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Health Insurance (prudential standard) determination No. 2 of 2024

Prudential Standard HPS 110 Capital Adequacy

Private Health Insurance (Prudential Supervision) Act 2015

I, Sean Carmody, a delegate of APRA:

     1.           under subsection 92(5) of the Private Health Insurance (Prudential Supervision) Act 2015 (the PHIPS Act) revoke Health Insurance (prudential standard) determination No. 2 of 2023, including Prudential Standard HPS 110 Capital Adequacy made under that Determination; and

     2.           under subsection 92(1) of the PHIPS Act determine Prudential Standard HPS 110 Capital Adequacy, in the form set out in the Schedule, which applies to all private health insurers.

This instrument commences on 1 January 2025.
Dated: 27 November 2024

Sean Carmody
Executive Director
Policy and Advice Division

Interpretation

In this instrument:

APRA means the Australian Prudential Regulation Authority.
private health insurer has the meaning given in section 4 of the PHIPS Act.

Schedule

Prudential Standard HPS 110 Capital Adequacy, comprises the document commencing on the following page.

Prudential Standard HPS 110

Capital Adequacy
Objectives and key requirements of this Prudential Standard
This Prudential Standard requires a private health insurer to maintain adequate capital against the risks associated with its activities.
The ultimate responsibility for the prudent management of capital of a private health insurer rests with its Board of directors. The Board must ensure that the private health insurer 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 key requirements of this Prudential Standard are that a private health insurer must:
     * have an Internal Capital Adequacy Assessment Process;
     * maintain required levels of capital within each of its funds and for the private health insurer;
     * determine each fund's prescribed capital amount having regard to a range of risk factors that may adversely impact the private health insurer's ability to meet its obligations. These factors include insurance risk, asset risk, asset concentration risk and operational risk;
     * comply with any supervisory adjustment to capital imposed by APRA;
     * make certain public disclosures about the capital adequacy position of each fund and the private health insurer;
     * seek APRA's consent for certain planned capital reductions of the private health insurer; and
     * inform APRA of any significant adverse changes in the capital position of the private health insurer as a whole or any of its funds.

Table of Contents
Authority...........................................................3
Application and commencement.......................................3
Interpretation........................................................3
Responsibility for capital management..................................3
Internal Capital Adequacy Assessment Process.........................3
Capital base........................................................6
Prudential Capital Requirement........................................7
Prescribed Capital Amount............................................8
Insurance Risk Charge...............................................8
Asset Risk Charge...................................................8
Asset Concentration Risk Charge......................................8
Operational Risk Charge.............................................9
Aggregation benefit..................................................9
Tax benefits........................................................9
APRA may adjust the Prescribed