QUANTITATIVE IMPACT STUDY
REVIEW OF CAPITAL STANDARDS FOR GENERAL INSURERS
SUPPLEMENTARY QUESTIONNAIRE
Introduction
In addition to the estimation of the quantitative impact, APRA is also requesting
that participants to the Quantitative Impact Study (QIS) provide answers to specific
questions regarding the QIS calculations and the QIS process.
Please provide as much information as possible on a ‘best endeavours’ basis.
If the respondent is part of a Level 2 general insurance group and the same
approach to the QIS was undertaken for each Level 1 participant, then the insurer
may, if desired, submit one supplementary questionnaire covering all Level 1
insurers that form part of that group which have participated in the QIS. However,
the QIS workbook itself should be completed separately for each Level 1 insurer
within the Level 2 group that is participating.
Institution name
1.
This should be the name you entered in your QIS workbook. If the
supplementary questionnaire is intended to cover several Level 1 insurers
which are part of a Level 2 group, please provide the names of each of the
Level 1 insurers covered.
Data quality
2.
Provide detail on any approximations you have made in order to complete the
QIS, where these may have had a material impact on the results.
Capital base
3.
Item 2.7 in the GI QIS worksheet requires the insurer to provide the amount
of any investments in subsidiaries, associates or joint ventures (which are
already limited in size to the net tangible assets of such an entity), required
to be deducted from capital base as they form part of the regulatory capital
requirements of the entity. This is as per the proposals outlined on page 24 of
APRA’s May 2010 discussion paper.
For insurers which have entered a value at 2.7, please provide details on the
calculations performed to determine the deductions from capital base
required. Please provide detail separate for each investment in a subsidiary,
associate or joint venture, outlining the type of investment, the value at
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which the investment is held in the accounts, the net tangible assets, and the
regulatory capital requirements of each entity covered.
4.
APRA recently finalised changes to reporting as a result of the GI Performance
Reporting project. For the purposes of this QIS, APRA has requested that
insurers perform the calculations using the capital standards in place prior to
the GI Performance Reporting changes.
If the insurer has also given consideration to the likely impact on the QIS
result after principles from the performance reporting project are adopted,
please provide details of the estimated impact on the capital position of the
insurer post GI performance reporting, split into each of the components
provided at items 2.8 and items 3.1 through 3.8 in the QIS workbook.
Asset risk capital charge
5.
Provide a description of any investments the insurer has in structured or
securitised assets (e.g. RMBS, CDO, CAT bond, etc and their level of
subordination if appropriate). If the insurer has investments in more than one
type of structured or securitised asset, please provide a summary by asset
type for each counterparty grade, indicating fair value and modified duration.
6.
Provide a summary of any secured or mortgaged assets that are unrated.
Show the counterparty grade, fair value and average duration of these assets.
If possible also provide information about the types of assets (i.e. standard
residential mortgage or other secured asset), loan to value ratios and whether
lenders mortgage insurance is in place.
7.
Describe any material assumptions you had to make in order to complete the
asset risk section of the QIS where these assumptions (or the basis for making
these assumptions) were not clearly described by APRA in the discussion
paper, technical papers or QIS instructions.
8.
Describe the method you used to calculate the tax adjustment (if any) on the
asset risk QIS worksheet.
Asset concentration risk capital charge
9.
Describe any material assumptions you had to make in order to complete the
asset concentration risk section of the QIS where these assumptions (or the
basis for making these assumptions) were not clearly described by APRA in
the discussion paper, technical papers or QIS instructions.
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10.
If the insurer invests in a unit trust, describe to what extent look-through has
been applied when determining the asset risk and asset concentration risk
capital charges.
Insurance risk capital charge
11.
Page 37 of APRA’s May 2010 discussion paper outlines APRA’s expectations
that gross insurance liability provisions include a risk margin determined after
consideration of the uncertainty in gross insurance liabilities at a 75%
probability of sufficiency. Please provide details on whether the approach
proposed by APRA differs from the current approach taken by the insurer to
estimate gross insurance liability provisions.
12.
If APRA’s proposals differ from the insurer’s existing approach to estimation
of gross insurance liability provisions, were APRA’s proposals for gross
insurance liability provisions reflected in the figures provided as part of the
QIS? If so, was any additional analysis performed to estimate the gross risk
margin, or was an approximation used? Briefly describe the approach adopted
and any analysis performed in determining the gross risk margin.
13.
Please indicate whether the insurer’s net risk margins adopted after
diversification incorporate any explicit or implicit allowance for inflation risk.
If so, please describe / quantify the allowance made for inflation risk.
14.
For entities with inwards reinsurance business only: was it necessary to
allocate business to match the class groupings specified for the insurance risk
capital charge, as outlined in page 35 of APRA’s May 2010 discussion paper? If
so, what classes were allocated and how was the allocation made?
15.
Describe the approach taken to determine the risk margins by APRA class
after allowance for diversification. If a correlation matrix between APRA class
of business is used, please include the factors used in that matrix to calculate
the diversification benefit.
16.
If any insurance liabilities were classified as ‘Other’, please provide detail on
the types of risks covered, along with the Appointed actuary’s rationale for
choice of insurance risk capital charge grouping for such business.
17.
Does the insurer have a material amount of ‘unbooked business’ at any point
throughout the year? If so, what is the size and duration of this business and
has the insurer incorporated this into the QIS calculations?
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Discount rates
18.
APRA’s May 2010 discussion paper requires that risk free discount rates for
discounting of Australian denominated liabilities be determined based on the
redemption yields of Commonwealth Government Securities. The QIS
instructions provide further detail on APRA’s proposals for the extrapolation
of risk free forward rates beyond 10 years.
Please indicate whether APRA’s proposals differ materially from the current
approach to estimation of the risk free rate adopted by the insurer. If so,
please provide details of the resultant change in capital base from adoption
of APRA’s proposals on determination of the risk free discount rate.
19.
Describe how the risk free interest rates were determined for insurance
liabilities denominated in a foreign currency (if a material component of
overall insurance liabilities).
Insurance Concentration risk capital charge
There are no supplementary questions for insurance concentration risk as the
required information is to be filled out in the QIS.
Operational risk capital charge
The following questions have been included in order to provide APRA with
information that will improve its understanding of insurers’ operational risk
management processes.
20.
Has the insurer adopted a formal definition of operational risk (OR) as part of
its internal risk management processes?
a. OR has not been defined
b. OR broadly defined (e.g. OR is everything other than insurance, market,
credit risk)
c. OR specific definition (e.g. risk of loss from people, processes, systems
etc.)
d. Other, please describe
21.
Has the insurer defined operational risk categories or ‘event types’?
a. Event types have not been defined
b. Event types have been defined using the Advanced Measurement
Approach under the Basel II Framework1
c. Insurance specific (e.g. ORIC2) event types have been defined
1
These event types are listed in Attachment E of Prudential Standard APS 115 Capital Adequacy:
Advanced Measurement Approaches to Operational Risk.
2
The Operational Risk Insurance Consortium (ORIC) is a UK-based international consortium that
collects, standardises and reports operational risk loss data for the insurance and asset management
industry.
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d. Other, please describe
22.
To what extent does the operational risk definition and event types capture
‘boundary’ risks (e.g. operational risks that are related to insurance, market
or credit risk)?
a.
b.
c.
d.
23.
OR does not include consideration of boundary risks (i.e. is independent)
Includes boundary risks to some extent (i.e. some dependence)
Includes capture of OR associated with insurance and other risks
Other, please describe
Does the insurer collect operational loss data?
a. Does not capture OR incident/loss data
b. Capture of OR incident/loss data is newly-developed/under
development
c. Capture of OR loss data is embedded and considered reasonably
comprehensive
d. Other, please describe
24.
Has the insurer attempted to quantify its exposure to operational risk?
a. Not attempted
b. Basic/high level estimate
c. Has attempted a more detailed estimate (i.e. using business line/event
types)
d. Other, please describe
25.
What methods does the insurer use to quantify OR exposures (select one or
more)?
a.
b.
c.
d.
e.
26.
Does the insurer have an ongoing monitoring program for control
effectiveness?
a.
b.
c.
d.
27.
None
Risk (or control) self assessment
Internal and or external loss data (specify)
Scenario analysis
Other, please describe
None
Undertaken by Group Risk function or other management assurance
Undertaken by Internal Audit (or other independent review)
Other, please describe
Is the insurer using operational risk indicators/metrics in reporting?
a. No
b. Under development
c. Yes, established (describe)
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d. Other, please describe
28.
Is reporting on OR issues provided to the insurer’s board (and/or responsible
committee) and senior management?
a.
b.
c.
d.
29.
No OR reporting
Board and/or responsible committee
Senior management (only)
Other, please describe
Does the insurer have a specialist operational risk function/manager?
a.
b.
c.
d.
No risk function or manager
Group risk function (part of), or manager
Specific OR function, or manager
Other, please explain
Resources needed
30.
What level of resources (in person days) was required to complete this QIS?
31.
To what aspect(s) of the QIS did you dedicate the most of your resources
when completing the QIS?
32.
Comment on whether [more/fewer/about the same] resources will be
required to complete the annual and quarterly reporting requirements once
the proposed capital framework is well established? Compare to the resources
required for reporting the existing capital adequacy requirements.
Compliance costs
33.
As part of developing prudential requirements, APRA will undertake an
assessment of costs and benefits to stakeholders likely to be affected by any
proposals.
On a best endeavours basis, please provide data on the estimated compliance
costs of meeting the requirements of the proposed life and general insurance
capital framework as set out in the discussion paper. The Business Cost
Calculator (BCC) is the preferred tool of the Commonwealth Government in
calculating business compliance costs. The BCC can be accessed at:
https://bcc.obpr.gov.au/.
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If respondents prefer, they may wish to provide information on the costs of
the proposals separately, along with the assumptions underlying the estimate
of costs. The outcomes of the analysis of costs will be used, where
adequately robust, in preparing a Regulation Impact Statement (RIS) that will
accompany any regulatory proposal.
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