APRA published a discussion paper that outlines plans to align the capital and reporting frameworks for life, general, and private health insurance with AASB 17 on insurance contracts, where appropriate. AASB 17 implements the equivalent IFRS 17 in Australia. APRA is also updating the Life and General Insurance Capital (LAGIC) framework, given it has not been substantively reviewed since it was implemented in 2013. The consultation on the discussion paper will close on March 31, 2021. APRA intends to publish a Response to Submissions paper and draft standards in the fourth quarter of 2021, with the final standards to be released in 2022. The final APRA capital and reporting standards will then become effective from July 01, 2023.
AASB 17 establishes principles for the recognition, measurement, presentation, and disclosure of insurance contracts. The introduction of AASB 17 will both modify a number of accounting concepts that underpin the prudential framework of APRA and introduce some new concepts. The aim is to consult on and finalize changes to the capital and reporting frameworks of APRA in advance of the 2023 AASB 17 commencement date, to ensure that the regulatory burden is minimized. The proposals in this discussion paper are intended to maintain the resilience of the capital and reporting frameworks and the financial stability of the industry going forward. These proposals are timely, as stakeholder feedback from insurers has consistently indicated a strong desire for early direction from APRA on how the capital and reporting frameworks are likely to change as a result of AASB 17. The key proposals include the following
- For reporting, APRA proposes to align the reporting framework with AASB 17. Insurers will be able to use the AASB 17 accounting policies and principles to report financial performance and insurance asset and liability items to APRA. However, for life insurance, there are a number of areas where APRA proposes to prescribe reporting directions, given the requirements set out in the Life Insurance Act 1995 (Life Act).
- APRA proposes to enhance the granularity of product reporting and liability reporting groups. These enhancements are intended to address concerns that existing APRA product reporting does not provide detailed insights on the profitability of products and their long term financial sustainability. Further granularity in product reporting would assist APRA, insurers, and other stakeholder to better monitor sustainability and performance of certain products over time.
- APRA proposes to introduce new product groups across general insurance and life insurance and outline reporting directions across insurance sector to help insurers to better prepare for AASB 17 implementation for reporting.
- For the general and life insurance capital framework, APRA proposes to retain the majority of the existing requirements for the regulatory capital calculation. The majority of the capital proposals outlined in this paper relate to clarifications of the regulatory capital calculation, given the introduction of AASB 17.
- With respect to regulatory adjustments, APRA proposes no change in the overall approach to the application of the liability regulatory adjustment; however, additional regulatory adjustments are proposed to minimize impact from AASB 17 changes.
The implementation of AASB 17 is expected to result in amendments to multiple prudential standards. Therefore, APRA is taking this opportunity to address the areas identified for update across the LAGIC framework, to ensure that the framework remains fit-for-purpose. The majority of proposed revisions do not seek to fundamentally change the operation of the prudential framework, nor do they seek to generally increase or reduce capital levels. APRA is also reviewing the capital framework for private health insurers. To avoid duplicative effort and cost for insurers, APRA intends to align the commencement of the private health insurer capital framework with the implementation of AASB 17 for prudential purposes from July 01, 2023. APRA proposes that all insurers, regardless of their financial year-end, commence reporting to APRA (for quarterly, interim, and annual reports) and determining regulatory capital requirements on an AASB 17 basis from July 01, 2023.
Additionally, APRA has decided to conduct a targeted Quantitative Impact Study (QIS) in 2020 alongside this discussion paper. Insurers selected to participate in the targeted QIS have been individually notified by APRA and only targeted insurers will be required to complete the workbooks published alongside the discussion paper. To assess industry progress, APRA intends to conduct a further implementation survey in the second quarter of 2021 and engage with individual insurers that have not adequately progressed with their implementation.
Comment Due Date: March 31, 2021
Effective Date: July 01, 2023
Keywords: Asia Pacific, Australia, Insurance, IFRS 17, AASB 17, Insurance Contracts, Reporting, LAGIC Framework, QIS, APRA
Previous ArticlePRA Policy on Stressed VaR and RNIV Calculations Under Market Risk
The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).
The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.
The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).
The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.
The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.
The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.
In a letter to the federally regulated financial institutions and pension plans, the Office of the Superintendent of Financial Institutions (OSFI) published a summary of the feedback received to the January 2021 discussion paper on ways to address climate risks.