Document ID: chunk:federal_register_of_legislation:F2023L00682:body:0:p8
Version: federal_register_of_legislation:F2023L00682
Segment Type: other
Provision Reference: 
Character Range: 19736–22778

determining the Operational Risk Charge is set out in Prudential Standard GPS 118 Capital Adequacy: Operational Risk Charge.

Aggregation benefit
31.         The aggregation benefit makes an explicit allowance for diversification between asset risk and the sum of insurance risk and insurance concentration risk in the calculation of the prescribed capital amount.
32.         The aggregation benefit formula is:

    where:
       (a)          'A' is the Asset Risk Charge;
       (b)          'I' is the sum of the Insurance Risk Charge and Insurance Concentration Risk Charge; and
       (c)          'correlation' is:
           (i)            20 per cent for all insurers except lenders mortgage insurers;
           (ii)         50 per cent for lenders mortgage insurers; or
           (iii)       the weighted average of the factors in sub-paragraphs (i) and (ii) for Level 2 insurance groups. The weighting of the factors must be by the size of the insurance risk charges for the non-lenders mortgage insurance and lenders mortgage insurance business, respectively.
33.         The Asset Concentration Risk Charge and the Operational Risk Charge are not included in the calculation of the aggregation benefit.

APRA may adjust the Standard Method for calculating the prescribed capital amount
34.         If APRA is of the view that the Standard Method for calculating the prescribed capital amount does not produce an appropriate outcome in respect of a regulated institution, or a regulated institution has used inappropriate judgement or estimation in calculating the prescribed capital amount, APRA may, in writing, adjust any aspect of the prescribed capital amount calculation for that regulated institution. If such an adjustment is applied to a regulated institution under this paragraph, the regulated institution must comply with the adjusted calculation.

Supervisory adjustment
35.         APRA recognises that any measure of the adequacy of a regulated institution's capital involves judgement and estimation, including quantification of risks that may be difficult to quantify. If APRA is of the view that there are prudential reasons for doing so, APRA may, in writing, determine a supervisory adjustment to be included in the PCR of the regulated institution.

Category C insurers

36.         By the nature of its Australian balance sheet, a Category C insurer will not typically have capital instruments of the type specified in GPS 112. Category C insurers are nevertheless required to meet a variant of the PCR. Specifically, Category C insurers are required to maintain assets in Australia[4] that exceed their liabilities in Australia (adjusted for any surplus or deficit of technical provisions as required by GPS 340) (adjusted net assets in Australia) by an amount that is greater than the PCR determined by this Prudential Standard.
37.         The Category C insurer must ensure that, at all times, 120 per cent of the net assets in Australia of the Category C insurer is greater than the PCR determined by