APRA proposes changes to capital and reporting framework for insurers

APRA has released for consultation additional draft reporting standards to integrate the recently introduced AASB 17 “Insurance Contracts” (AASB 17) into the capital and reporting frameworks applicable to life and general insurers, as well as the capital framework for private health insurers.

AASB 17 is a new accounting standard that establishes principles for recognition, measurement, presentation and disclosure of insurance contracts. The requirements are designed to help users of financial statements better understand an insurer’s exposure, profitability and financial position and to conduct comparisons across similar insurance companies.

With the introduction of AASB 17, which is effective from annual periods beginning on or after 1 January 2023 (though earlier adoption is allowed), APRA has undertaken a review of its insurance capital and reporting frameworks for life, general and private health insurance to align, where appropriate, with the new insurance accounting standard.

This blog outlines a background on the changes, the updates and clarifications made to the reporting standards, and next steps proposed by APRA.

Background

APRA’s prudential capital and reporting framework is based on the existing accounting treatment. The introduction of AASB 17 modifies several accounting concepts which underpin APRA’s prudential framework and also introduces some new concepts.

APRA’s approach to integrating AASB 17 into its capital and reporting frameworks is based on the following principles:

To maintain the resilience of APRA’s capital and reporting frameworks and the financial stability of the industry going forward;
To not seek to generally increase or reduce capital levels;
To minimise the regulatory impact for industries; and
To align the frameworks to AASB 17 where appropriate.

In November 2020, APRA published a discussion paper (access it here) with proposals to update the frameworks and invited comments from industry participants. APRA noted the importance of the updates to reduce the dual regulatory burden for the industry. Without the updates, insurers would need to maintain two sets of records i.e., separate systems or records for valuations, actuarial, accounting and reporting, with additional costs to policyholders.

The proposals clarified that for the capital framework, most of the existing requirements for the regulatory capital calculation for general insurers and life insurers will be maintained. For the reporting framework, APRA confirmed that insurers will be able to use the AASB 17 accounting policies and principles to report financial statement information to APRA. Additional data requirements were proposed to ensure that APRA continues to have appropriate data for capital assessments and profitability monitoring.

After seeking feedback on the proposals in its discussion paper, APRA released several draft prudential and reporting standards in December 2021 for consultation. APRA also provided updates on other aspects of its life and general insurance capital (LAGIC) framework, since it had not been substantively reviewed since 2013, noting that it will be replaced when AASB 17 commences.

The draft reporting standards released in December 2021 were limited to those requiring amendments that form the basis of the Quantitative Impact Study[1] (QIS). This consultation closed in March 2022.

Updates to the reporting framework

APRA has now released for consultation additional draft reporting standards impacted by AASB 17, LAGIC updates, and revisions to the capital framework for private health insurers. In Appendix A of the letter to insurers dated 6 April 2022 (available here), APRA lists the draft reporting standards. The list includes 17 draft general insurance reporting standards intended to replace the current Level 2 collection, and 4 draft private health insurance reporting standards intended to replace and complete the modernisation of Reporting Standard HRS 602.0 “Financial and Capital Data”.

In response to industry feedback, APRA has also released updates and clarifications to the insurance reporting standards that were released for consultation in December 2021.

The below table summarises the proposed updates and clarifications for the respective reporting standards:

The draft reporting standards can be found at:

APRA’s next steps

The proposed changes are open for industry consultation. APRA has advised that it will integrate the updates and clarifications into the respective reporting standards as part of the response to submissions planned for Q3 this year.

Later in the year, APRA will release further information on planned timelines for the transition of the remaining insurance data collections to ‘APRA Connect’. Insurers shall continue to submit the data for collections not impacted by AASB 17 via ‘Direct to APRA’ until they are implemented in APRA Connect.

The Hall Advisory team will continue to monitor developments in this space and provide you with further information as it becomes available.

How we can help

The changes to the reporting standards, LAGIC updates and revisions to the capital framework for private health insurers, along with the impending implementation of AASB 17, results in many considerations for insurance entities. This may include (but is not limited to) changes to your reporting, systems, policies and processes.

Hall Advisory can assist you in navigating through these changes and provide support in the following areas:

Advisory support on the development and implementation of regulatory changes, including AASB 17;
Compliance advice and interpretation of regulatory requirements and reporting standards;
Implementation of changes to reporting systems and processes;
Independent review, uplift and documentation of policies and reporting procedures; and
Training for employees involved in the APRA reporting process.

If you need support to implement the required changes in response to the new reporting requirements, contact us for a confidential, no-obligation consultation.

Endnotes

[1] The quantitative impact study conducted in December 2020 involved APRA collecting data from ADIs to refine proposals set out in the draft prudential standards, and also to ensure that the capital framework is appropriately calibrated to meet the ‘unquestionably strong’ capital benchmarks.