Template – ICAAP Report
Version 1.0
April 2013
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ICAAP Report
Part I
Use of this Template
3
Part II
Template
6
1
Introduction
6
2
ICAAP Outcomes
7
3
ICAAP Projection
9
4
Risk Analysis
11
5
Declaration
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Part I
1
Use of this Template
Requirements
This template has been prepared by Finity Consulting as a guide to drafting an ICAAP
Report, which is one of the requirements of APRA’s ICAAP framework; see Para 14 of
GPS 110.
Content
APRA’s requirements of the ICAAP Report are set out in Para 15 of APRA’s Prudential
Standard GPS 110, and in Prudential Practice Guide CPG 110 “ICAAP and Supervisory
Review”. This template:

Is intended to cover all of those requirements, and to cover all possible elements
that might be included in an ICAAP Report – although we cannot guarantee that it
does so.

Presents Finity’s interpretation of APRA’s requirements of the ICAAP Report; other
interpretations are possible.
ICAAP Report vs ICAAP Summary Statement
Para 45 of CPG 110 clarifies that:

The ICAAP Summary Statement is a point-in-time summary of the insurer’s capital
management processes; APRA expects this document will not change greatly over
time

The ICAAP Report details the outcomes of the implementation of the capital
processes over the previous year, and projects capital outcomes for at least three
years; APRA expects that this report may change significantly from year to year.
Format
APRA has not specified a format for the ICAAP report. It says that documents used for
internal purposes can be used to meet the APRA requirements, as long as they meet the
requirements of the capital standards [see Para 44 of CPG 110].
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Timing of Reports
The insurer is required to [see Para 14 of GPS 110]:
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
Provide a “report on the implementation of its ICAAP” annually

Provide a copy of the report to APRA within three months of the date on which it
has been prepared.
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These requirements do not dictate a specific ‘as at date’ for the ICAAP Report. APRA has
specifically left the timing open so that insurers can prepare it at a time that best suits
their circumstances. We expect that:

Some companies will prepare the report ‘as at’ balance date. This provides the
neatest fit with year-end financials, business plan projections etc.

Other companies will decide to prepare the report off-balance date, for instance as
part of the annual business planning process. This reduces the year-end regulatory
burden.
Timing of the First Report
All companies will need to prepare an ICAAP Report within a year of 1 January 2013
(when LAGIC took effect) – which means a report ‘as at’ date of 31 December 2013, at the
latest.
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Using the Template
This template is deliberately generic in form, and any insurer who adopts it will need to
tailor it to its own needs, circumstances and preferences. We encourage you to make it
your own.
Please notify Finity of any errors or omissions in the document.
We expect that ICAAP Reports will evolve over time, as market practice develops and as
feedback is received from APRA. We may produce updated versions of this template.
For Branches (Category C insurers)
The ICAAP requirements apply to branches along with other insurers. When the ICAAP
requirements refer to the Board of an insurer, for branches this is understood to apply to
the Senior Officer Outside Australia and the Agent in Australia. In GPS 110, this is set
out in the footnote to Para 10 (though not explicitly in other parts of GPS 110).
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ICAAP Summary Statement vs ICAAP Report vs the AA’s FCR
Some content which is currently in the ICAAP Summary Statement, or the actuary’s FCR,
may in future more naturally sit in the insurer’s ICAAP Report. One example is the
stress testing and scenario analysis:
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
Many insurers have included the details of this analysis in the Summary Statement

It is required as part of the ICAAP Report content

In many cases the FCR will also have included some scenario and stress testing.
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ICAAP Report as Part of FCR
APRA expects that the ICAAP Report will normally be a separate document, but
indicates that it may be appropriate for an insurer to incorporate the ICAAP Report into
the Appointed Actuary’s FCR [Para 46 of CPG 110]. This can be done when:
1.
The insurer’s Board is satisfied that the AA’s independence is not compromised by
doing so, and
2.
The Board retains clear ownership of the ICAAP.
When the ICAAP Report is included in the FCR:
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
The ICAAP Report should form a “separately identifiable and distinct subcomponent” of the FCR

The Board should not simply accept without challenge the work of the AA in
preparing the ICAAP Report.
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Part II
Template
1
Introduction
1.1
Purpose
Set out the aim(s) of this report. GPS 110 Para 14 describes it as a “report on the
implementation of [the regulated institution’s] ICAAP.” The report is also required to
look ahead as far as the insurer’s planning horizon.
1.2
<Insurer>’s ICAAP
Refer to introduction of requirement for ICAAP by APRA.
Entities Covered
Describe which entity/ies are covered by the ICAAP being summarised in this report.
Other Documents
Refer to other ICAAP-related documents – ICAAP Summary Statement, RMF, etc.
1.3
This Report
Preparation
Summarise process of preparation and people involved.
Report Structure
Outline structure of the remainder of this report.
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2
ICAAP Outcomes
This section summarises the events and outcomes since the last ICAAP Report (will
normally be one year).
2.1
Review of ICAAP
Provide details of any independent review of the ICAAP since the previous ICAAP
Report [review required at least every three years by Para 15(g) of GPS 110] , including:

Any recommendations for change

How those recommendations have been, or are being, addressed.
Note that the independent review of an insurer’s ICAAP does not need to cover the
whole ICAAP in one review. An insurer may choose to implement a review program
which covers the whole ICAAP over time (e.g. over a three-year period). [See Para 38 of
CPG 110]
2.2
Changes to the ICAAP
Describe material changes to the ICAAP since the previous ICAAP Report. [Required by
Para 15(c) of GPS 110]
This could include changes to the insurer’s risk profile, risk appetite, risk management
framework, sources of capital, capital management process, capital targets, capital
reporting and monitoring
2.3
ICAAP Outcomes
This section covers the requirements of Para 15(b) of GPS 110.
Capital Position
Analyse the insurer’s actual capital position during the year, relative to:

Minimum regulatory capital requirement (PCR)

Capital targets.
Suggested analysis would be to look at actual capital and PCR coverage at each quarterly
point during year and at end-point. Compare actual position to forecast position, and to
Target Operating Range and trigger points.
Para 48 of CPG 110 says that the report should include “sufficient detailed description to
explain how quantitative results have been derived.”
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Include commentary on movements during year, explain trend and any unusual features.
Discuss dividend payments vs plan.
Capital Management Actions
Compare actual vs planned capital management actions:
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
Was capital monitoring carried out as planned?

If any trigger/target levels were reached during year, were actions in line with
capital management strategy?

Was communication about capital in line with plan?
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3
ICAAP Projection
This section looks ahead.
3.1
Changes Planned
[Requirement of Para 15(f) of GPS 110]
Describe any changes which are anticipated over the planning horizon, in:
3.2

Risk profile – particularly any expected changes outlined in business plan/strategy
that would be likely to have a material impact on the capital position [Para 49(e) of
CPG 110]

Capital management processes.
Current Capital Position
Describe current regulatory capital, including [Para 49 (c) of CPG 110]:
3.3

Key contractual terms of capital instruments

Description of key areas of difference between any Additional Tier 1 Capital or Tier
2 Capital instruments and Common Equity Tier 1 Capital.
Capital Projection
“Detailed information on current capital levels, and three-year projection, relative to
minimum regulatory capital requirements and target levels.” [Requirement of Para 15(a)
of GPS 110.]
Look at projected capital and PCA/PCR coverage over next three years.
projected position to Target Operating Range and trigger points.
Compare
Would need to:
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
Summarise key assumptions underlying the projection

Comment on projected trend

Discuss any planned capital management actions (injections or repatriation,
dividend payments, etc), with explanation of why being undertaken and impact
[Para 49(a) of CPG 110]

Discuss other planned management actions impacting on the capital position e.g.
major asset or liability transactions

Comment specifically if capital coverage is expected to reach any trigger points, or
move outside target range
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
Describe action plans (with timeframes) if capital projection indicates a need to
raise capital or take other actions to protect capital position. [Para 49(b) of CPG 110]
Discuss expected sources of capital assuming both expected and stressed conditions.
[Para 49(d) of CPG 110]
Where relevant, include a reconciliation of economic and regulatory capital, including
explanation of the areas of difference and their impact on result. [Para 49 (f) of CPG 110]:
3.4
Planned Capital Usage
[Requirement of Para 15(e) of GPS 110]
Provide a breakdown of capital usage over the planning horizon, as relevant, by material:
(i)
Business activity
(ii)
Group members (if applicable)
(iii)
Geographic spread of exposures
(iv)
Risk types.
Once again, consider both expected and stressed conditions. [Para 49(d) of CPG 110]
It appears that this will be needed only where the insurer undertakes explicit allocation
of capital to different business segments.
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4
Risk Analysis
Para 15(d) of GPS 110 specifies that the ICAAP Report include “detail and outcomes of
stress testing and scenario analysis used in undertaking the ICAAP.”
This section would include:
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
Results of DFA or other capital modelling

Results of stress and scenario testing, including reverse stress tests

Implications for volatility of capital position, Target Operating Range

Conclusions about consistency of risk profile with risk appetite.
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5
Declaration
[Requirement of Para 16 of GPS 110]
The ICAAP Report needs to be accompanied by a declaration which is approved by the
Board (or SOOA for a branch), and signed by the CEO. The declaration needs to state
“whether:
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(a)
Capital management has been undertaken by the regulated institution in
accordance with the ICAAP over the period, and, if not, a description of, and
explanation for, deviations
(b)
The regulated institution has assessed the capital targets contained in its ICAAP to
be adequate given the size, business mix and complexity of its operations (and, for
Level 2 groups, given the location of operations of group members and the
complexity of the group structure)
(c)
The information included in the ICAAP Report is accurate in all material aspects.”
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