LITTLEWOODS SERVICES PTY LTD 1a ered t ounton

17 August, 2012

Mr Neil Grummitt General Manager, Policy Development Policy Research and Statistics Australian Prudential Regulation Authority GPO Box 9836 SYDNEY NSW 2001

Dear Neil,

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Response to Discussion Paper- proposed revisions to reporting requirements

Following the release of 'Discussion Paper on the Review of Capital Standards for General Insurers and Life insurers- Proposed Revisions to reporting requirements', we (Littlewoods) make the following submissions. These submissions are made by us in our capacity as professional practitioners in respect of Level 1 insurers and in particular to category C insurers ('Branches').

Littlewoods recognises that whilst APRA has made a number of significant changes to the reporting forms which serve to harmonise the process across the industry, some of the forms could be simplified with no material impact on the calculation of the insurers Capital.

General Comments:

• As the 'Draft' returns are made available only in 'PDF' format , our feedback is limited to observations on the draft returns with limited scope to have holistic review of the forms and its flow-on impact on other related forms.

• The instructions provided alongside each return were in the most part concise and clear. We would appreciate inclusion in the instructions any of the additional information previously included in APRA's Q&A.

• The new D2A forms become operative from the first quarter in 2013. However, as the matrix of the forms have substantially changed for the reinsurers and captures many classes of business with two treaty types, additional work needs to be done at 2012 year end in order to establish the opening reserves across the new given set of classes.

• APRA has proposed that the deadline for the submission of the annual returns be reduced to three months after the end of the year. We welcome the change to the annual deadline.

Liability limited by a scheme approved under Professional Standards Legislation

Principal Director

R Littlewood ACA

Found er

E N Littlewood FCA

Level 21

Australia Square

264 George Street

GPO Box 3973

Sydney NSW 2001

Telephone

(02) 9274 3000

Facsimile

(02) 9274 3033

Web

www.recentre.com.au

• APRA has proposed that the deadline for the submission of the quarterly returns be changed to twenty eight calendar days after the quarter end. This results in shortened deadlines on most quarter ends. As APRA are proposing to increase the quarterly reporting requirements , we suggest that the deadline be changed to 1 month after the quarter close. In most cases this will appropriately cater for the public holidays within the month leading up to the reporting deadline.

Form GRF 114_0 (Asset Risk Charge)

The revised GRF 114_0 is extensive in scope. We note that the Appointed Actuary needs to undertake the necessary steps to ensure that all asset stress scenarios that would give rise to a positive risk charge component are reported. We request that this requirement be limited to annual reporting only, as quarterly reporting of assets and liabilities, in particular the reserves and loss recoveries are currently made on a roll forward basis of the prior year actuarial valuation to arrive at the quarteriy estimate

Additional comments on the Form:

• 1.2.2.1 - 1.2.2.3: description is much clearer in the instructions " ... due to be, but not yet received". However, the Form does not have the description.

• Section 2: Additional Information (item 11): it is assumed Grade 2 Government will be included with other Grade 2 assets.

Form GRF 112_3 (Related Party Exposures)

We note the additional detailed information required in relation to related party assets within Section 2 of the form. All material exposures are already provided in GRF 117 _0 (Asset Concentration Risk Charge) and we question whether this creates duplication (particularly in relation to reinsurance assets which are also provided on GRF 460_0) and or provision of information that is not material.

In addition, if Section 2 is required it appears that an ACN/ABN is required. For overseas related parties this is not applicable.

Form GRF 115_0 I GRF 115_1 (Outstanding Claims Liabilities I Premium Liabilities)

Littlewoods welcome the decision to have only two treaty types - Proportional and Non Proportional.

The 'Class of Business' ·for Reinsurers has increased from 3 classes (by the 4 treaty types) to 17 classes (by 2 types) to allow for harmonisation with 'Direct Business'. In addition, as acknowledged by APRA in GPS 115 Capital Adequacy - Insurance Risk Charge reinsurers will be required to utilise allocation methods for many reinsurance contracts as they cover multiple classes of business.

We believe that the "grouped" class of business splits for Reinsurance Business utilised in the QIS are more representative of the classes for reinsurance business. As the individual classes within the groupings bear the same capital factor, using groupings will have no impact on the Insurance Risk Charge.

2

Form GRF 31 0_0 (Income Statement)

We note that the 'Current Period' in the new forms should only include claims incurred in the current accident year and that the current accident year should be aligned to the insurer's current financial year.

As acknowledged by APRA in the Q&A released on 15th October 2010, Reinsurers manage their business on an underwriting year basis and have been advised to use the current and immediately prior underwriting year as proxy for the 'Current Period'. For the sake of completeness, we would appreciate the additional information being included in the instructions for completion of the forms.

Form GRF 310_1 (Premium Revenue and Reinsurance Expense)

The new form requires 'Number of policies written'. This information will not be available for reinsurers. Does APRA expect the reinsurers to provide the number of contracts written in place of 'Number of policies written'? In addition, some reinsurance contracts contain multiple layers where the signed lines for individual reinsurers may differ on each layer and as a result may be recorded as separate contracts.

Refer our comments in 'General Comments' and Form GRF 115_0 I GRF 115_1 regarding the additional classes of business introduced for reinsurers.

Cash Flow information is required to be split between 'Proportional' and 'Non Proportional'. Although it would be possible to extract this split through additional work, we question as to whether this adds any value to the process.

Form GRF 310_2 (Claims Expense and Reinsurance Recoveries)

Refer our comments in regarding the current and non-recurring split for reinsurers . Refer our comments in 'General Comments' and Form GRF 115_0 I GRF 115_1 regarding the additional classes of business introduced for reinsurers.

Refer our comments in GRF 31 0_1 regarding the Cash Flow split between 'Proportional' and 'Non Proportional'.

Form GRF 420_0 (Premium Revenue by State and Territory of Australia)

Under the current reporting instructions this form is not to be completed by authorised reinsurers. Given the structure of the form, we would have expected that Reinsurers are not required to complete this form, however Appendix 1 to the discussion paper indicates that the current position is that the form is required for direct and reinsurance business and that there are no substantive changes. We would appreciate clarification that this form is not required to be completed by reinsurers within the instructions.

In addition, it is proposed that this form, along with GRF 400_0 and GRF 430_0 are to be completed quarterly. This adds complexity and additional work to the completion of the quarterly reporting. Particularly on smaller portfolios, statistical analysis performed by APRA on quarterly rather than annual information on a state by state basis may be impacted by seasonality.

3

Form GRF 430_0 (Claims Expense by State and Territory of Australia)

Under the current reporting instructions this form is not to be completed by authorised reinsurers. Given the structure of the form, we would have expected that Reinsurers are not required to complete this form, however Appendix 1 to the discussion paper indicates that the current position is that the form is required for direct and reinsurance business and that there are no substantive changes. We would appreciate clarification that this form is not required to be completed by reinsurers within the instructions.

Refer our comments in GRF420_0 regarding the proposed move to quarterly reporting.

Form GRF 440_0 (Claims Development Table)

Refer our comments in 'General Comments' and Form GRF 115_0 I GRF 115_1 regarding the addiiional classes of business introduced for reinsurers.

The revised new forms have significant amount of additional details for the reinsurers. In general, the line items have increased from some 144 line items to around 408 line items with the inclusion of additional classes.

Form GRF 460_0 (Reinsurance Counterparty Details)

We note there is significant additional information required within this form and is in addition to the RAS already lodged. Depending on the reinsurance arrangements, this has the potential require significant additional work as it is not necessarily aligned with the ReMS or the RAS.

Given the level of detail required, we request that consideration be given to utilising a materiality similar to that for Asset Concentration Risk.

Form GRF 470_0 (Insurance Concentration Risk Charge - Supplementary Information)

We note there is significant additional information required within this form and is in addition to the RAS already lodged. Depending on the reinsurance arrangements, this has the potential require significant additional work as it is not necessarily aligned with the REMS or the RAS.

Yotcerely,

Ro~ood and the Littlewoods Team

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