Issue 567, 21 May 2015
In this issue:
- Consultation on proposed supervisory levies for 2015/16: feedback required
- Reminder: feedback on APRA reporting standards due soon
- APRA letter to RSE licensees regarding the confidentially and publication of data
- APRA’s fund level statistics for 2014 (interim edition) published
- Lost member register full re-report
- APRA letter to life insurers regarding recent market experience
Consultation on proposed supervisory levies for 2015/16: feedback required
Treasury has issued a paper, prepared in conjunction with APRA, seeking submissions on the proposed financial institutions supervisory levies that will apply for the 2015/16 financial year.
The financial institutions supervisory levies are set to recover the operational costs of APRA and other specific costs incurred by certain Commonwealth agencies and departments, including ASIC, the Australian Taxation Office (ATO) and the Department of Human Services.
The paper also reflects on the proposed transfer of the Private Health Insurance Administration Council’s functions to APRA and the amounts to be recovered from this industry in 2015/16.
The paper is available from the Treasury website. Treasury is seeking comments on the paper by Wednesday, 10 June 2015.
If you have any feedback on issues you would like ASFA to consider including in our submission, please provide your comments to Tony Keir by Wednesday, 3 June 2015.
Reminder: feedback on APRA reporting standards due soon
As advised in ASFA Action issue 565, APRA has released the following five reporting standards for industry consultation:
- Draft SRS 532.0 Investment Exposure Concentrations
- Draft SRS 533.1 Asset Allocation and Members’ Benefits Flows
- Draft SRS 534.0 Derivative Financial Instruments
- Draft SRS 702.0 Investment Performance
- Draft SRS 703.0 Fees Disclosed.
The changes to these standards relate to the reporting of investment data, and data that is otherwise required to be included in product disclosure statements for MySuper products.
The discussion paper, and the five reporting standards APRA is consulting on, can be found on the APRA website. APRA is seeking comments on these five standards by Friday, 19 June 2015.
If you have any feedback on issues you would like ASFA to consider including in our submission, please provide your comments to Tony Keir by Monday, 8 June 2015.
APRA letter to RSE licensees regarding the confidentially and publication of data
On 20 May 2015, APRA issued a letter to all registrable superannuation entity (RSE) licensees outlining the regulator’s response to the industry consultation on the confidentially and publication of data.
Following further consideration of all feedback provided to date, APRA has now made a decision about the confidentiality of fund data, other than a small number of data items for which further consultation will be undertaken.
Importantly, APRA has decided not to determine certain data non-confidential. This includes data that may enable the derivation of an RSE licensee’s Operational Risk Financial Requirement (ORFR), such as the details of reserve movements. This means that this data will not be published, on the basis that doing so may have a detrimental impact on funds’ commercial interests.
APRA has also determined that the data reported on SRF 161.0 Self-Insurance, SRF 250.0 Acquired Insurance, SRF 331.0 Services and SRF 535.0 Securities Lending, will remain confidential, consistent with APRA’s stated position of not disclosing commercial data relating to service providers.
The letter to RSE licensees is available from the APRA website. Appendix B of the letter sets out the data that APRA has determined to be non-confidential in October 2014.
Appendix C of the letter sets out the additional data that APRA has since determined to be non-confidential.
APRA will undertake further consultation regarding the disclosure of certain data reported on SRF 540.0 Fees before making a decision about the data’s confidentiality.
APRA publishes fund level statistics for 2014 (interim edition)
This week, APRA published Superannuation Fund-level Profiles and Financial Performance (the 2014 interim edition).
The detailed spread sheet publication contains whole-of-fund financial position and financial performance information for each year from 2004 to 2014, including rate of return (ROR), for all APRA-regulated superannuation funds with more than four members and eligible roll over funds.
The publication is available from the APRA website.
Lost member register full re-report
The ATO has recently advised that it has decided to conduct a lost member register (LMR) full re-report in order to enhance the integrity of data on the LMR and reduce reverse workflows for both super funds and the ATO.
To ensure super funds have sufficient time to prepare for this, the LMR full re-report will replace the lost member statement that is due for lodgement on or before 30 April 2016.
For this reporting period, super funds are required to lodge a lost member statement showing all lost and inactive members on their records as at 31 December 2015, irrespective of whether the members have previously been reported.
It is important to note that, for this period, funds will not be required to report members who have been found, or who were transferred or reported in error.
The ATO will provide further information about this LMR full re-report closer to the reporting date of 31 December 2015.
It should be noted that super funds are still required to lodge the normal lost member statement incremental report for the period ending 30 June 2015, which is due on or before 31 October 2015.
APRA letter to life insurers regarding recent market experience
This week APRA wrote to life insurers outlining the results of its recent examination of the group insurance market.
Given that superannuation funds are the largest counterparties to insurance companies in regard to group insurance, APRA’s letter and summary should be of interest to funds. The information provided to APRA by insurers highlights the key themes and trends in relation to this poor experience in the group insurance market.
Most insurers reported changes to pricing assumptions and methodology to APRA in response to recent experience in the group insurance market. The more common findings were:
- changing the allowance for trends in best estimate assumptions (typically allowing for a worsening of total or permanent disability (TPD) experience, with some insurers also reporting that they have removed their previous allowances for mortality improvements)
- adding contingency loadings for TPD and group salary continuance claims assumptions
- adding additional margins if the experience data is of a poor quality
- conducting a more sophisticated analysis of incurred but not reported (IBNR) reserves
- conducting a more sophisticated sensitivity analysis.
The most common factors cited by insurers as drivers for the difference between the original pricing basis and assumptions and actual experience include:
- unemployment or underemployment, and adverse changes in the economic environment, providing greater incentives for members to claim
- increased member awareness of insured benefits, due to government, fund and lawyer promotional activity
- increased lawyer involvement in the claims process
- an increase in mental illness or stress-related claims (and for group salary continuance, these claims have a tendency to be of longer than expected duration)
- an increase to automatic acceptance limits
- generous terms and conditions, including weaker eligibility and underwriting, leading to increased anti-selection by members
- an increased prevalence of large, late-notified claims, many of which are associated with an increased involvement by lawyers in the claims process.
APRA is encouraging insurers to document lessons learned from this recent experience and, where necessary, adopt revised approaches so they are better prepared to respond in the future. Where it is deemed appropriate, the board, rather than management, should consider or address matters raised.
In its regular interactions over the coming months, APRA will be discussing with each insurer the findings set out in the attachment to the letter together with the insurer’s views and intentions with respect to those findings.
