Document ID: chunk:federal_register_of_legislation:F2023L00733:reg:7:p5
Version: federal_register_of_legislation:F2023L00733
Segment Type: reg
Provision Reference: reg 7 (pt 5/7)
Character Range: 36876–39684

other related entity, rather than on its own balance sheet. Where a private health insurer receives approval under paragraph 3 of this Attachment, the private health insurer will be able to determine its Asset Risk Charge based on the individual assets and liabilities of the related entity, rather than simply on the private health insurer's direct exposure to that entity. This treats the activities of the private health insurer and the related entity as comprising an Extended Licensed Entity (ELE).
2.             The extent to which the risk of a private health insurer's exposure to a related entity is commensurate with the underlying holdings of that entity, depends on the extent to which the private health insurer has control over, or is integrated with the entity, as well as on the existence of material third party liabilities of the entity. The private health insurer must consider any potential complications under a scenario where underlying asset holdings must be liquidated during financial stress.
3.             Subject to the specific requirements set out in paragraph 4 of this Attachment, a private health insurer may apply to APRA to have one or more related entities approved as part of its ELE. Once approved, APRA will allow the private health insurer to 'look-through' the legal structures involved, and to 'consolidate' the balance sheet of the related entity with its own, for the purpose of determining the Asset Risk Charge. In effect, this allows the private health insurer to treat its own balance sheet and that of the approved related entity as a single entity for the purpose of calculating the Asset Risk Charge.
4.             In deciding whether to approve an entity as part of a private health insurer's ELE, APRA will have regard to the following criteria in respect of the relationship between the private health insurer and the related entity:
(a)          the related entity must be wholly owned and controlled by the private health insurer, with a Board of directors/trustees that is comprised entirely of members of the private health insurer's Board or senior management;
(b)          the private health insurer must demonstrate to APRA that there are no legal or regulatory barriers (e.g. restrictions imposed by law or a regulator in a foreign jurisdiction) to the transfer of the assets back to the private health insurer;
(c)          the private health insurer's risk management systems and controls must apply fully to the operations of the related entity. The senior management of the private health insurer must be in a position to monitor the operations of the related entity to the same extent as the operations of the private health insurer itself. Systems for monitoring and maintaining control over the related entity must be included within the