance business passes from the transferring insurer to the accepting insurer. The transfer must be accounted for as a portfolio assumption by the accepting insurer, and by recognising the relevant amount of premium revenue, premium liabilities and outstanding claims liabilities.
Premiums Received - cashflow basis (as a proxy the basis required by AASB 107 ‘Cash Flow Statements’ can be used)
This is the amount of premiums actually received over the reporting period (on a year to date basis). Do not include premium revenue that has been included as revenue on an accrual basis. It is to be reported in aggregate for direct written business and reinsurance business.
This relates to all premiums received on a cashflow basis in the current financial year, regardless of the financial year in which the premium may have been recognised as revenue (i.e. a prior financial year).
Gross premium revenue relating to unclosed business
This column requires separate identification of gross premium revenue relating to 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.
Gross premium revenue relating to bound but not incepted business
Premium revenue is recognised fully upfront on the date the policy is accepted by insurers. This revenue includes premiums relating to “bound but not incepted” business. This column requires separate identification of gross premium revenue relating to “bound but not incepted” business.
This information will be used to assess the proportion of the gross premium revenue relating to “bound but not incepted” business.
Reinsurance expense
Recognition of 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 case the risk profile of the insurer is evenly distributed throughout the year, an insurer must recognise 50 per cent of the risk 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 for the remaining portion of the current year. 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’.
Net written premium
This is automatically calculated by the form and represents the total gross written premium less the reinsurance expense.
AASB 1023 Gross Unearned Premium Provision (UPP)
Gross Unearned Premium Provision is to be reported in this form at both the start of the financial year and the end of the reporting period. The Unearned Premium Provision is to be reported in this form in accordance with AASB 1023 ‘General Insurance Contracts’.
AASB 1023 Gross earned premium
Gross earned premium is to be reported in this form in accordance with AASB 1023 ‘General Insurance Contracts’.
AASB 1023 Reinsurance expense
The total reinsurance expense is to be reported in this form in accordance with AASB 1023 ‘General Insurance Contracts’. It should be the total reinsurance expense for the reporting period, ie do not exclude proportions which are to be deferred.
AASB 1023 Deferred Reinsurance Expense (DRE)
Deferred Reinsurance Expense is to be reported in this form at both the start of the financial year and the end of the reporting period. Deferred Reinsurance Expense is to be reported in this form in accordance with AASB 1023 ‘General Insurance Contracts’.
Business with the related entities:
Report the premium revenue/reinsurance expense items which are from/with the following related entities. Related parties have been defined in the general section of this instruction guide:
Parent entity
Controlled entities/Controlled entities of the parent entity