Insurance Data Upgrade Q&A

1 1 Insurance Data Upgrade – Questions & Answers (Q & A) Table below covers questions raised during the Insurer Data Upgrade Webinar session held on Tuesday 13 December 2022 and additional questions raised directly with the Reserve Bank. Category Question Answer Accounting basis 1. IPSA currently requires a half-year solvency position (based on financial statements). Will the solvency position in the quarterly report be based on management accounts? Yes – the quarterly insurer report (including the solvency tabs) can be based on management accounts. 2. Does IPSA then need to be amended to exclude the requirement for half-year interim financial statements? We will consider that as part of the IPSA review, however any amendment will not be immediate, so the requirement remains for the time being. 3. Is there an assumption that management accounts (quarterly returns) are based on NZ IFRS 17? What if an organisation chooses to continue preparing managements accounts on an NZ IFRS 4 basis? We expect that data returns will be prepared on an NZ IFRS 17 basis. That means your internal reporting will need to be capable of supporting NZ IFRS 17, although the basis you report on internally is up to you. 4. Is the QIR at half-year based on management accounts, instead of the interim financial statements filed? Yes. The QIR at half-year is based on management accounts on NZ IFRS 17 basis, and is due after 2 months. The interim financial statements are due after 4 months. Allocation 5. Can an allocation approach be used to determine product level data across all line items? It will be necessary to have a mechanism to determine CSMs etc. by product class – guidance will aim to provide more details on this. Previous reporting also required allocation, and under IFRS 17 a different set of allocations is required.

Ref #20085345 Category Question Answer 6. Our CSM will be based on our internal product groupings and we will be performing a CSM allocation to both the RBNZ and APRA product groupings; this will be based on the underlying fulfilment cash flows. Would this be acceptable? We will consider providing guidance on allocation methods. 7. The ISS defines acquisition costs and maintenance expenses, but is silent on claims handling costs. Is there an expectation that no costs are allocated into the LIC for ISS purposes At this stage we think that it would be reasonable to include claims handling expenses in the liability for incurred claims, but we will review and possibly provide guidance on this. Audit requirement 8. Is the 2022/2023 annual submission under IFRS17 required to be audited? The current reporting (under NZ IFRS 4 and the current solvency standards if applicable) remains subject to the current audit requirements. The extra one-off dual reporting as at the final balance date under NZ IFRS 4 using the new AIR under NZ IFRS 17 will not require any audit. 9. I understand that the annual return should be based on audited numbers however, the 2022/2023 comparatives will not be audited by the time the submission of the one-off dual return is required. The comparatives will be audited at the first year-end under NZ IFRS 17. NZ IFRS 17 numbers for the one-off dual reporting do not require audit. 10. Does the return itself need to be audited or does it just need to be based on audited financial statements? For the AIR the ‘solvency RBNZ’ sheet needs to be audited to a reasonable assurance level (excluding catastrophe risk and solvency projections). For the QIR and the one-off dual return there is no audit requirement. 11. If the home office solvency figures are audited every half-year, is the expectation that audited home office solvency figures will need to be provided every quarter, or would unaudited figures suffice, or perhaps there will be a further exemption to the current branch's licence? If audited figures are available within the timeframe for reporting, please use them; otherwise base on unaudited solvency figures. Process 12. Will you share slides following the webinar? Yes – the slides are now available on our website.

Ref #20085345 Category Question Answer 13. When do you expect to release a draft of the Quarterly Report? We are still considering the content for the QIR. We’ll provide an update as soon as we can. Specific tabs 14. Does the following comment request mean that we need to provide a summary of impacts at transition? "Explain any changes in accounting policies and quantify any material impacts"? This is an ongoing requirement to comment on any changes in accounting policies (similar to the disclosures in financial statements), rather than specifically just the transition from NZ IFRS 4 to NZ IFRS 17. 15. In the Solvency Foreign tab, the asset risk has been broken down into detailed risks such as credit risk, market risk, how does this align with APRA's categorisation? The breakdown aligns quite well with the LAGIC framework of PAR and very well with BASEL, Solvency II and the IAIS Insurance Capital Standard. 16. In the Solvency Foreign tab, if an insurer's home jurisdiction is Australia, do we still need to fill out lower level control or is it not applicable? Australian life insurers are subject to a solvency standard and we would expect these measures to be entered as the lower control level. We do not expect and secondary control level reporting by Australian general insurers. 17. For ‘statistics insurance, - single premium written during financial year’ – does this only apply to life insurance or to policies that have more than 1 year coverage? Traditionally this would only apply to life, however there are non-life single premium products e.g. travel insurance, mechanical breakdown. You should report these single premiums as well. There is similar reporting in the current data returns. 18. Where are the Other Comprehensive Income section and the NZ IFRS 9 Expected Credit Loss line? Will future versions of the return include these? Other comprehensive income has become part of the individual line items. We’re taking the view that from a supervisory perspective there is no difference between the P&L and the OCI. In the draft template, IFRS 9 credit loss expenses are reported in other expenses and balance sheet asset values are net of IFRS 9 expected credit losses. We are considering changing this for the final template to separately report IFRS 9 credit loss expenses and impacts on asset values, to provide visibility to supervisors.

Ref #20085345 Category Question Answer 19. In Supplementary Overseas Insurer, if Australian insurer operates in NZ as a branch, does this tab apply to this insurer? This sheet is to report on any material NZ business that is written by overseas insurers outside of their NZ branch (only the NZ branch is captured in Part A). While we expect most Australian insurers do not have material NZ business outside the NZ branch, some may have this through head office which would need to be reported here if material. 20. For insurance service expense, there is no prescriptive guidance from NZ IFRS 17 in terms of what detail is required to be disclosed regarding the makeup of the balance. There are differing views on this in the market based on the KPMG and EY IFRS 17 proformas we have reviewed. In the AIR we are breaking down some of those expense items as we are interested in what makes them up so hopefully that provides some support. 21. What is meant by premium debt? This is defined in the Definitions. It is useful information for supervisory purposes given the different credit risks to other assets, and insurers subject to the Reserve Bank’s solvency requirements have a specific risk charge against this asset. Other 22. The solvency standard only requires three years of forecasts – why is the RBNZ asking for four years? IPSA requires insurers and actuaries to report on potential solvency issues over the three ‘outlook years’ from any given date, and this is a continuous obligation. In the current and new data returns, we ask for four years of financial-year forecasts to ensure that the three outlook-year requirement can be met at any point during the financial year. 23. The AIR covers all types of business in one sheet. There are large sheets and lots of blank space. This is not going to be great from a user or internal control perspective. It might be better to have separate sheets for Life, Health and GI? There are advantages and disadvantages for all types of insurance on the same sheet versus separate sheets. Classes that aren’t relevant can be hidden. 24. When do we submit the interim-half-year financial statements? Alongside which report if it is still a requirement under IPSA? The interim financial statements are due after 4 months, whereas the QIR at half-year is due after 2 months.

Ref #20085345 This Q&A was last updated on 1 February 2023. For any further information on the above, please contact insurerdataupgrade@rbnz.govt.nz. Information relating to the Insurance data upgrade is available on the RBNZ website.