Document ID: chunk:federal_register_of_legislation:F2024L00886:body:0:p1
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Life Insurance (prudential standard) determination

No. 2 of 2024

Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge

Life Insurance Act 1995

I, Clare Gibney, a delegate of APRA:

    (a)          under subsection 230A(5) of the Life Insurance Act 1995 (the Act) REVOKE Life Insurance (prudential standard) determination No. 9 of 2023, including Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge made under that determination; and

    (b)          under subsection 230A(1) of the Act DETERMINE Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge, which applies to all life companies, including friendly societies.

This instrument commences on 1 October 2024.
Dated: 9 July 2024

Clare Gibney
Executive Director
Policy and Advice Division

Interpretation

In this instrument:

APRA means the Australian Prudential Regulation Authority.

friendly society has the meaning given in section 16C of the Act.

life company has the meaning given in the Schedule to the Act.

Schedule

Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge, comprises the document commencing on the following page.

Prudential Standard LPS 117

Capital Adequacy: Asset Concentration Risk Charge
Objectives and key requirements of this Prudential Standard
This Prudential Standard requires a life company to maintain adequate capital against the asset concentration risks associated with its activities.
The ultimate responsibility for the prudent management of capital of a life company rests with its board of directors. The board must ensure that the life company maintains an adequate level and quality of capital commensurate with the scale, nature and complexity of its business and risk profile, such that it is able to meet its obligations under a wide range of circumstances.
The Asset Concentration Risk Charge is the minimum amount of capital required to be held against asset concentration risks. The Asset Concentration Risk Charge relates to the risk of a life company's concentration in particular assets resulting in adverse movements in the life company's capital base.
This Prudential Standard sets out the method for calculating the Asset Concentration Risk Charge. This charge is one of the components of the Standard Method for calculating the prescribed capital amount for life company statutory funds and general funds.

Table of Contents
Authority
Application and commencement
Interpretation
Asset Concentration Risk Charge
Netting of reinsurance exposures
Treatment of collateral and guarantees as risk mitigants
Specialist reinsurers
Adjustments and exclusions
Reliance on previous exercises of discretion
Transition
Attachment A - Asset exposure limits

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