Document ID: chunk:federal_register_of_legislation:F2024L01523:body:0:p6
Version: federal_register_of_legislation:F2024L01523
Segment Type: other
Provision Reference: 
Character Range: 15204–18169

or of questionable value, should the fund or private health insurer encounter difficulties. A private health insurer is therefore required to make certain adjustments in determining the capital base. Details of these adjustments are specified in HPS 112.

Prudential Capital Requirement
 1.          This Prudential Standard establishes a risk-based approach for measuring the capital adequacy of a private health insurer or its funds. This required level of capital for regulatory purposes is referred to as the Prudential Capital Requirement (PCR). The PCR is intended to take account of the full range of risks to which a fund or private health insurer is exposed.
 2.          A private health insurer must ensure that the private health insurer and each of its funds have a capital base, at all times, in excess of its PCR.
 3.          The PCR of a fund equals:
         1.           a prescribed capital amount as determined by this Prudential Standard; and
         2.           any supervisory adjustment determined by APRA under paragraph 41.
 4.          The prescribed capital amount for a private health insurer is the sum of the prescribed capital amounts of each of its funds.
 5.          The prescribed capital amount for a health benefits fund of a private health insurer cannot be less than $5 million. There is no minimum prescribed capital amount applicable to the general fund. Where APRA approves an arrangement under section 33 of the Act and subparagraph 33(1)(b)(i) applies, the prescribed capital amount for the health benefits fund of the transferor insurer[1] immediately after the arrangement takes effect[2] is zero.
 6.          The PCR for a private health insurer is the sum of the PCRs of each of its funds (or such higher amount as determined by APRA under paragraph 41).

Prescribed Capital Amount
 1.          The prescribed capital amount is determined as:
         1.           the Insurance Risk Charge; plus
         2.           the Asset Risk Charge; plus
         3.           the Asset Concentration Risk Charge; plus
         4.           the Operational Risk Charge; less
         5.           an 'aggregation benefit' as defined in paragraph 32 to 34; less
         6.            tax benefits.
 2.          The prescribed capital amount is intended to be sufficient, such that if a fund was to start the year with a capital base equal to the prescribed capital amount, and losses occurred at the 99.5 per cent confidence level then the assets remaining would be at least sufficient to provide for the central estimate of insurance liabilities and other liabilities at the end of the year. The other liabilities to be provided for exclude those liabilities 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