Document ID: chunk:federal_register_of_legislation:F2023L00207:body:0:p8
Version: federal_register_of_legislation:F2023L00207
Segment Type: other
Provision Reference: 
Character Range: 19541–22458

policy in the twelve months following the reporting date.
50.         If the Best Estimate Assumption depends on a service agreement or other contractual arrangement which does not adequately reflect the long term, sustainable costs of operating the business, the stress of 10 per cent must be increased to make up for the shortfall between actual and long term, sustainable costs.

Other insurance risks
51.         The Appointed Actuary must determine an appropriate stress margin for risks arising from any other contingencies not specifically mentioned above. These risks may include, but are not limited to, changes to take-up rates on insurance options and premium dormancy rates. The stress must be determined so that the insurance risk charge for the statutory fund has a 99.5 per cent probability of sufficiency over a 12 month period. The stress may include allowance for correlations with other insurance stresses, with the exception of servicing expenses.

Servicing expense reserve
52.         The Insurance Risk Charge for the general (management) fund of a friendly society is the servicing expense reserve. The servicing expense reserve must be determined as:
       (a)          three times the deficiency (if any) expected to arise over the 12 months subsequent to the reporting date, between expected management fees in that period and expected servicing expenses relating to its life insurance activities; plus
       (b)          any additional deficiency that would arise if expected servicing expenses were increased by 10 per cent.
53.         Where an allocation of the expenses of the management fund relating to life insurance activities into expense categories is not undertaken by a friendly society, servicing expenses are to be taken as 50 per cent of the total expenses related to the life insurance business.
54.         If the management actions assumed in response to the asset risk or insurance risk stresses include a reduction in management fees paid by a benefit fund to the management fund, the reduced management fees must be used when determining the servicing expense reserve.
55.         Any tax benefits that would arise as a result of including the servicing expense reserve in the liabilities of the friendly society for tax purposes should be assumed to be realisable for the purpose of determining the Insurance Risk Charge. An adjustment must be made to the prescribed capital amount when the capital charges are aggregated, if some or all of the tax benefits cannot be offset against deferred tax liabilities.

Adjustments and exclusions
56.         APRA may, by notice in writing to a life company, adjust or exclude a specific requirement in this Prudential Standard in relation to that life company.

Transition
57.        On application by a life company, APRA may grant transitional relief from the obligation for the life company to comply with any requirement