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Insurance (prudential standard) determination

No. 7 of 2023

Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge

Insurance Act 1973

I, Helen Rowell, a delegate of APRA:

    (a)          under subsection 32(4) of the Insurance Act 1973 (the Act), revoke Insurance (prudential standard) determination No. 4 of 2022, including Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge, made under that Determination; and

    (b)          under subsection 32(1) of the Act determine Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge, in the form set out in the Schedule, which applies to:

        (i)                  all general insurers and authorised NOHCs; and

        (ii)                a subsidiary of a general insurer or authorised NOHC, where that subsidiary is a parent entity of a Level 2 insurance group.

This instrument commences on 1 July 2023.
Dated: 24 May 2023

[Signed]

Helen Rowell
Deputy Chair

Interpretation

In this instrument:

APRA means the Australian Prudential Regulation Authority.

authorised NOHC has the meaning given in section 3 of the Act.

general insurer has the meaning given in section 11 of the Act.

Level 2 insurance group has the meaning given in Prudential Standard GPS 001 Definitions.

parent entity has the meaning given in Prudential Standard GPS 001 Definitions.

subsidiary has the meaning given in Prudential Standard GPS 001 Definitions.

Schedule

Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge, comprises the document commencing on the following page.

Prudential Standard GPS 117

Capital Adequacy: Asset Concentration Risk Charge
Objectives and key requirements of this Prudential Standard
This Prudential Standard requires a general insurer or Level 2 insurance group to maintain adequate capital against the risks associated with asset concentration in its activities.
The ultimate responsibility for the prudent management of capital of a general insurer or Level 2 insurance group rests with its Board of directors. The Board must ensure that the general insurer or Level 2 insurance group maintains an adequate level and quality of capital commensurate with the scale, nature and complexity of its business and risk profile, such that it is able to meet its operations under a wide range of circumstances.
The Asset Concentration Risk Charge is the minimum amount of capital required to be held against asset concentration risks. The Asset Concentration Risk Charge relates to the risk of concentration in exposures to a particular asset, counterparty or group of related counterparties resulting in adverse movements in the general insurer's or Level 2 insurance group's capital base.
This Prudential Standard sets out the method for calculating the Asset Concentration Risk Charge. This charge is one of the components of the Standard Method for calculating the prescribed capital amount for general insurers and Level 2 insurance groups.

Table of Contents
Authority
Application and