Document ID: chunk:federal_register_of_legislation:F2023L00686:body:0:p2
Version: federal_register_of_legislation:F2023L00686
Segment Type: other
Provision Reference: 
Character Range: 2746–5768

Method for calculating the prescribed capital amount for general insurers and Level 2 insurance groups.

Table of Contents
Authority
Application and commencement
Interpretation
Insurance Risk Charge
Premiums Liability Risk
Classes of business
Business covering multiple classes
Material net written premium
Securitisation
Adjustments and exclusions
Previous exercise of discretion
Attachment A

Authority
     1. This Prudential Standard is made under section 32 of the Insurance Act 1973 (the Act).

Application and commencement

2.             This Prudential Standard applies to each:

       (a)          general insurer authorised under the Act (insurer); and

       (b)          Level 2 insurance group as defined in Prudential Standard GPS 001 Definitions (GPS 001).

    Where a requirement is made in respect of a Level 2 insurance group, the requirement is imposed on the parent entity of the Level 2 insurance group.

3.             This Prudential Standard applies to insurers and Level 2 insurance groups (regulated institutions) from 1 July 2023.

Interpretation
4.             Terms that are defined in GPS 001 appear in bold the first time they are used in this Prudential Standard.
5.             For the purposes of this Prudential Standard the term 'Actuary' is a reference to either the Appointed Actuary for an insurer or the Group Actuary for a Level 2 insurance group (as appropriate).

Insurance Risk Charge

6.             This Prudential Standard sets out the method for calculating the Insurance Risk Charge for a regulated institution using the Standard Method to determine its prescribed capital amount.

7.             The Insurance Risk Charge relates to the risk that the value of net insurance liabilities is greater than the value determined in accordance with Prudential Standard GPS 340 Insurance Liability Valuation (GPS 340). It has two components:

       (a)          a risk charge in respect of Outstanding Claims Risk; and

       (b)          a risk charge in respect of Premiums Liability Risk.

   The total Insurance Risk Charge is the sum of the risk charge for each of the two components.

Outstanding Claims Risk
8.             The risk charge for Outstanding Claims Risk relates to the risk that the value of the net outstanding claims liabilities will be greater than the value determined in accordance with GPS 340.
9.             For the purposes of the Standard Method, the risk charge for each class of business is calculated by multiplying the net outstanding claims liabilities for that class (as determined in accordance with GPS 340) by the relevant Outstanding Claims Risk Capital Factor in Attachment A. The total risk charge for outstanding claims risk is the sum of the risk charges for each class of business.

Premiums Liability Risk
10.         The risk charge for Premiums Liability Risk relates to the risk that the value of the net premiums liabilities will be greater than the value determined in accordance with GPS 340. It also relates