Document ID: chunk:federal_register_of_legislation:F2024L00886:body:0:p6
Version: federal_register_of_legislation:F2024L00886
Segment Type: other
Provision Reference: 
Character Range: 13783–16699

of bank bills, bank deposits, bank guarantees, letters of credit issued by a bank, bank bonds or Negotiable Certificates of Deposit (NCDs) issued by a bank, bank for this purpose means:
(a)          an authorised deposit-taking institution (ADI); and
(b)          in the case of overseas business, a bank in the same country as that in which the business is written, provided that country has capital requirements in respect of banking business comparable to those determined under the Banking Act 1959.
26.         The value of an asset can be offset by deferred tax provisions or other liabilities related to the asset, if those provisions/liabilities would be realised if the asset was sold.
27.         The value of an asset can be reduced by any amounts that have been treated as deductions from the capital base, as determined under Prudential Standard LPS 112 Capital Adequacy: Measurement of Capital.

Netting of reinsurance exposures
28.         Subject to paragraphs 29 and 30, assets and liabilities arising from arrangements with a reinsurer may be netted (i.e. taken as a single net exposure) to the extent they are subject to a legally enforceable right of offset in circumstances including the default, liquidation, bankruptcy or winding-up of the life company, the reinsurer or both.
29.         Where a life company has entered into deferred premiums, deposit backs and funds withheld arrangements:
(a)          it must set aside assets equal in value to its liabilities to the reinsurer under each arrangement;
(b)          the assets must either be held in a custody account established for this purpose or be otherwise identifiable in the books and records of the life company as comprising assets of the statutory fund in respect of which the arrangement applies;
(c)          under the terms of the reinsurance contract, assets held in support of such arrangements must be available to satisfy the reinsurer's obligations under the relevant reinsurance contract(s) in the event the reinsurer fails to meet its obligations under the relevant reinsurance contract(s); and
(d)          the arrangement should also specify the investment policies and governance arrangements that are to apply in managing the assets set aside under each arrangement and set out whether the arrangement is to be for a set period or until such time as liabilities under the relevant reinsurance contracts have been extinguished.
30.         The life company's Internal Capital Adequacy Assessment Process (ICAAP) must include systems and controls for monitoring roll-off risk. Roll-off risk is the risk of a sudden material increase in net exposures if short-term liabilities are no longer available to offset longer-term assets.

Treatment of collateral and guarantees as risk mitigants
31.         A fund that holds certain types of collateral against an asset, or where the asset has been guaranteed, as a means of