Document ID: chunk:federal_register_of_legislation:F2024L00886:body:0:p2
Version: federal_register_of_legislation:F2024L00886
Segment Type: other
Provision Reference: 
Character Range: 2877–5870

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 October 2024.

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 is 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; and
(d)          the term 'insurance policy receivables' will be used to refer to premiums and other accounts receivable 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.
8.             Eligible Collateral Items are cash, government securities, or debt obligations (i.e. loans, deposits, placements, interest rate securities and other receivables) where the counterparty has a counterparty grade of 1, 2 or 3 and there is no currency mismatch between the collateral item and the asset.
9.             An affiliated entity of a life company is an overseas parent, an associated company, or a subsidiary company of the life company.

Asset Concentration Risk Charge
10.         This Prudential Standard sets out the method for calculating the Asset Concentration Risk Charge for a life company's statutory funds and its general fund.
11.         The method for calculating the Asset Risk Charge is set out in Prudential Standard LPS 114 Asset Risk Charge (LPS 114). It is calibrated for funds whose investments in each asset class are well diversified. Additional capital is therefore required if there are excessive concentrations of investments in individual assets or in exposures to single counterparties (or groups of related counterparties).
12.         The Asset Concentration Risk Charge is