Let’s talk about … APRA

Article

Let’s talk about … APRA

With all the other pressing issues of the day, you could be forgiven if you haven’t noticed that there has been IFRS 17 activity in the APRA camp. In September 2020 APRA announced that they were restarting five key projects, including their work on IFRS 17.

Set out below is a summary of the key APRA activities pertaining to IFRS 17, including expected timelines and tips on what insurers should be considering right now in respect of the potential impacts these activities may have on their IFRS 17 implementation projects.

APRA activity

Expected timeline

Comments

Targeted Quantitative Impact Study (QIS)

Dec 2020 to Mar 2021

  • Issued to selected industry participants for completion
  • Will be made available to other industry participants but no additional submissions accepted

Industry readiness survey

Jun 2021

Expected to be along the lines of that issued to the industry in September 2019; i.e. a simple feedback on the state of readiness of an entity regarding implementation of AASB 17. We expect APRA to take an active interest in insurers who are not well progressed with their IFRS 17 projects

Industrywide QIS

Dec 2021 to Mar 2022

Expected to be similar to the first QIS but requires industrywide completion

Draft prudential standards

Q4 2021

These dates are consistent with information previously provided by APRA in their industry outreach in November 2019. APRA have indicated that they are holding this date subject to industry feedback. This will result in many insurers reporting on an AASB 17 basis for APRA before they are required to produce financial statements on this basis

Final prudential standards

Q2 2022

Effective date

1 Jul 2023

 

The targeted QIS is a very important first step both for APRA and the industry.

For APRA, this is an opportunity to identify any potential shifts in capital either across the industry or for the industry in total and also to gather data on potential areas of change to reported financial results under AASB 17 compared with current reporting under AASB 1023 and AASB 1038. APRA are also using the QIS to test the feasibility of expanding the data collected to help assess product sustainability. APRA have been clear that they do not expect, or desire, an overall change in the level of industry capital to arise from the application of AASB 17.

For preparers, this is an opportunity to get a sense of where APRA is headed with changes to its prudential standards and reporting forms. Whilst APRA has not confirmed that the format of the QIS reflects future forms for capturing data, it is considered indicative. This will also focus the minds of preparers onto the expected financial impact of adopting AASB 17. For those currently reporting under AASB 1023 and applying the simplified model under AASB 17, the financial impact on profit may be minimal and be driven more by potential volatility from the recognition of onerous contracts and policy decisions around accounting for discount. For those applying the general measurement model or variable fee approach, the profit impacts in the financial statements could be much greater.

The QIS in draft form has been shared through outreach by APRA in September/October 2020, to:

This provides these parties with a welcome opportunity to provide feedback to APRA on the form and content of the QIS.

The good news for other preparers is that the QIS, whilst only required to be completed by limited market participants, will be available to all. So, make sure you get hold of a copy so you can determine how this may impact your IFRS 17 implementation projects.

Changes to the APRA prudential and reporting standards need to be planned for in implementation projects.

At this stage reporting to APRA using the new prudential and reporting standards adapted for AASB 17 (and other changes such as additional product groups) is expected to commence from 1 July 2023 irrespective of the entity’s financial reporting dates.

It’s worth noting that APRA have not changed this date to reflect the delay in AASB 17’s effective date by one year to 1 January 2023. This appears largely due to industry feedback that APRA’s go-live date required an overly long period of dual reporting as entities moved to financial reporting under AASB 17 while still being required to report to APRA under AASBs 1023 and 1038. Clearly the long period of “dual reporting” is now minimised but some entities will find themselves reporting to APRA on an AASB 17 basis long before their first financial statements are required to be released on this basis. For example, if you are a June reporting entity you may be assuming that the first time you’ll report under AASB 17 is 30 June 2024 (with comparatives for 30 June 2023) but actually you would be reporting to APRA on an AASB 17 basis from 1 July 2023.

APRA has noted in a number of industry discussions its desire, subject to consultation, to do the following:

  • Expand the number of APRA product groups for Life and General Insurers. For Life Insurers, reporting is suggested to now be at the benefit type level, increasing the number of APRA product groups from 12 to 19. For General insurers, Directors and Officers insurance and Cyber Security insurance are additional product groups expected. Allocation rules may need to be determined by insurers, which will need to be audited.
  • APRA liabilities for Life Insurance capital calculations are expected to be on a projection basis, similar to the current Risk-Free Best Estimate Liabilities under the current LAGIC framework. Whilst MOS (under AASB 1038) and LAGIC cashflow approaches are closely aligned, this is not expected to be true for cashflows under AASB 17 and LAGIC.

The message to preparers is simple – build into your AASB 17 implementation roadmaps the impact of dual reporting effort arising from the likely reporting dates for APRA, and make sure you analyse the APRA data requirements to ensure they are captured at the appropriate level of granularity when you are designing your systems and processes.

There are actions you can and should take now to minimise both delivery risk to your AASB 17 projects and any rework required in your data capture and reporting:

  • Don’t miss the opportunity you have to review the QIS in detail and provide feedback to APRA – either as a current QIS participant or when the QIS is made widely available in November /December 2020.
  • Consider the APRA timeline for the December 2021 QIS request and ensure your AASB 17 implementation project will deliver the data you need at that time or establish workarounds if needed.
  • Consider the APRA future reporting deadlines and requirements when you are progressing your AASB 17 implementation project, particularly regarding the ongoing data requirements from APRA which may require more granularity and/or different data than required by AASB 17.

Published: October 2020

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