Document ID: chunk:federal_register_of_legislation:F2023L00673:body:0:p6
Version: federal_register_of_legislation:F2023L00673
Segment Type: other
Provision Reference: 
Character Range: 13515–16450

to meet the required level of capital for regulatory purposes.
21.         A fund or life company's balance sheet may contain certain assets (such as deferred tax assets, goodwill and other intangibles) that are acceptable from an accounting perspective. However, for supervisory purposes, such assets are either generally not available, or of questionable value, should the fund or life company encounter difficulties. Similarly, the policy liabilities on the balance sheet may reflect allowance for future transactions (such as future premium income) that it is not appropriate to recognise for supervisory purposes. A life company is therefore required to make certain adjustments in determining the capital base. Details of these adjustments are specified in LPS 112.

Prudential Capital Requirement
22.         This Prudential Standard establishes a risk-based approach for measuring the capital adequacy of a fund or a life company. This required level of capital for regulatory purposes is referred to as the Prudential Capital Requirement (PCR). The PCR is intended to take account of the full range of risks to which a fund or life company is exposed.
23.         A life company must ensure that the life company and each of its funds have a capital base, at all times, in excess of its PCR.
24.         The PCR for a fund equals:
(a)          a prescribed capital amount determined by applying the 'Standard Method' set out in this Prudential Standard; plus
(b)          any supervisory adjustment determined by APRA under paragraph 43.
25.         The prescribed capital amount for a life company is the sum of the prescribed capital amounts of each of its funds. Regardless of the outcome of the method used for determining the prescribed capital amount, a life company's prescribed capital amount cannot be less than $10 million.
26.         The prescribed capital amount for a statutory fund with liabilities for variable annuity business must be calculated in accordance with Attachment A.
27.         A life company intending to issue variable annuities must, before it issues these policies, obtain approval from APRA of the method to be used for calculating the prescribed capital amount for the statutory fund issuing these variable annuities.
28.         The PCR for a life company is the sum of the PCRs of each of its funds (or such higher amount as determined by APRA under paragraph 43).

Standard Method
29.         The prescribed capital amount for a fund is determined as:
(a)          the Insurance Risk Charge; plus
(b)          the Asset Risk Charge; plus
(c)          the Asset Concentration Risk Charge; plus
(d)          the Operational Risk Charge; less
(e)          an 'aggregation benefit' as defined in paragraph 36; plus
(f)           a combined stress scenario adjustment.
30.         The prescribed capital amount of a fund determined under the Standard Method is intended to be sufficient, such