MRF 130.3: Off-Balance Sheet Business Credit Support Received Instruction Guide Introduction This form requires Medical Defence Organisations (MDOs) to report information about any guarantees or other form of off-balance sheet direct credit support provided to the MDO. Reporting Obligations MDOs are required to report on a half-yearly basis (that is, six-monthly intervals), based on their financial year. For annual reporting, MDOs must lodge a form within four months of the end of their financial year. The information required on an annual basis must be reported as at the last day of the reporting period on a financial year-to-date basis of the MDO. For half-yearly reporting (that is, the half-year that does not correspond with the MDO s financial year end), MDOs must lodge a form within 20 business days of the end of that six month period. udit Requirements This form must be subject to audit review and testing on an annual basis or more frequently, if necessary, to enable the auditor to form an opinion on the accuracy and reliability of the data. The auditor must provide a certificate to the MDO specifying whether, in their opinion, the data provided by the MDO are reliable. The MDO must submit this certificate to PR on an annual basis. The scope and nature of audit testing required is outlined in the applicable udit Guidance Statement issued by the uditing and ssurance Board of the ustralian ccounting Research Foundation. Basis of Preparation Unit of Measurement This form is to be prepared in thousands of ustralian dollars (UD). mounts denominated in a currency other than ustralian currency are to be converted to UD in accordance with SB 1012 Foreign Currency Translation. ssets Market value of assets ssets other than land and building and other assets that are not normally relied on to meet outstanding claims liabilities or not generally of significance in assessing the performance of a general insurer should be reported at market value.
Market value or fair value has the same meaning as defined in the ustralian ccounting Standards. Market value is defined, for accounting purposes, as a subset of fair value, where fair value means the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm'slength transaction, and is determined as follows: 1. The quoted market price in an active and liquid market (i.e. market value); or 2. When there is infrequent activity in a market, the market is not well established, small volumes are traded relative to the asset or liability to be valued, or a quoted market price is not available an estimate of a price for the asset or liability in an active and liquid market. ccounting Standards SB 1021 Depreciation and SB 1010 Recoverable mount of Non-Current ssets do not apply to the market valuation of assets. Market value of charged/encumbered assets If an asset is in any way subject to a charge, covenant, encumbrance, option to purchase or any other arrangement by way of agreement or statute, that restricts the market value of the asset, the market value needs to reflect the existence of these arrangements. For example, if the MDO has agreed to deliver an asset to a purchaser at a price below the arm s length market value, the market value cannot exceed the agreed price. Related party/entity Related parties/entities are to be interpreted in accordance with SB 1017 Related Party Disclosures. Specific Instructions The form is broken into 2 parts: Part - Eligible Collateral Provided to the MDO Part B - Guarantees Provided to the MDO Part - Eligible collateral provided to the MDO Collateral will be recognised only to the extent that it takes the form of a charge, mortgage or other security interest in, or over, an eligible collateral item. Eligible collateral items are cash, Government securities, or debt obligations where the obligor has a counterparty rating in Grade 1, 2 or 3 (details of grades are set out in ttachment 1). The eligible collateral item must also be held for the period for which the asset is held. The MDO s investments are to be entered into the relevant investments form in the MRF 140 series without adjusting for any guarantee or eligible collateral. 1. Name of entity providing the eligible collateral to the MDO Disclose the name of the entity that is providing the eligible collateral to the reporting MDO. 2
Market value of the eligible collateral items provided as credit support for assets of the MDO Where there is various eligible collateral items (i.e. mix of assets satisfying columns (2) (5)), which support the one asset type of the MDO, allocate the eligible assets according to the appropriate columns (i.e. do not include them all in the one column or the total column). 2. Cash or Government securities Cash and Government securities to be eligible collateral must be held for the period for which the asset is held. These reporting items should be brought to account at the market value of the outstanding balance where appropriate. Cash Eligible cash refers to ustralian and foreign currency notes and coins of the reporting entity. Include notes and coins in transit between any offices of the MDO. Do not include any deposits at call or short-term or any such funds held as part of the MDO s investments portfolio. Government securities Eligible government securities refers to securities issued by the following (details of grades are set out in ttachment 1): (a) ustralian Commonwealth Government (b) ustralian State or Territory Government; or (c) the national government of a foreign country where: the security has a grade 1 counterparty rating; or if not rated, the long term foreign currency counterparty rating of that country is Grade 1. 3-5. Debt obligations Report the market value of debt obligations according to the relevant counterparty grade. The grades are detailed in ttachment 1. 6. Total eligible collateral provided Represents the sum of columns (2) (5). This field is automatically calculated by the form. 7. Market value of assets subject to credit support Report the market value of the assets that are subject to credit support. 8. Related entity For each credit support provided to the MDO, report the nature of the counterparty providing the support if it is a related party by placing the appropriate letter in the column (parent entity P, subsidiary S, or other related party O ). Part B - Guarantees provided to the MDO The MDO s investments are to be entered into the relevant investments form in the MRF 140 series without adjusting for any guarantee. 3
1. Name of entity providing guarantee Disclose the name of the entity that is providing the guarantee or direct credit support to the MDO. 2. Value of the guarantee received in relation to assets of the MDO Report the value of the guarantee received by the MDO that is supporting specific assets of the MDO. 3. Counterparty rating grade of guarantor Report the grade applicable for the counterparty giving the guarantee (i.e. ratings 1 5). The grades are detailed in ttachment 1. 4. Market value of the assets subject to credit support Report the market (or fair) value of the assets that are subject to credit support. 5. Related entity For each guarantee to the MDO report the nature of the counterparty providing the support if it is a related party by placing the appropriate letter in the column (parent entity P, subsidiary S, or other related party O ). 4
TTCHMENT 1: Counterparty Grades Grade Standard & Poor s Moody s M Best Fitch 1 aa ++ 2 + - 3 + - 4 BBB+ BBB BBB- a1 a2 a3 1 2 3 Baa1 Baa2 Baa3 + + - - B++ + - BBB+ BBB BBB- 5 BB+ or below Ba1 or below B+ or below BB+ or below Unrated assets or exposures should be classified as Grade 4. MDOs should, in general, use the same rating agency for determining counterparty gradings. Where the MDO has counterparties with multiple ratings from two or more of the rating agencies in the table above, the MDO should consistently choose the ratings of a single agency whenever possible. For example, the MDO may have a number of counterparties that are rated by Standard & Poor s and M Best. In this case, the MDO should choose a single agency that will be consistently used whenever the individual ratings conflict. 5