July 2010
Reporting Form GRF 140.4
Investments – Indirectly Held by Insurer
and Risk Charge
Instruction Guide
Introduction
This instruction guide is designed to assist in the completion of GRF 140.4
Investments – Indirectly Held by Insurer and Risk Charge.
Information on this form will be used by APRA to obtain an investment profile of the
reporting insurer and to calculate in part the investment risk charge. Specific
information in these forms will also be used by the Australian Bureau of Statistics
(ABS) for statistical purposes.
For the purposes of completing the respective investment forms, only include
investments that are included in the aggregate balance disclosed for the asset item 3
titled „Investments (related to GRF 140 series of forms)‟ on GRF 300.0 Statement of
Financial Position. Do not include in these forms asset items reported in any of the
other asset categories in GRF 300.0 Statement of Financial Position (e.g. „Other
investments‟). Otherwise the asset items will be subject to two investment risk
charges, one in GRF 300.0 Statement of Financial Position and another in the
respective investment forms.
Investment Risk Charge
The investment risk charge applicable for an insurer‟s (and reinsurer‟s) on-balance
sheet investment/asset exposures is calculated in accordance with Prudential Standard
GPS 114 Capital Adequacy: Investment Risk Capital Charge (GPS 114). The form
categorises assets into investment capital factor groupings to calculate the applicable
investment risk capital charge for each asset category. The aggregate investment risk
charge calculated is included in the calculation of the insurer‟s minimum capital
requirement.
Values in column titled „Investment Risk Charge‟ are calculated based on the fair
value of assets disclosed.
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 Standards Board Guidance Statement issued by the Auditing and
Assurance Standards Board.
GRF 140.4 Instructions - 1
July 2010
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)); and
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
This form is to be completed by:
1.
Branch insurers 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).
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
GRF 140.4 Investments – Indirectly Held by Insurer and Risk Charge is to be
prepared in thousands of Australian dollars (AUD). Amounts denominated in foreign
currency are to be converted to AUD in accordance with AASB 121 ‘The Effects
of Changes in Foreign Exchange Rates’ (AASB 121).
GRF 140.4 Instructions - 2
July 2010
The general requirements of AASB 121 for translation are:
1.
Foreign currency monetary items1 outstanding at the reporting date must be
translated at the spot rate2 at the reporting date.
2.
Foreign currency non-monetary items3 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’ (AASB 139). However, those foreign currency
derivatives that are not within the scope of AASB 139 (e.g. some foreign
currency derivatives that are embedded in other contracts) remain within the
scope of AASB 121.
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 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.
1
2
3
Monetary items are defined to mean units of currency held and assets and liabilities to be
received or paid in a fixed or determinable number of units of currency.
Spot rate means the exchange rate for immediate delivery.
Examples of non-monetary items include amounts prepaid for goods and services (e.g. prepaid
rent); goodwill; intangible assets; physical assets; and provisions that are to be settled by the
delivery of a non-monetary asset.
GRF 140.4 Instructions - 3
July 2010
Translation of financial reports should otherwise follow the requirements
in AASB 121.
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 140.4
Investments –Indirectly Held by Insurer and Risk Charge.
Basis of preparation
In completing this form unless otherwise specifically stated below, it is recommended
that general insurers follow the Australian accounting standards where possible,
regarding the interpretation, recognition and measurement of investments notably
AASB 1023 ‘General Insurance Contracts’. (AASB 1023)
The aggregate value of investments disclosed in the forms listed below must agree to
the amount reported in item 3 of GRF 300.0 Statement of Financial Position.
GRF 140.0 Investments – Direct Interest Rate Holdings and Risk Charge
GRF 140.1 Investments – Direct Equity Holdings and Risk Charge
GRF 140.2 Investments – Direct Property Holdings and Risk Charge
GRF 140.3 Investments – Loans and Advances and Risk Charge
GRF 140.4 Investments – Indirectly Held by the Insurer and Risk Charge
APRA applies the notion of assets backing general insurance liabilities for its
regulatory reporting which is consistent with the classification basis in AASB 1023.
The value of the investments reported in this form (and all the above forms) should be
equal to the value of investments deemed to be assets backing insurance liabilities for
statutory reporting purposes.
Investments reported in this form (and other forms listed above) that back the entity's
general insurance liabilities must be measured at fair value. These investments must
not be valued at cost. Fair value has the same meaning as defined in AASB 139, 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 inputs6.
6
See AASB 139 „Financial Instruments: Recognition and Measurement‟.
GRF 140.4 Instructions - 4
July 2010
Derivative instruments that are used to hedge investments that are included in the
above forms are not to be reported in these forms, they are to be reported in GRF
160.0 Derivatives Activity and Risk Charge except for derivatives used to hedge
exposures in listed equities. Derivatives over listed equities are to be reported in GRF
140.1 Investments – Direct Equity holdings and Risk Charges.
For investments reported in this form, changes in the values at which such
investments are measured must be recognised as revenues (or losses) in GRF 310.0
Statement of Financial Performance and GRF 310.3 Investment and Operating
Income and Expense in the reporting period in which the changes occur.
Accounting Standard AASB 116 ‘Property, Plant and Equipment’ does not apply to
such investments.
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.
Holding in indirect investment vehicles
Where the insurer‟s investments are represented by holdings of units in unlisted or
listed managed investment vehicles/entities, the following reporting is required:
Units are to be reported in this form. This form requires amongst other things,
disclosure of the value of the unit holding according to the nature of the
underlying market exposure (i.e. interest rate related, equity related, property
related). If the units are held in a diversified or balanced trust, the investment
holding is to be disclosed in accordance with the fund‟s advised asset allocation.
Holding must be disclosed as unlisted or listed units.
Exception
If the units are held in a related/controlled entity of the insurer (i.e. a dedicated
investment management entity for the Insurer), the Insurer may apply to APRA to
have such entities approved as part of its Extended Licensed Entity (ELE). This is set
out in GPS 114. Once approved by APRA this will allow the insurer to look through
the legal structures involved and consolidate the balance sheet of the related entity
with its own for the purposes of determining the Investment Risk Capital Charge. If
the insurer has an approved ELE, the underlying individual securities/investments
supporting the units held by the licensed insurer are to be disclosed in the investment
returns.
GRF 140.4 Instructions - 5
July 2010
Look-through Basis
For assets of an insurer or its ELE held under a trust (other than a cash management
trust), the insurer may apply the investment capital factors applicable to the
underlying assets (including derivatives) of the trust, if the insurer has information on
the underlying assets.
Where the insurer has elected to apply the look-through basis to calculate the
investment capital factors and the underlying assets of the trust includes listed
equities; then the investment capital factors associated with the insurer‟s share of the
listed equities are to be calculated in GRF 140.1 Investments – Direct Equity Holdings
and Risk Charge.
APRA may require an insurer to apply different investment capital factors to different
components of a hybrid instrument (with both equity and debt features such as
embedded derivatives).
Securities Purchased (Sold) under agreements to resell (repurchase)
and stock lending/borrowing
Treatment is to be consistent with AASB 139.
Where the transferee of the security effectively receives a lender‟s rate of return, or a
return that does not correlate with ownership of the securities (i.e. the risks and
rewards of ownership of the underlying securities is not effectively transferred), these
transactions are to be accounted for as collateralised borrowing or lending activities.
Under this method of accounting for transactions that satisfy the above, do not adjust
(i.e. increase or decrease) the physical investment security holdings/portfolios
(interest rate and equity investments) for the securities that are subject to these
agreements. For the required prudential treatment for securities meeting the above
conditions, refer to treatment as noted in the instructions for GRF 300.0 Statement of
Financial Position.
Securities Transacted not Settled (i.e. trade date accounting)
For the purposes of the APRA forms include market related securities that are
recorded on a trade date basis and transacted in accordance with accepted financial
market settlements periods. Such securities are to be included in the respective
investments forms. These do not constitute forward asset purchases for the purposes
of GRF 130.0 Off Balance Sheet Business – Credit Substitutes Provided and Risk
Charge.
Securities Listed on a Recognised Exchange
It will generally be appropriate to treat an exchange organisation as „recognised‟
where it meets the following criteria:
it is subject to authorisation, licensing or other means of recognition by a
government or other competent authority;
GRF 140.4 Instructions - 6
July 2010
it has rules, issued or approved, by the government or other competent authority
defining the conditions:
for the operation of the exchange;
for access to the exchange; and
that must be satisfied by a contract before it can be dealt on the
exchange;
it has a mechanism that provides clearing services for contracts dealt through
the exchange;
it functions regularly;
the exchange has a prudent and frequent margining system where relevant;
the exchange requires settlement on a particular day as applicable;
members of the exchange are themselves subject to supervision by the exchange
or a competent authority; and
the operations of the exchange in turn are supervised by government or other
competent authority.
Subordinated Debt
Subordinated debt has the same meaning as in GPS 114. Subordinated debt is any
debt instrument issued by a company (whether Australian or foreign) that constitutes
debt subordination within the meaning of subsection 563C(2) of the Corporations Act
2001 but with the references in the subjection to “Company” to be read as including
foreign corporations. This definition does not apply to debt instruments issued by an
SPV set up for the purpose of securitising an asset or a pool of assets. Any debt
instruments issued by such an SPV are to be treated as ordinary debt instruments with
the investment risk capital charge applied according to the issue-specific counterparty
rating.
For the purposes of calculating the investment risk charge, under GPS 114
subordinated debt instruments are treated differently to other equities instruments.
Related parties
Where this term is used or referenced in these forms, related parties is to be
interpreted consistently with its definition and meaning as contained 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);
GRF 140.4 Instructions - 7
July 2010
(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.
GRF 140.4 Instructions - 8
July 2010
Specific instructions
The following provides guidelines to facilitate the specific disclosure of information
requested by this form for the reporting insurer.
Part 1.
Total holdings
This is the aggregate value of the closing value of holdings listed in this part.
In Part 1, list all investments of the reporting insurer in investment vehicles, which
will include holdings in the following:
individually managed mandates;
units in wholesale trusts;
units in retail/public offer unit trusts;
managed investment schemes; and
cash management trusts.
Include holdings in listed and unlisted trusts and related entities of the reporting
insurer.
Exception:
If the units are held in a related/controlled entity of the insurer (i.e. a dedicated
investment management entity for the insurer), the insurer may apply to APRA to
have such entities approved as part of its Extended Licensed Entity (ELE). This is set
out in GPS 114. Once approved by APRA this will allow the insurer to look through
the legal structures involved and consolidate the balance sheet of the related entity
with its own for the purposes of determining the investment risk capital charge. If the
insurer has an approved ELE, the underlying individual securities/investments
supporting the units held by the licensed insurer are to be disclosed in the investment
returns.
Name and ABN
Use the full name of the investment vehicle as identified in the investment deed. Also
disclose the Australian Business Number (ABN). Where there is no identifier
associated with the investment vehicle leave this field blank.
Related Party
Disclose “yes” or “no” if the investment vehicle is a related party of the reporting
insurer. For this purpose related party has the meaning as set out above.
GRF 140.4 Instructions - 9
July 2010
Closing Value
Report the value of the holdings as at the end of the reporting date for each investment
vehicle.
Part 2. Aggregate holdings in indirect investment vehicles classified
into the following:
Where the reporting insurer has disclosed investments in Part 1 in the form, the
aggregate holdings must be disclosed as required by this part.
Total Funds
Disclose the aggregate balance for each investment listed in Part 1.
Investment Capital Factor %
This column discloses the appropriate investment capital factor for the asset type in
accordance with GPS 114.
Investment Risk Charge
This column will calculate the appropriate investment risk charge in accordance with
GPS 114.
Row headings of Part 2:
1.
Listed trusts (excluding CMT) – without ‘look-through’
Disclose the aggregate value of the holdings that constitute investments in listed
trusts.
Note: Do not include holdings of cash management trusts. These are to be disclosed
on this form under item 3 to 6 (see below).
Also do not include holdings in a trust where the insurer has chosen to apply the
„look-through basis‟. For the purposes of calculating the investment risk capital
charge, an insurer may look-through the trust to its underlying asset where it has
sufficient information to identify the underlying assets of the trust. The insurer‟s share
of the underlying assets of the trust is to be reported under item 7 of this form per type
of asset.
2.
Unlisted trusts (excluding CMT) – ‘without look-through’
Disclose the aggregate value of the holdings that constitute investments in unlisted
trusts.
Note: Do not include holdings of cash management trusts. These are to be disclosed
on the form under item 3 to 6 (see below).
Also do not include holdings in a trust where the insurer has chosen to apply the
„look-through‟ basis. For the purposes of calculating the investment risk capital
GRF 140.4 Instructions - 10
July 2010
charge, an insurer may „look-through‟ the trust to its underlying asset where it has
sufficient information to identify the underlying assets of the trust. The insurer‟s share
of the underlying assets of the trust is to be reported under item 7 of this form per type
of asset.
3.
Cash Management Trusts with a counterparty rating of Grade 1 or 2
List the aggregate value of holdings in investment vehicles, which constitute cash
management trusts that have a rating of grade 1 or 2. Refer to GPS 114 for detail on
counterparty rating grades.
4.
Cash Management Trusts with a counterparty rating of Grade 3
List the aggregate value of holdings in investment vehicles, which constitute cash
management trusts that have a rating of grade 3. Refer to GPS 114 for detail on
counterparty rating grades.
5.
Cash Management Trusts with a counterparty rating of Grade 4 or
unrated
List the aggregate value of holdings in investment vehicles, which constitute cash
management trusts that have a rating of grade 4 or are unrated. Refer to GPS 114 for
detail on counterparty rating grades.
6.
Cash Management Trusts with a counterparty rating of Grade 5
List the aggregate value of holdings in investment vehicles, which constitute cash
management trusts that have a rating of grade 5. Refer to GPS 114 for detail on
counterparty rating grades.
GRF 140.4 Instructions - 11
July 2010
7.
Unit trusts on a ‘look-through basis’
If the insurer has sufficient information on the underlying assets of the trust, the
insurer may apply the relevant investment capital factors to the underlying assets of
that trust rather than apply the investment capital factors on the aggregate value of the
trust.
Record the fair value of the insurer‟s share in the underlying assets depending on the
type of the asset in accordance with GPS 114.
Column
Asset
Investment
Capital
Factor
7.1
Assets with an investment risk charge of 0.5%:
Cash (notes and coins)
Debt obligations of:
the Commonwealth Government;
an Australian State or Territory government; or
the national government of a foreign country where:
the security has a Grade 1 counterparty rating; or, if not rated,
the long-term, foreign currency counterparty rating of that
country is Grade 1
Assets in respect of anticipated recoveries from the Commonwealth
Government or from an Australian State or Territory government
GST receivables (input tax credits)
0.5%
7.2
Assets with an investment risk charge of 1%:
Any debt obligation that matures or is redeemable in less than one year
with a counterparty rating of Grade 1 or 2 (excluding subordinated debt
and debt obligations of government dealt with specifically in this Table)
Cash management trusts with a counterparty rating of Grade 1 or 2
1%
7.3
Assets with an investment risk charge of 2%:
Any other debt obligation (that matures or is redeemable in one year or
more) with a counterparty rating of Grade 1 or 2 (excluding subordinated
debt and debt obligations of government dealt with specifically in this
Table)
2%
7.4
Assets with an investment risk charge of 4%:
Any other debt obligation with a counterparty rating of Grade 3
(excluding subordinated debt)
Cash management trusts with a counterparty rating of Grade 3
4%
7.5
Assets with an investment risk charge of 6%:
Any other debt obligation with a counterparty rating of Grade 4
(excluding subordinated debt)
Cash management trusts with a counterparty rating of Grade 4
6%
7.6
Assets with an investment risk charge of 8%:
Any other debt obligation with a counterparty rating of Grade 5
(excluding unlisted subordinated debt)
Cash management trusts with a counterparty rating of Grade 5
Listed subordinated debt
8%
7.7
Assets with an investment risk charge of 10%:
Unlisted subordinated debt
10%
GRF 140.4 Instructions - 12
July 2010
Column
7.8
Asset
Investment
Capital
Factor
Listed Equity:
Listed equity instruments
Report all equity securities at fair value.
Include:
Equity in listed companies, domestic and overseas; and
Securities (stock) lent or sold under repurchase agreements, where the
transaction does not effectively result in the transfer of the rights of
ownership of the securities.
Exclude:
Options and warrants, include these as Financial Derivatives on GRF
160.0 Derivatives Activity and Risk Charge; and
Securities borrowed or purchased under resale agreements, where the
transaction does not effectively result in the transfer of the rights of
ownership of the securities.
7.9
N/A – see
GRF 140.1
Investments
– Direct
Equity
Holdings
and Risk
Charge
20%
Unlisted Equity:
Unlisted equity instruments
Report all equity securities at fair value.
Include:
Equity in unlisted companies, domestic and overseas; and
Securities (stock) lent or sold under repurchase agreements, where the
transaction does not effectively result in the transfer of the rights of
ownership of the securities.
Exclude:
Options and warrants, include these as Financial Derivatives on GRF
160.0 Derivatives Activity and Risk Charge; and
Securities borrowed or purchased under resale agreements, where the
transaction does not effectively result in the transfer of the rights of
ownership of the securities.
7.10
Listed Property Trust:
Listed Property trusts
16%
7.11
Unlisted Property Trust:
Direct holdings of real estate
Unlisted Property trusts
20%
7.12
Other - Listed
Other assets not assigned an investment capital factor elsewhere in this table
(other than hybrid instruments with both equity and debt features – refer to
Attachment A of GPS 114)
16%
7.13
Other - Unlisted
Other assets not assigned an investment capital factor elsewhere in this table
(other than hybrid instruments with both equity and debt features – refer to
Attachment A of GPS 114)
20%
Unrated assets or exposures must be classified as Grade 4.
GRF 140.4 Instructions - 13
July 2010
8.
Total holdings in indirect investment vehicles
This item is automatically calculated by the form and represents the sum of item 1 to
7.13.
9.
Total holdings in indirect investment vehicles representing
policyholders’ funds
Disclose the aggregate balance of investments disclosed in Part 1 that are designated
as representing policyholders‟ funds, where the insurer has established the investment
management mandates along these terms to reflect the different cashflow/risk and
return requirements of shareholders‟ funds from policyholders‟ funds/technical
reserves.
Policyholders‟ funds are also referred to as technical reserves/funds. Use of the term
does not imply ownership of these funds by policyholders, like under life insurance.
10. Total holdings in indirect investment vehicles representing
shareholders’ funds
Disclose the aggregate balance of investments disclosed in Part 1 that are designated
as representing shareholders‟ funds, where the insurer has established the investment
management mandates along these terms to reflect the different cashflow/risk and
return requirements of shareholders‟ funds from policyholders‟ funds/technical
reserves.
11. Aggregate holdings representing exposure to the following asset
classes:
This disclosure is separate from disclosure requirements contained in items 1 – 7 of
Part 2. The aggregate value of the holdings disclosed in Part 1 must also be disclosed
in accordance to the nature of the market exposure of the underlying assets (i.e. fixed
interest related, equity related, property related). If the units are held in a diversified
or balanced trust, the investment holding is to be disclosed in accordance with the
fund‟s advised asset allocation. The values reported need to be separated according to
whether the holdings represent policyholder funds or shareholder funds.
12. Total Investment Risk Charge
This item is automatically calculated by the form.
GRF 140.4 Instructions - 14