APRA Consults to Integrate AASB 17 in Capital and Reporting Frameworks

In this context, APRA published a letter that sets out the indicative directions and seeks feedback on a number of matters related to reporting to APRA (Attachment A) as well as the determination of regulatory capital (Attachment B). These matters will be relevant for all insurers and the industry. The directions on the level of granularity for regulatory reporting as well as the timing for integration into the prudential and reporting frameworks is explained as follows:

• Granularity for regulatory reporting—For prudential reporting, the indicative direction is that groupings used to distinguish onerous contracts under AASB 17 must not extend across APRA reporting groups. APRA is considering enhancing the granularity of its reporting groups to address the concerns that existing APRA reporting groups do not provide detailed insights on products. APRA recognizes that this indicative direction requires more detailed reporting by insurers than would otherwise be required by AASB 17, particularly in the life insurance industry. APRA believes that the additional burden of its approach is outweighed by the benefits of improved performance information for management of insurance risk and prudential oversight.
• Timing for integration into prudential frameworks—At this stage, the intention of APRA is for all insurers, regardless of their financial year end, to commence reporting to APRA (for quarterly and annual reports) and to determine regulatory capital requirements from an AASB 17 base from July 01, 2023. APRA recognizes that the indicative July 01, 2023 commencement for prudential purposes will necessitate insurers maintaining dual accounting systems for a period after the adoption of AASB 17 for financial reporting. The indicative commencement timing reflects the need for quantitative impact to inform final calibration of the capital framework of APRA. It also reflects the APRA view that the additional implementation burden on insurers is outweighed by the benefit of robust and consistent data to inform prudential supervision. Where an insurer adopts AASB 17 prior to the indicative commencement date of APRA, insurer must continue to determine regulatory capital and submit regulatory reports under the existing prudential and reporting standards. 

APRA will continue to monitor international developments and overall implementation timing for AASB 17 to assess whether amendments to its timeframes or indicative directions are necessary. Stakeholder feedback on the indicative directions outlined in the letter and Attachments A and B will inform the overall approach of APRA and the development of its positions in more detail. APRA will subsequently release a discussion paper to further consult on proposals and seek stakeholder feedback through progressive updates, before consulting on the full package of draft prudential standards and reporting requirements. The revised indicative timeframe has been set out in Attachment C to the letter.

The engagement of APRA with the industry and the accounting and actuarial professions has highlighted that comprehension of AASB 17 is still developing and implementation challenges have not yet been thoroughly understood. Rushed implementation would heighten operational risks and may increase implementation costs. To mitigate operational risk, APRA expects insurers to deepen their understanding of the standard as well as step-up their preparations and implementation efforts for AASB 17. To assist in understanding the status of implementation activity by industry, APRA is requesting information from all insurers on their preparedness for AASB 17. This information request is a follow-up to the APRA survey of the effects of AASB 17, which was published in May 2018. APRA will communicate insights from the information to industry in early 2020, enabling insurers to benchmark their implementation progress against peers and the wider industry. The insights will also inform the supervisory engagement of APRA and assist in identifying areas of focus to be pursued with insurers.

Related Links

• Notification
• APRA Letter (PDF)

Comment Due Date: November 08, 2019 (Information Request); November 22, 2019 (Indicative Directions)

Keywords: Asia Pacific, Australia, Insurance, Reinsurance, AASB 17, Insurance Contracts, Information Collection, Reporting, Regulatory Capital, Indicative Directions, IFRS 17, Capital Framework, APRA