Document ID: chunk:federal_register_of_legislation:F2023L00682:body:0:p7
Version: federal_register_of_legislation:F2023L00682
Segment Type: other
Provision Reference: 
Character Range: 17021–20018

the prescribed capital amount and losses occurred at the 99.5 per cent confidence level, then the assets remaining would be at least sufficient to provide for the central estimate of the insurance liabilities and other liabilities at the end of the year. The other liabilities to be provided for exclude those liabilities that satisfy the criteria for inclusion in the capital base.

Insurance Risk Charge
26.         The Insurance Risk Charge relates to the risk that the value of net insurance liabilities determined in accordance with Prudential Standard GPS 340 Insurance Liability Valuation (GPS 340) is insufficient to cover associated net claim payments and associated claim expenses as they fall due. The method for determining the Insurance Risk Charge is set out in Prudential Standard GPS 115 Capital Adequacy: Insurance Risk Charge.

Insurance Concentration Risk Charge
27.         The Insurance Concentration Risk Charge for a regulated institution represents the net financial impact on the regulated institution from either a single large event, or a series of smaller events, within a one year period. The determination of the Insurance Concentration Risk Charge is based on the formulae and requirements set out in Prudential Standard GPS 116 Capital Adequacy: Insurance Concentration Risk Charge (GPS 116). For lenders mortgage insurers, additional requirements for calculating the Insurance Concentration Risk Charge are also set out in GPS 116.

Asset Risk Charge
28.         The Asset Risk Charge relates to the risk of adverse movements in the value of a regulated institution's on-balance sheet and off-balance sheet exposures. The method for determining the Asset Risk Charge is set out in Prudential Standard GPS 114 Capital Adequacy: Asset Risk Charge (GPS 114). Asset risk can be derived from a number of sources, including market risk and credit risk. For the purposes of this Prudential Standard and GPS 114, assets and exposures must be valued in accordance with the relevant reporting standards made under the Financial Sector (Collection of Data) Act 2001 (Collection of Data Act).

Asset Concentration Risk Charge
29.         The Asset Concentration Risk Charge relates to the risk resulting from concentrations in individual assets or large exposures to individual counterparties or groups of related counterparties. The method for determining the Asset Concentration Risk Charge is set out in Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge.

Operational Risk Charge
30.         The Operational Risk Charge relates to the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The method for determining the Operational Risk Charge is set out in Prudential Standard GPS 118 Capital Adequacy: Operational Risk Charge.

Aggregation benefit
31.         The aggregation benefit makes an explicit allowance for diversification between asset risk and the sum of insurance risk and