Statutory reporting Flashcards
What is statutory reporting
Involve producing legally required information. a company is legally obliged to produce financial and/or non-financial (reinsurance arrangements, employee numbers, risk minimisation policy) information relating to the company’s business - the format, content and time frame for which is governed by legislation
APRA uses of statutory report information
- Solvency (level of assets in excess of liabilities, quality/liquidity of assets)
- Reinsurance arrangement
- Adequacy of the claims provision
- Capital adequacy
Objectives of APRA using reinsurance arrangement information
- Only retains risk which its capital will support
- Spreads reinsurance contracts appropriately
- Ensures the security of reinsruance recoveries
ASIC uses of statutory report information
- Information for making and evaluating decisions about t he allocation of scarce resources is provided
- The accounts are audited
- The company is operating as a going concernq
Sources of information for statutory reporting
General ledger
Actuaries - preparation of the outstanding claims reserve calculation
Other department - related parties, number of employees etc.
Three forms of legislation governing the GI industry
Corporations Act 2001
Insurance Act 1973
APRA prudential standards
What does corporation Law applied to
All entities incorporated in the Commonwealth of Australia.
Does not include GI that are Australian branches of overseas entities or Lloyd’s of London underwriters
Corporations Act 2001: Section 286 Financial records
Records that support financial statement to be retained for 7 years
Corporations Act 2001: Section 295 Annual financial report
Financial report based on accounting standards
Corporations Act 2001: Section 298 Annual directors’ report
Direct disclosure and auditors’ declaration
Corporations Act 2001: Section 301/07/08 Audit report
Audit opinion and independence declaration to be prepared
Corporations Act 2001: Section 314 Report to members
Full or concise report to be sent to shareholders
Corporations Act 2001: Section 319 Report to ASIC
Report for a financial year lodged with ASIC
Corporations Act 2001: Section 317 AGM
Financial report, directors’ report and the auditor’s report laid for last FY before AGM
What does Insurance Act 1973 apply to
Any organization that carried on GI business
What does Insurance Act updated in 2001 respond to
Changes in market and policyholder expectations
Key points for Corporations Act 2001
- Annual financial report - FS, note to FS, directors
declaration - In most cases, financial report must be audited
- Financial report is to be submitted to shareholders and ASIC
- Disclosing entities must also submit a half-year financial report
What reporting requirement does GI companies follow?
AASB 1023
Accounting requirement for insurers for whom AASB 1023 does not apply
AAS 26
Main areas of disclosure
B/S, Income Statement, Outstanding Claims Liability
Disclosure for B/S
- Outstanding claims liability (Central estimate, risk margin)
- Reinsurance and other recoveries receivable
- Gross unearned premium liability
- Unexpired risk liability
- Outward reinsurance expense asset or liability
- Direct premium revenue receivable
- Inwards reinsurance premium revenue receivable
- Investments by class of investment (at fair value, where appropriate)
- Intangible assets relating to acquired insurance contracts
- Deferred acquisition cost asset
- Percentage risk margin adopted in determining the outstanding claims liability
- The probability of adequacy intended to be achieved through adoption of the risk margin
Disclosure for profit and loss statement
- Direct premium revenue
- Inwards reinsurance premium revenue
- Reinsurance and other recoveries income
- Direct claims expense
- Reinsurance claims expense
- Outwards reinsurance premiums expense
- Acquisition costs expense
- Other underwriting expenses, including claims handling expenses
- Other underwriting expenses, including claims handling expenses
- Underwriting result i.e. net premium less net claims and expenses such as acquisition costs, for the year
Disclosure for the liability for outstanding claims
- Central estimate of the expected PV of future payment for claims incurred and component related to the risk margin
- Percentage risk margin adopted
- Probability of adequacy
- Process used to determine the risk margin including risk diversification
- Actual claims vs. previous estimates from claims development
What statutory returns are GI required to submit
APRA returns, Fire Barigade, Workers Compensation, Stamp Duty, Insurance Protection Tax (NSW only), Tax
Primary aim of APRA return
Monitor capital adequacy and solvency
Provide statistics and information to both the industry and the public
Reporting to the Treasurer and Parliment
APRA versus ASIC: Size
B/S of AASB1023 is 1 page in length with support by way of notes
Form GRF 300.0 -Statement of Financial Position is 8 pages in length
APRA versus ASIC: Different Accounting Treatment
e.g. DAC are expensed fully when paid/payable as a component of underwriting expenses per the APRA accounting requirement. Similarly, Deferred Reinsruance expense is not recognized by APRA
APRA versus ASIC: Disallowed assets
APRA has specifically excluded some balances from inclusion in reporting the insurers financial position e.g. goodwill, intangible assets, Future Income Tax Benefit (net of provision for deferred tax) and assets under a fixed or floating charge
