Document ID: chunk:federal_register_of_legislation:F2023L00692:body:0:p2
Version: federal_register_of_legislation:F2023L00692
Segment Type: other
Provision Reference: 
Character Range: 2868–5785

otherwise.
3.             A life company must apply this Prudential Standard separately:
(a)          for a life company other than a friendly society: to each of its statutory funds; and
(b)          for a friendly society: to its management fund.
4.             This Prudential Standard only applies to the business of an Eligible Foreign Life Insurance Company which is carried out through its Australian statutory funds but not otherwise.[2]
5.             This Prudential Standard applies to life companies from 1 July 2023.

Interpretation
6.             Terms that are defined in Prudential Standard LPS 001 Definitions appear in bold the first time they are used in this Prudential Standard.

Operational Risk Charge
7.             The Operational Risk Charge:
(a)          for a statutory fund of a life company that is not a friendly society, is the amount of capital that the fund is required to hold for operational risk in accordance with this Prudential Standard;
(b)          for a benefit fund of a friendly society, is zero;
(c)          for the shareholders' fund of a life company that is not a friendly society, is zero; and
(d)          for the management fund of a friendly society, is the amount of capital that the friendly society is required to hold for operational risk in accordance with this Prudential Standard.
8.             The Operational Risk Charge is the minimum amount of capital required to be held against the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

Calculation of the Operational Risk Charge
9.             The Operational Risk Charge is calculated as the sum of:
(a)          the Operational Risk Charge for risk business (ORCR) defined in paragraph 11;
(b)          the Operational Risk Charge for investment-linked business (ORCI) defined in paragraph 14; and
(c)          the Operational Risk Charge for other business (ORCO) also defined in paragraph 14.
10.         For the purposes of paragraphs 11 to 16, 'accrued premium' includes all premiums for life policies with the exception of premiums that are sourced from benefits paid under another life policy issued by the life company. Accrued premium is calculated as follows:
where:
(a)          A = Premiums in advance at the end of the specified period - Premiums in advance at the start of the specified period;
(b)          B = Unpaid premiums at the end of the specified period – Unpaid premiums at the start of the specified period;
(c)          'premium' is defined as gross of commissions and before profit share rebates (group insurance). Premium must also be inclusive of stamp duty, policy fees, loadings and discounts; and
(d)          for the calculation of ORCI and ORCO, 'accrued premium' must also include deposits received.
11.         The ORCR is calculated as follows:
where:
(a)           is 2 per cent for a statutory fund