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Life Insurance (prudential standard) determination
No. 2 of 2023

Prudential Standard LPS 115 Capital Adequacy: Insurance Risk Charge

Life Insurance Act 1995

I, Clare Gibney, a delegate of APRA:

    (a)          under subsection 230A(5) of the Life Insurance Act (the Act) revoke Life Insurance (prudential standard) determination No. 5 of 2012, including Prudential Standard LPS 115 Capital Adequacy: Insurance Risk Charge made under that Determination; and

(b)          under subsection 230A(1) of the Act, determine Prudential Standard LPS 115 Capital Adequacy: Insurance Risk Charge, in the form set out in the Schedule, which applies to all life companies, including friendly societies.

This instrument commences on 29 March 2023.

Dated: 7 March 2023

Clare Gibney
Executive Director
Policy and Advice Division

Interpretation

In this instrument:

APRA means the Australian Prudential Regulation Authority.
friendly society has the meaning given in section 16C of the Act.
life company has the meaning given in the Schedule to the Act.

Schedule

Prudential Standard LPS 115 Capital Adequacy: Insurance Risk Charge comprises the document commencing on the following page.

Prudential Standard LPS 115

Capital Adequacy: Insurance Risk Charge

Objective and key requirements of this Prudential Standard

This Prudential Standard requires a life company to maintain adequate capital against the insurance risks associated with its activities.

The ultimate responsibility for the prudent management of capital of a life company rests with its Board of directors. The Board must ensure that the life company 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 obligations under a wide range of circumstances.

The Insurance Risk Charge is the minimum amount of capital required to be held against insurance risks. The Insurance Risk Charge relates to the risk of adverse impacts due to movements in future mortality, morbidity, longevity, servicing expenses and lapses.
This Prudential Standard sets out the method for calculating the Insurance Risk Charge. This charge is one of the components of the Standard Method for calculating the prescribed capital amount for life company statutory funds and general funds.

Authority
     1. This Prudential Standard is made under paragraph 230A(1)(a) of the Life Insurance Act 1995 (the Act).

Application
2.             This Prudential Standard applies to all life companies including friendly societies (together referred to as life companies) registered under the Act[1], except where expressly noted otherwise.
3.             A life company must apply this Prudential Standard separately:
       (a)          for a life company other than a friendly society: to each of its statutory funds; and

       (b)          for a friendly society: to each of its approved benefit funds and its management fund.

4.             This Prudential Standard only applies to the business of an Eligible Foreign