Document ID: chunk:federal_register_of_legislation:F2023L00676:reg:7:p2
Version: federal_register_of_legislation:F2023L00676
Segment Type: reg
Provision Reference: reg 7 (pt 2/5)
Character Range: 31196–34029

0.2
INF   0.2  1    0.2  0.4  0.4   0.2
CUR   0.2  0.2  1    0.6  0.2   0.4
EQY   0.2  0.4  0.6  1    0.4   0.8
PROP  0.2  0.4  0.2  0.4  1     0.4
CSP   0.2  0.2  0.4  0.8  0.4   1

84.         The real interest rates, expected inflation and currency stresses apply in two directions. The aggregation needs to be performed twice for each of these stresses if both stresses produce a non-zero risk charge component, with the larger of the aggregates chosen. If two of the bidirectional stresses have a non-zero risk charge component for stresses in both directions, the aggregation will need to be performed four times – once for each combination of stresses. If all three of the bidirectional stresses have a non-zero risk charge component for stresses in both directions, the aggregation will need to be performed eight times.

Adjustments and exclusions
85.         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.

Previous exercise of discretion
86.         A life company must contact APRA if it seeks to place reliance, for the purposes of complying with this Prudential Standard, on a previous exemption or other exercise of discretion made by APRA under a previous version of this Prudential Standard.

Attachment A - Off-balance sheet exposures
     1. A fund may be exposed to various asset risks through transactions or dealings other than those reflected on its balance sheet.
2.             The principle of considering the effective exposure of the fund to asset risks must be applied to any off-balance sheet exposures of the fund. Changes to the capital base arising from off-balance sheet exposures must be recognised in each of the asset risk stresses.
3.             As a general rule, a life company must not be exposed to a counterparty for an unlimited amount and any exposure must be for a finite period. An exception to this rule is where a potential credit exposure results from reinsurance of an insurance contract that is required by law to be unlimited. Before a life company does enter into an arrangement with a counterparty that does not have appropriate limits, it must:
(a)          notify APRA;
(b)          explain how this arrangement complies with its Risk Management Strategy; and
(c)          explain how it will be valued for the purposes of capital adequacy calculations.
    Such an exposure may cause APRA to apply a supervisory adjustment in accordance with LPS 110.

Direct credit substitutes
4.             To the extent that a life company has issued instruments of the following kind:
(a)          guarantees (including written put options serving as guarantees); or
(b)          letters of credit; or
(c)          any other credit substitute (other than insurance) in favour of