Document ID: chunk:federal_register_of_legislation:F2023L00676:front:0:p2
Version: federal_register_of_legislation:F2023L00676
Segment Type: other
Provision Reference: 
Character Range: 2779–5729

B - Extended Licensed Entity

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

Application and commencement
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 its shareholders' fund; 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 Life Insurance Company which is carried on through its Australian statutory funds but not otherwise.[2]
5.             This Prudential Standard applies to life companies from 1 July 2023.

Interpretation
6.             Terms that are defined in Prudential Standard LPS 001 Definitions appear in bold the first time they are used in this Prudential Standard.
7.             Unless otherwise indicated:
(a)          the term statutory fund will be used to refer to a statutory fund of a life company other than a friendly society, or an approved benefit fund of a friendly society, as relevant;
(b)          the term general fund will be used to refer to the shareholders' fund of a life company other than a friendly society, or the management fund of a friendly society, as relevant;
(c)          the term 'fund' will be used to refer to a statutory fund or a general fund, as relevant;
(d)          the term 'insurance policy receivables' will be used to refer to premiums and other accounts receivable including loans on policies that have been recognised within the net life contract liabilities derived from the insurance and reinsurance contract liabilities and assets reported on the balance sheet under AASB 17 Insurance Contracts (AASB 17); and
(e)          the term 'insurance policy payables' will be used to refer to claims and other accounts payable that have been recognised within the net life contract liabilities derived from the insurance and reinsurance contract liabilities and assets reported on the balance sheet under AASB 17.[3]

Asset Risk Charge
8.             This Prudential Standard sets out the method for calculating the Asset Risk Charge for each statutory fund of a life company and its general fund.
9.             The Asset Risk Charge relates to the risk of an adverse movement in a fund's capital base due to credit or market risks. Both assets and liabilities may be affected. Insurance policy receivables and payables may be affected. Off-balance sheet exposures may also be affected.

Asset Risk Charge calculation
10.         The Asset Risk Charge for a fund is calculated as the 'aggregated risk charge component' determined