Document ID: chunk:federal_register_of_legislation:F2024L01523:body:0:p7
Version: federal_register_of_legislation:F2024L01523
Segment Type: other
Provision Reference: 
Character Range: 17909–20874

that satisfy the criteria for inclusion in the capital base.

Insurance Risk Charge
 1.          The Insurance Risk Charge relates to the risk of adverse financial impacts due to movements in existing and future claims, expenses, and other insurance risks such as adverse events. The method for determining the Insurance Risk Charge is set out in Prudential Standard HPS 115 Capital Adequacy: Insurance Risk Charge (HPS 115).

Asset Risk Charge
 1.          The Asset Risk Charge relates to the risk of adverse movements in the value of on-balance sheet and off-balance sheet exposures. The method for determining the Asset Risk Charge is set out in Prudential Standard HPS 114 Capital Adequacy: Asset Risk Charge (HPS 114). Asset risk can be derived from a number of sources, including market risk and credit risk. For the purposes of this Prudential Standard and HPS 114, assets and exposures must be valued in accordance with the relevant reporting standards made under the Financial Sector (Collection of Data) Act 2001 (FSCODA).

Asset Concentration Risk Charge
 1.          The Asset Concentration Risk Charge relates to the risk resulting from concentrations in individual assets or large exposures to individual counterparties or groups of related counterparties. The method for determining the Asset Concentration Risk Charge is set out in Prudential Standard HPS 117 Capital Adequacy: Asset Concentration Risk Charge.

Operational Risk Charge
 1.          The Operational Risk Charge relates to the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The method for determining the Operational Risk Charge is set out in Prudential Standard HPS 118 Capital Adequacy: Operational Risk Charge.

Aggregation benefit
 1.          The aggregation benefit makes an explicit allowance for diversification between asset and insurance risks in the calculation of the prescribed capital amount.
 2.          The aggregation benefit formula is:
    where:
 1.           'A' is the Asset Risk Charge;
 2.           'I' is the Insurance Risk Charge; and
 3.           'correlation' is 20 per cent.
 1.          The Asset Concentration Risk Charge and the Operational Risk Charge are not included in the calculation of the aggregation benefit.

Tax benefits
 1.          Recognition is able to be made for future shareholder tax benefits arising from losses occurring within the Insurance Risk Charge and Asset Risk Charge of a fund. A private health insurer may reduce the prescribed capital amount by the aggregate amount of any tax benefits that can be netted against deferred tax liabilities as specified in HPS 112.
 2.          The tax benefits from the Asset Risk Charge are the tax benefits resulting from scenarios modelled by the stress tests in HPS 114, reduced to allow for the reduction in Asset Risk Charge due to the asset risk aggregation formula. The tax benefits are therefore calculated as: