Financial Sector (Collection of Data) (reporting standard) determination No. 9 of 2010 - GRS 301.0 (2010) - Reinsurance Assets and Risk Charge
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For the purposes of this form, related bodies corporate are to be interpreted consistently with the meaning as in AASB 124 ‘Related Party Disclosures’ (AASB 124).
In accordance with AASB 124, related party means a party that directly or indirectly through one or more intermediaries:
(a) controls, is controlled by or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);
(b) has significant influence over the entity or has joint control over the entity; or
(c) is an associate (as defined in AASB 128 ‘Investments in Associates’) of the entity; or
(d) is a joint venture in which the entity is a venturer (see AASB 131 ‘Interests in Joint Ventures’); or
(e) is a member of the key management personnel of the entity or its parent; or
(f) is a close member of the family of any individual referred to in (a), (b) or (e); or
(g) is an entity that its controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (e) or in (f); or
(h) is a post-employment benefit plan for the benefit of the employees of the entity, or of any entity that is a related party of the entity.
Instructions for specific items
Insurers are to indicate ‘Yes’ or ‘No’ in GRF 301.0 Reinsurance Assets and Risk Charge on whether the reporting entity is a branch insurer. A branch insurer is a Category C insurer as defined in Prudential Standard GPS 001 Definitions (GPS 001).
Amount – Deemed inside Australia and Total Amount.
Both columns of data on the form must be completed by all insurers. Where all business is inside Australia, use the same figures for both columns.
The amounts reported under the ‘Amount – Deemed Inside Australia’ column must be only those amounts deemed inside Australia under section 116A of the Act.
Investment Capital Factor %
This column for each form discloses the appropriate investment capital factor for the asset type in accordance with GPS 114.
Investment Risk Charge
This column for each form will calculate the appropriate investment risk charge in accordance with GPS 114.
Amounts recoverable from reinsurance contracts on both outstanding claims and paid claims
Reinsurance recoverable has the same meaning as in Prudential Standard GPS 001 Definition, where any amounts due to an insurer from a reinsurer that arises from the recognition of outstanding claims provisions referred to in the capital standards, GPS 310 and AASB 1023.
Part Related party disclosure - Financial Sector (Collection of Data) (reporting standard) determination No. 9 of 2010 - GRS 301.0 (2010) - Reinsurance Assets and Risk Charge - Related party disclosure | Zoe
Report assets which derive from reinsurance activities, other than unpaid premiums subject to the specific comments where a legal right of set-off exists.
Include the amount due from reinsurers or retrocessionaires. Reinsurance recoverables on outstanding claims is the reinsured portion of the outstanding claims liability to be recovered from reinsurers on settling the outstanding claims liability. Measurement of the outstanding claims is to be in accordance with the requirements of AASB 1023. Accordingly estimation of reinsurance recoveries relating to the outstanding claims provision is to be estimated on a basis similar with the measurement of the claims liabilities to which it relates.
Reinsurance Documentation Test
The amounts reported under items 1.4 to 1.7 and 1.9 should only include the amounts due from reinsurers under reinsurance contracts that meet the reinsurance documentation test[13], specified in GPS 112 Capital Adequacy: Measurement of Capital (GPS 112).
Report the net amount due from reinsurers under reinsurance contracts that do not meet the reinsurance documentation test in item 1.8 ‘Net amount related to reinsurance contracts that do not meet the reinsurance documentation test’. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Governing Law Requirements
The amounts reported under items 1.4 to 1.7 should only include the amounts due from reinsurers under reinsurance contracts entered into by the insurer incepting on or after 31 December 2008 that meet the ‘governing law requirements’, as specified within paragraph 31 of Prudential Standard GPS 230 Reinsurance Management (GPS 230). GPS 230 specifies that (except for Category E insurers[14]):
The governing law of the reinsurance contract is Australian law; and
Any disputes that fall to be determined by a court are to be heard in an Australian court.
Report the net amount due from reinsurers under reinsurance contracts that do not meet the governing law requirements in item 1.9 ‘Net amount recoverable under reinsurance contracts that do not meet governing law requirements’. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Reinsurance recoverables from non-APRA-authorised reinsurers overdue for more than six months
The amounts reported under items 1.4 to 1.6 should not include the amounts that are receivable from non-APRA-authorised reinsurers and that have been overdue for more than six months. GPS 114 specifies that with effect from 1 January 2009, applicable a risk charge of 100% applies to a reinsurance recoverable due from non-APRA-authorised reinsurers if:
The recoverable has become a receivable (i.e. it is due and payable); and
The receivable is overdue for more than six months since a request for payment has been made to the reinsurer; and
There is no formal dispute between the insurer and reinsurer in relation to that receivable. Where any dispute between the insurer and reinsurer in relation to a receivable arising from a reinsurance recoverable would have been taken into account in the valuation processes provided for under GPS 310.
Report the amount of the recoverable that is overdue for more than six months in item 1.7 ‘Net amount recoverable from non-APRA-authorised reinsurers which are overdue for more than 6 months’.
Reinsurance Assets from non-APRA-authorised reinsurers
As mentioned above, different investment risk charges are applicable to certain reinsurance recoverables[15] due from non-APRA-authorised reinsurers calculated in accordance with GPS 114.
GPS 114 also applies different risk charges to reinsurance assets due from non-APRA-authorised reinsurers on and from the second balance date after the end of the financial year in which the event giving rise to each recoverable occurred.
Disclosure is required as follows:
1.1 Amounts recoverable from reinsurance contracts on both outstanding claims and paid claims
Report the amount due from reinsurers on reinsurance contracts related to outstanding claims and paid claims, including amounts recoverable from non-APRA-authorised reinsurers.
1.2 Provision for doubtful debts
Include the value of any recoveries related to outstanding claims and paid claims where it is determined that collection is considered doubtful (full or partial).
1.3 Net amount recoverable
This is automatically calculated by the form and represents the value of the reinsurance recoveries due from reinsurers on reinsurance contracts related to outstanding claims and paid claims after deducting any associated provision for doubtful debts disclosed.
Disclose the net amount recoverable on reinsurance contracts on outstanding claims and paid claims as follows:
1.3.1 Total net reinsurance recoverables from related parties
Include the amount of reinsurance recoverables related to outstanding claims and paid claims that are recoverable from entities deemed to be related parties of the insurer. For the purposes of this form, related party has the meaning as set out earlier in this instruction guide.
1.3.2 Total net reinsurance recoverable reported in item 1.3, that relates to claims recognised in the calculation of the Outstanding Claims Liability (i.e. other than reinsurance recoveries relating to claims that have been paid).
Of the total value reported in item 1.3 ‘Net amount recoverable’, report the value of reinsurance recoveries that relates to claims that are recognised in the value reported for the outstanding claims liabilities in item 16 ‘Outstanding claims liability’ of GRF 300 Statement of Financial Position. Exclude reinsurance recoveries that relate to claims that have been paid.
1.4 Net amount recoverable on reinsurance contracts from both outstanding claims and paid claims from APRA-authorised reinsurers
Record the net amount recoverable on reinsurance contracts from APRA-authorised reinsurers according to their counterparty rating as follows.
1.4.1 Grade 1 or 2
1.4.2 Grade 3
1.4.3 Grade 4 or unrated
1.4.4 Grade 5
1.5 Net amount recoverable on reinsurance contracts from both outstanding claims and paid claims from non-APRA-authorised reinsurers except for amounts outstanding on and from second annual balance date after the event giving rise to the reinsurance recoverables
Record the net amount recoverable on reinsurance contracts relating to outstanding claims and paid claims from non-APRA-authorised reinsurers except for amounts outstanding on and from the second balance date after the financial year in which the event occurred.
From 1 January 2009, include the net amounts recoverable from non-APRA-authorised reinsurers due on all reinsurance contracts.
Disclose the amounts according to the reinsurer’s counterparty rating:
1.5.1 Grade 1 or 2
1.5.2 Grade 3
1.5.3 Grade 4 or unrated
1.5.4 Grade 5
1.6 Net amount recoverable from reinsurance contracts on outstanding claims and paid claims from non-APRA-authorised reinsurers that are amounts outstanding on and from second annual balance date after the event giving rise to the reinsurance recoverables
From 1 January 2009, record the net amount recoverable on reinsurance contracts incepting on or after 31 December 2008 from non-APRA-authorised reinsurers that are amounts outstanding on and from the second balance date after the end of the financial year in which the event giving rise to the recoverables occurred regardless of whether the reinsurance recoverables are supported by collateral, guarantee or a letter of credit.
Where there is collateral, guarantee or a letter of credit supporting the reinsurance recoverable, the adjustment to the risk charge will be reflected in GRF 130.3 Off Balance Sheet Business – Credit Support Received.
Note: The disclosure relating to amounts which are supported by security arrangements in Australia requests disclosure of the net amounts to the extent that the reinsurance recoverables are supported by collateral, guarantee or a letter of credit.
Disclose the amounts according to the reinsurer’s counterparty rating:
1.6.1 Grade 1
1.6.1.1 of which supported by security arrangements in Australia
1.6.2 Grade 2
1.6.2.1 of which supported by security arrangements in Australia
1.6.3 Grade 3
1.6.3.1 of which supported by security arrangements in Australia
1.6.4 Grade 4 or unrated
1.6.4.1 of which supported by security arrangements in Australia
1.6.5 Grade 5
1.6.5.1 of which supported by security arrangements in Australia
1.7 Net amount recoverable from non-APRA-authorised reinsurers which are overdue for more than 6 months
From 1 January 2009, record the net amount recoverable on reinsurance contracts due from non-APRA-authorised reinsurers, if:
(a) the recoverable has become a receivable (i.e. it is due and payable); and
(b) the receivable is overdue for more than six months since a request for payment has been made to the reinsurer; and
(c) there is no formal dispute between the insurer and reinsurer in relation to that receivable.[16]
1.8 Net amount related to reinsurance contracts that do not meet the reinsurance documentation test
If the insurer has not complied with the threshold levels of reinsurance documentation set out in GPS 112, then all reinsurance recoveries receivable will be deducted from the Tier 1 capital of an insurer.
Compliance with the thresholds is assessed by calculating the percentage of reinsurance recoveries that are derived from reinsurance arrangements meeting the reinsurance documentation test compared with total reinsurance recoveries.
A reinsurance arrangement meets the reinsurance documentation test if the arrangement:
(a) complies with the two month rule and six month rule under GPS 230;
(b) fails to comply with the those rules as at the date of the relevant deadline but:
(i) subsequent to the deadline specified under the two month rule, the reinsurance arrangement is documented in accordance with the other requirements of the two month rule (in which case the reinsurance arrangement is treated as meeting the reinsurance documentation test until the reinsurance arrangements fail the six month rule); or
(ii) subsequent to the deadline specified under the six month rule, the reinsurance arrangement is documented in accordance with the other requirements of the six month rule; or
(c) is otherwise treated by APRA under GPS 230 as complying with the two month rule and six month rule.
Reinsurance recoveries receivable under each reinsurance arrangement that does not meet the reinsurance documentation test will be deducted from the Tier 1 capital of the insurer.
Report the net amount related to reinsurance contracts that do not meet the reinsurance documentation test. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
1.9 Net amount recoverable under reinsurance contracts that do not meet governing law requirements
Report the net amounts due from reinsurers under reinsurance contracts entered into by the insurer incepting on or after 31 December 2008 that do not meet the ‘governing law requirements’[17], specified in GPS 230. GPS 230 specifies that (except for Category E insurers[18]):
The governing law of the reinsurance contract is Australian law; and
Any disputes that fall to be determined by a court are to be heard in an Australian court.
As this amount is deducted from capital it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Deferred reinsurance expense
Deferred reinsurance expense is to be allocated according to the counterparty grades set out below and in the form, which are detailed in GPS 114. The investment risk charge will be calculated based on the capital factor applicable to the rating grades.
Note: The amounts recorded in item 2.2 ‘Amount of deferred reinsurance expense relating to APRA-authorised reinsurers’ and item 2.3 ‘Amount of deferred reinsurance expense relating to non-APRA-authorised reinsurers’ should not include deferred reinsurance expense from reinsurance contracts that do not fully meet the reinsurance documentation test in GPS 112. Instead this should be reported under item 2.4 ‘Deferred reinsurance expense under reinsurance contracts that do not meet the reinsurance documentation test’. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Also do not include deferred reinsurance expense from reinsurance contracts that do not meet the governing law requirements in item 2.2 to 2.3. Instead report the amount under item 2.5 ‘Deferred reinsurance expense under reinsurance contracts that do not meet governing law requirements’. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Reinsurance Assets from non-APRA-authorised reinsurer
As mentioned above, a different investment risk charge is applicable to certain reinsurance assets[19] due from non-APRA-authorised reinsurers. The applicable investment risk charge is calculated in accordance with GPS 114 based on whether the amount is recoverable from APRA-authorised reinsurers or non-APRA-authorised reinsurers.
Reinsurance assets due from non-APRA-authorised reinsurers arising from reinsurance contracts incepting on dates up to and including to 31 December 2008 are treated as if they were reinsurance assets from APRA-authorised reinsurers for the purposes of calculating the investment risk capital charges until 1 January 2009.
2.1 Deferred reinsurance expense
Report total deferred reinsurance expense as per GRF 300.0 Statement of Financial Position.
2.2 Amount of deferred reinsurance expense relating to APRA-authorised reinsurers
Report the amount of deferred reinsurance expense relating to APRA-authorised reinsurers according to their counterparty ratings as follows:
2.2.1 Grade 1 or 2
2.2.2 Grade 3
2.2.3 Grade 4 or unrated
2.2.4 Grade 5
2.3 Amount of deferred reinsurance expense relating to non-APRA-authorised reinsurers
Report the amount of deferred reinsurance expense relating to non-APRA-authorised reinsurers according to their counterparty ratings as follows:
2.3.1 Grade 1 or 2
2.3.2 Grade 3
2.3.3 Grade 4 or unrated
2.3.4 Grade 5
2.4 Deferred reinsurance expense under reinsurance contracts that do not meet the reinsurance documentation test
The treatment of deferred reinsurance expense under reinsurance contracts that do not meet the reinsurance documentation will be similar to the treatment in item 1.8 ‘Net amount related to reinsurance contracts that do not meet the reinsurance documentation test’.
Report the net amounts related to reinsurance contracts that do not meet the reinsurance documentation test. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
2.5 Deferred reinsurance expense under reinsurance contracts that do not meet governing law requirements
The treatment of deferred reinsurance expense under reinsurance contracts that do not meet the governing law requirements under GPS 230 will be similar to the treatment of item 1.9 ‘Net amount recoverable under reinsurance contracts that do not meet governing law requirements’.
Report the net amounts of deferred reinsurance expense under reinsurance contracts that do not meet the governing law requirements. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Other reinsurance assets
As mentioned above, a different investment risk charge is applicable to certain reinsurance assets[20] due from non-APRA-authorised reinsurers. The applicable investment risk charge is calculated in accordance with GPS 114 based on whether the amount is recoverable from APRA-authorised reinsurers or non-APRA-authorised reinsurers.
3.1. Amount of other reinsurance assets
Report any other asset, which relates to reinsurance, including deposits retained by reinsurers. This should include amounts that do not meet the reinsurance documentation test and amounts that do not meet the governing law requirements.
3.2. Provision for doubtful debts
Include the value of any reinsurance assets where it is determined that collection is considered doubtful (full or partial).
3.3. Net amounts of other reinsurance assets
This is automatically calculated by the form and represents the value of the other reinsurance assets after deducting any associated provision for doubtful debts disclosed. The net balance is used in the calculation of the applicable investment risk charge.
3.4. Net amount of other reinsurance assets receivable from APRA-authorised reinsurers
Report the net amount of other reinsurance assets receivable from APRA-authorised reinsurers according to their counterparty ratings as follows:
3.4.1. Grade 1 or 2
3.4.2. Grade 3
3.4.3. Grade 4 or unrated
3.4.4. Grade 5
3.5. Net amount of other reinsurance assets receivable from non-APRA-authorised reinsurers
Report the net amount of other reinsurance assets receivable from non-APRA-authorised reinsurers according to their counterparty ratings as follows:
3.5.1. Grade 1 or 2
3.5.2. Grade 3
3.5.3. Grade 4 or unrated
3.5.4. Grade 5
3.6. Net amounts related to reinsurance contracts that do not meet the reinsurance documentation test
The treatment of other reinsurance assets which relate to reinsurance contracts that do not meet the reinsurance documentation will be similar to the treatment in item 1.8 ‘Net amount related to reinsurance contracts that do not meet the reinsurance documentation test’.
Report the net amounts related to reinsurance contracts that do not meet the reinsurance documentation test. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
3.7. Net amounts of other reinsurance assets under reinsurance contracts that do not meet governing law requirements
The treatment of other reinsurance assets which relate to reinsurance contracts that do not meet the governing law requirements under GPS 230 will be similar to the treatment in item 1.9 ‘Net amount recoverable under reinsurance contracts that do not meet governing law requirements’.
Report the net amounts of recoveries under reinsurance contracts that do not meet governing law requirements. As this amount is deducted from capital, it is not risk charged in GRF 301.0 Reinsurance Assets and Risk Charge.
Net reinsurance assets
This is automatically calculated by the form and represents the sum of the reinsurance assets net of associated provision for doubtful debts reported in item 1.3 ‘Net amount recoverable’, item 2.1 ‘Deferred reinsurance expense’ and item 3.3 ‘Net amounts of other reinsurance assets'.
The total risk charge for the form is automatically calculated by the form and represents the sum of all investment risk charges in the form.