Claims Development TableClaims Development Table

Reporting Form GRF 440.0

Claims Development Table

Instruction Guide

Introduction

The purpose of this form is to capture information on the claims development profile of individual insurance companies.

This instruction guide provides general directions for completion of GRF 440.0 Claims Development Table.

Insurers writing direct insurance business must complete this form based on accident years.

Insurers writing reinsurance business must complete this form based on underwriting years.

Audit requirements

The information provided under the form is not required to be audited and has been exempted from the definition of ‘yearly statutory accounts’.

Reporting entities

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

1. Branch operations of a foreign parent insurer (reference to licensed insurer in the form means total operations of the branch, excluding the parent operations);
2. Authorised insurance entities, including mutual entities (reference to licensed insurer in the form means total operations of the licensed entity); and
3. Authorised reinsurance entities (reference to licensed insurer in the form means total operations of the licensed entity).

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 an annual basis.

• 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 440.0 Claims Development Tables.

Specific instructions

General insurers that write direct insurance business must complete this form on an accident year basis while general insurers that write reinsurance business must complete this form on an underwriting year basis. These terms are explained below.

Accident Year

This refers to the financial year that the losses/claims associated with individual policies are incurred. The form is to be completed for each of the following years:

• current accident year;
• accident year, 1 year previous;
• accident year, 2 years previous;
• accident year, 3 years previous;
• accident year, 4 years previous;
• accident year, 5 years previous;
• accident year, 6 years previous;
• accident year, 7 years previous;
• accident year, 8 years previous;
• accident year, 9 years previous;
• accident year, 10 years previous; and
• accident year, more than 10 years previous.

Underwriting Year

Underwriting year refers to the financial year of the insurer in which the policy incepts, regardless of when the premiums and claims are actually reported, booked or paid. For example, the 2005 underwriting year for an insurer with a 30 June balance date includes premiums and claims (both paid and outstanding) relating to policies incepting in the period 1 July 2005 to 30 June 2006. For an insurer with a 31 December balance date, the 2005 underwriting year includes premiums and claims (both paid and outstanding) relating to policies incepting in the period 1 January 2005 to 31 December 2005.

• current underwriting year;
• underwriting year, 1 year previous;
• underwriting year, 2 years previous;
• underwriting year, 3 years previous;
• underwriting year, 4 years previous;
• underwriting year, 5 years previous;
• underwriting year, 6 years previous;
• underwriting year, 7 years previous;
• underwriting year, 8 years previous;
• underwriting year, 9 years previous;
• underwriting year, 10 years previous; and
• underwriting year, more than 10 years previous.

Each of the years in this form are complete years reported on a financial year to date basis as at the last business day of the financial year of the insurer. No adjustments are required to be made to prior year reported information.

Where possible insurers are requested to complete the entire series of years.

Classes of Insurance Business

1. 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.

The following fields are to be completed on a cumulative basis:

• Gross Claims Paid
• Reinsurance and Other Recoveries Received

The following fields are NOT to be completed on a cumulative basis:

• Premium Earned
• Number of Claims
• Reinsurance Recoveries Receivable
• Other Recoveries Receivable
• Case Estimates

(1) Premium Earned

Premium earned is to be reported gross of reinsurance expense. Premium earned is to be reported in this form in accordance with AASB 1023 ‘General Insurance Contracts’ (i.e. recognised on an earned and unearned basis).

The amount reported for ‘Current Accident/Underwriting Year’ will then be the same reported for the ‘Accident/Underwriting Year – 1 Year Previous’ in the following financial year. For example:

Premium revenue is to take into account the following:

• Do not include amounts collected on behalf of third parties i.e. government stamp duty and taxes;
• Levies charged to customers are to be included such as fire service levies;
• Deduct returned premiums and rebates;
• Premiums are to be brought to account from the attachment date;
• For installment premium policies, the amount of the annualised premium is to be reported; and
• Premium revenue must be gross of reinsurance expense.

(2) Number of Claims

Report the total number of claims open for each class of business (i.e. not just new claims) as at the end of the reporting period for each accident/underwriting year.

Do not include in this figure the number of claims recorded in relation to Incurred but not reported (IBNR) claims and do not include any claims that have been paid and closed.

The outstanding value of the number of open claims in this column should be recorded as the case estimate in (7).

Note: this number should be reported in whole numbers of claims, not in thousands.

This column is not applicable for business written under proportional treaties as this information is generally not known.

(3) Gross Claims Paid

Report the amount of gross claims paid attributable to each accident/underwriting year on a cumulative basis, for classes of direct written business and reinsurance business. Do not adjust for reinsurance recoveries received.

(4) Reinsurance and Other Recoveries Received

Report the amount of reinsurance and other recoveries received on claims paid attributable to each accident/underwriting year on a cumulative basis, for classes of direct written business and reinsurance business. Do not include reinsurance and other recoveries recognised on an accrual basis.

(5) Reinsurance Recoveries Receivable

Report the amount of reinsurance recoveries that are expected to be received in relation to claims recognised in the calculation of the outstanding claims provision and claims paid.

The amount is the balance outstanding at the end of the year. Report the undiscounted amount in accordance with AASB 1023 ‘General Insurance Contracts’.

(6) Other recoveries receivable

Report the amount of recoveries receivable other than recoveries from reinsurers (e.g. subrogation, salvage) as at the end of the development year for the specified accident/underwriting year. These are expected to be received in relation to claims recognised in the calculation of the outstanding claims provision and claims paid.

The amount is the balance outstanding at the end of the year and must be undiscounted.

(7) Case Estimate

The Case Estimate is to be disclosed by type of business (direct business and inwards reinsurance business). This relates to the Outstanding Claims Liability as at the end of the development year for the specified accident/underwriting year.

For the purposes of this form, the outstanding claims liability must be:

• The amount is the balance outstanding at the end of the year.
• Undiscounted;
• Gross of reinsurance recoveries;
• Based on ‘Case Estimate’ only, do not include a risk margin; and
• Do not include estimates of IBNR claims (Incurred but not reported).