Document ID: chunk:federal_register_of_legislation:F2023L00676:front:0:p4
Version: federal_register_of_legislation:F2023L00676
Segment Type: other
Provision Reference: 
Character Range: 8031–10967

the tax benefits cannot be offset against deferred tax liabilities. This adjustment is specified in Prudential Standard LPS 110 Capital Adequacy (LPS 110).

Assets and liabilities to be stressed
15.         In determining each risk charge component, a life company must include the effective exposure of the fund's assets and liabilities to each of the risks if the exposure is impacted by the stress test. Insurance policy receivables and payables included in the liability adjustment calculation (gross of any tax effects) must also be considered. Some assets and liabilities may have effective exposures to multiple risks.
16.         Investment income receivables must be included with the asset that generated the income and then subject to the appropriate stress tests.
17.         Changes to asset values may affect the valuation of policy liabilities where policies include discretionary participation features. The amount of other assets and liabilities, such as tax assets and tax liabilities, may also be indirectly affected by the prescribed stresses.
18.         The following assets and liabilities must not be stressed:
(a)          assets whose value must be deducted from the capital base in Prudential Standard LPS 112 Capital Adequacy: Measurement of Capital (LPS 112) (e.g. goodwill in subsidiaries); and
(b)          any part of assets in excess of the asset concentration limits specified in Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge (LPS 117).
19.         In addition to paragraph 18, a life company that is an employer sponsor of a defined benefit superannuation fund does not need to reassess any deficit in the fund as a result of the seven stress tests, unless the life company has provided a guarantee in relation to the benefits.
20.         The stress tests must be applied to the fair value of each of the life company's assets. A life company may measure its non-financial assets, short term receivables and intercompany receivables and payables using the requirements in Australian Accounting Standards rather than fair value.[4]

Off-balance sheet exposures
21.         A fund may be exposed to various asset risks through transactions or dealings other than those reflected on its balance sheet. Each of the stress tests must include any changes to the fund's on-balance sheet assets and liabilities that would result from application of the stresses to the fund's off-balance sheet exposures. A life company must use effective exposure for any off-balance sheet exposures of the fund. Detailed information on the treatment of off-balance sheet exposures is set out in Attachment A.

Collateral and guarantees
22.         The impact of applying the asset risk stresses may be reduced where the life company holds certain types of collateral against an asset, or where the asset has been guaranteed. Collateral held against an asset may be considered in place of the